In an attempt to expand its global advanced wound care
Smith & Nephew
), an international medical device major operating in the
orthopedic reconstruction and trauma, endoscopy and advanced
wound management market, recently entered into an agreement to
acquire, Healthpoint Biotherapeutics for $782 million in cash.
The transaction, which is subject to certain regulatory
approvals, is expected to complete in December this year.
Texas-based Healthpoint has been working successfully in
acute, chronic, and burn-related wound care management for the
past few years, and is currently a big name among the
biopharmaceutical companies. The company's Collagenase Santyl
ointment is animportant
in the commercial platform. Besides, the company developed an
advanced cell therapy, HP802-247, that completed a successful
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 position in bioactives, the fastest
growing area of advanced wound management. According to the
company, this is 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 oppurtunities 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 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 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 retains a strong cash position for
the past several quarters. The company exited the third quarter
with 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 year-ago ratio of 102%.
However, the competitive scenario remains intense with Smith
& Nephew facing 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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