Smith & Nephew has followed its orthopaedic rival Stryker into the robotic surgery market with the acquisition of Blue Belt Technologies for $275m. The UK company believes that it has the edge over Stryker, helped by the low cost and portability of Blue Belt’s flagship Navio system, which is used in orthopaedic procedures such as knee replacement.
S&N forecasts 50% growth in Blue Belt sales in the medium term – from an admittedly low 2015 base of $19m. But the expensive-looking deal could in fact be a good move if S&N can avoid the setbacks that have hit Stryker’s acquisition of Mako Surgical.
Chief executive Olivier Bohuon believes a little short-term pain in the form of a “slight dilution” of earnings is worth the long-term gain. “I’m thinking about 2020, I’m not thinking about today,” he said on a call with analysts. “I didn’t want to be the last one jumping into this.”
Growth will partly be driven by S&N’s international presence, which will help it expand Blue Belt sales outside the US, Mr Bohuon said. The two companies are already partners but ex-US opportunities were not developed under the previous agreement, he added.
Further into the future there should be new cross-selling opportunities. Navio is already combined with S&N’s Journey Uni and Zuk partial knee implants – the latter was recently acquired from Zimmer – but in 2017 it should get the go-ahead for use with the Journey II total knee, and use in revision knee surgery and bi-cruciate-retaining knee arthroplasty is also on the horizon.
And while knee surgery is the focus for now, S&N could later combine Navio with its hip implants and sports medicines products.
Rise of the robots
Although investors did not seem keen as shares fell 5% yesterday, S&N’s sales reps have been saying a robotic surgery offering is a “must have” for some time, Mr Bohuon said.
And some on the call wondered why the company had not moved for Blue Belt sooner – particularly as it reduces S&N’s exposure to the increasingly commoditised orthopaedic implant market and gives it a more systems-based approach.
“While surgeons don’t need the high number of different implants ... there is a need for guided surgery to improve outcome data,” wrote Jefferies’ Martin Brunninger. He believes that Blue Belt adds significant value and brings S&N into line with “more advanced peers” like Stryker and Zimmer-Biomet.
But Stryker’s Mako buy should provide a cautionary tale – it spent $1.65bn on the company but integration has been challenging and sales have not lived up to expectations so far (Stryker takes a stride into the future with $1.65bn Mako buy, September 26, 2013). Things seem to be looking up with a strong third quarter in which Stryker placed 17 Mako systems, from 13 in the three months.
Low cost and portable
S&N is pushing the benefits of Blue Belt’s Navio – in particular, its low cost could help it in the current cash-constrained times. The system has a list price of $445,000, less than half that of Mako’s system, said Mr Bohuon. Its portable nature is also a plus, according to S&N.
However, Stryker's chief executive, Kevin Lobo, said during the company’s quarterly call that he did not see Blue Belt as a fully robotic solution, adding: “It’s an enhanced navigation system. We really believe we're alone in the purely true robotic space... We're really not concerned with the competition.”
In addition, Stryker is ahead: it got FDA clearance in August for its Mako total knee application, and already has the go-ahead for partial knee and total hip applications.
S&N has made a bet on the long-term potential of robotic orthopaedic surgery – but it has some stiff competition in the space. Let the robot wars commence.