Would Stryker Be Better Off Buying Conformis?

Conformis Inc. (NASDAQ: CFMS) shares shot up on Tuesday after the firm announced that it has entered into definitive agreements to sell and license to Stryker Corp. (NYSE: SYK | SYK Price Prediction) to develop, manufacture and supply PSI for use in connection with Stryker’s knee implant offerings.

Under the terms of the agreements, Conformis will receive $14 million upfront and up to an additional $16 million in milestone payments for selling, licensing and developing part of its intellectual property portfolio to Stryker.

Ultimately, Stryker is looking to design, manufacture and commercialize PSI for use in Stryker’s knee implant offerings, including the market-leading Triathlon Total Knee System. Conformis has also entered into a long-term distribution agreement with Stryker, under which Conformis will supply PSI to Stryker.

Mark Augusti, president and CEO of Conformis, commented:

Innovations in healthcare are being driven by advancements in personalized medicine. Conformis is excited to partner with Stryker—a leader in orthopaedic surgical innovation—to further expand CT-based solutions to the market. Such solutions are the future of healthcare, enabling surgeons to provide personalized care based on a patient’s unique anatomy.

Some might question why Stryker did not outright buy Conformis, considering it has a market cap of roughly $80 billion and Conformis only had a market cap of about $127 million prior to the announcement. One possible explanation could be that Conformis is overvalued, considering how its stock has exploded in 2019.

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Excluding Tuesday’s move, Conformis had vastly outperformed the broad markets, with its stock up 420% year to date. However, in the past 52 weeks the stock was only up 71%.

Shares of Stryker traded down about 1% Tuesday to $213.74, in a 52-week range of $144.75 to $223.45. The consensus price target is $227.31.

Conformis traded up 20% to $2.24 per share. The 52-week range is $0.35 to $4.83, and the consensus price target is $4.13.

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