Smith & Nephew buys Osiris and insists it has appetite for more

The UK ortho and woundcare group might yet pounce on Nuvasive.

Deals

Smith & Nephew has opted not to buy the spine-focused company Nuvasive – or at least, not yet – instead picking up the stem cell group Osiris Therapeutics for $660m. Still, as S&N’s chief executive Namal Nawana has repeatedly pointed out, the deal will not slow the group down in its stated aim of making more, and potentially bigger, purchases.

Osiris’s revenues are not earth-shattering, at a forecast $130m for 2018, but its products are growing fast – a 10% forecast annual growth rate is nothing to sneeze at considering S&N’s overall annual growth forecasts come in at only 4%.

Cell mates

Osiris is perhaps still best known for developing the graft-vs-host disease treatment Prochymal, the world’s first approved stem cell-based therapy. The product was a commercial disappointment, however, and was sold to Mesoblast in 2013.

Osiris’s main products these days are Grafix and Stravix, forms of cryopreserved placental membrane used as a skin substitute and a surgical wrap respectively; between them they accounted for 70% of the group’s $102m revenues in the first nine months of 2018. S&N has a chequered history with skin graft technologies: in 2005 it abandoned Dermagraft, a tissue engineered skin graft for leg ulcers, after the FDA refused to approve it.

It has also had trouble here more recently. Reporting its first quarter results in May last year, S&N said that revenues from its advanced wound bioactives segment had declined by 12% from the same period in 2017, thanks to pricing pressures and reimbursement changes. In Q2 and Q3 they were down 6% and 7% year-on-year, respectively. 

The advanced wound bioactives business brought in $227m in the first nine months of 2018, so the addition of the fast-growing Osiris products will alter this unit’s performance meaningfully. 

Osiris Therapeutics' products
    Annual WW sales ($m)  
Product Indications 2018e 2020e 2022e 2024e CAGR
Grafix/
GrafixPL Prime/
Stravix
Skin wounds/diabetic foot ulcers/venous ulcers 94 114 137 166 +10%
BIO4 Bone repair & regeneration 27 32 39 47 +10%
Cartiform Other musculoskeletal disorders 10 12 14 18 +10%
Source: EvaluatePharma.

Deals, deals, deals

The Osiris buy will also require some careful moves around the target’s partnerships. Osiris has two distribution agreements dating from 2014: one with Arthrex for Osiris’s cartilage mesh Cartiform, and another with Stryker covering the bone graft BIO4. S&N management said they intended to honour these pacts even though they are with rivals.

On a conference call yesterday Mr Nawana emphatically denied that the Osiris acquisition would limit S&N’s ability to pursue further transactions. “This is a solid deal for us – we’re happy,” he said. “[But] we have a lot more in our view going forward.”

He was telling the truth: later the same day the company announced it was buying the orthopaedic joint reconstruction business of Brainlab. No financial details were disclosed but the technologies, which focus on workflow software for pre-operative planning, for example, will mesh well with S&N’s current orthopaedic offering.

Brainlab’s orthopaedic salesforce will be integrated into S&N’s robotics commercial organisation, boosting this business. S&N’s next-generation surgical robotics platform is expected to be complete in late 2019, the group said separately, with full commercial release in 2020.

As for the rumoured Nuvasive deal, shares in that group fell 6% yesterday with some investors clearly believing that the Osiris buy displaced the acquisition reportedly in the works earlier this year (Smith & Nephew mulls new direction with Nuvasive, February 11, 2019). On S&N's current form, it might be unwise to write the Nuvasive deal off.

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