As expected, international medical device major,
Smith & Nephew plc
) recently completed the acquisition of Texas-based Healthpoint
Biotherapeutics for $782 million in cash. The deal was initiated
in the last week of November 2012. This acquisition is a part of
its strategy to expand further in the advanced wound management
market in which the company is already growing above the market
For the past few years, Healthpoint has been working
successfully in acute, chronic, and burn-related wound care
management and is currently a big name among the
biopharmaceutical companies. The company's Collagenase Santyl
ointment is an important contributor to growth in the commercial
platform. Besides, the company developed an advanced cell
therapy, HP802-247, which successfully completed the phase 2b
study in 2011. In September 2012, the North American phase 3
trial for the same was initiated.
Smith & Nephew considers this acquisition as an important
step toward creating a strong portfolio in bioactives, the
fastest growing area of advanced wound management. According
to the company, this will be possible by bringing material
revenues from a fast growing product range, an attractive
pipeline and the commercial and R&D capabilities of
Healthpoint, thereby providing Smith & Nephew with new growth
opportunities for the next decade and beyond.
The Advanced Wound Management segment supplies a range of
products and clinical support services for the treatment of
chronic and acute skin wounds. Earlier, with the acquisition of
BlueSky, Smith & Nephew had gained access to a series of
products that treat chronic wounds, such as diabetic ulcers,
post-operative, and hard-to-heal wounds using Negative Pressure
Wound Therapy ("NPWT") and a range of negative pressure pumps and
wound dressing kits.
At the end of the third quarter of fiscal 2012, the company's
Advanced Wound Management (AWM) revenue stood at $254 million
(contributing 27% to its total revenues), up 4% year over year.
Amid the tough economic conditions in the U.S. and Europe, this
4% increase in revenue was encouraging. Industry-wide growth in
the U.S. and Europe was 2%.
Besides, we expect this acquisition to perfectly fit with its
new strategic framework with five priorities to drive growth in
the forthcoming period. This framework includes focus on
established markets, growth in emerging markets, innovation,
simplification of the operating model and supplementing organic
growth through acquisitions. Despite several headwinds, Smith
& Nephew aims to improve its performance going forward on the
back of a strong product pipeline and higher acquisition related
investments. The company expects to achieve above market growth
in Advanced Wound Management in the upcoming quarters.
Notably, Smith & Nephew has maintained a strong cash
position over the past several quarters
The company exited the third quarterwith cash and cash
equivalents of $417 million, considerably higher than $265
million in the year-ago quarter.Trading cash flow (defined as
cash generated from operations less capital expenditure but
before acquisition related costs and restructuring and
rationalization costs) was $264 million in the quarter,
reflecting a trading profit to cash conversion ratio of 128%
compared with the year-ago ratio of 102%.
However, the competitive landscape remains intense as Smith
& Nephew faces stiff competition from larger players like
Johnson & Johnson
) DePuy and
). We have a 'Neutral' recommendation on Smith & Nephew. The
stock retains a Zacks #3 Rank (Hold) in the short term.
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