Medical Device Daily Associate

Smith & Nephew (S&N; London) confirmed that it has held “very preliminary talks” about a possible merger with the orthopedic company Biomet (Warsaw, Indiana). The medical device giant made its announcement after the Financial Times reported that the two companies were discussing a deal aimed at creating an orthopaedic specialist worth up to $20 billion and capable of competing against the U.S. sector leadersZimmer (Warsaw, Indiana) and Stryker (Kalamazoo, Michigan).

“Smith & Nephew is constantly looking at opportunities to maximize shareholder value, including looking at potential strategic acquisitions. In response to recent press speculation, the company can confirm that it has held very preliminary talks with the U.S. medical devices company, Biomet,” Smith & Nephew said in a press release. The companies have not yet reached an agreement.

As Biomet loses market share to rivals in a competitive market, the medical device maker had reported in April that Morgan Stanley & Co. is helping it explore ways to improve its shareholder value.

In a statement of its own, Biomet said it “continues to assess all of its strategic alternatives.” It added that while Biomet has had a preliminary discussion with S&N “it has not made a determination that it is in Biomet’s best interests for it to engage in a transaction with any third party.”

“Biomet is focused on implementing its strategic plan for growth and expansion,” said Biomet’s Interim President/CEO Daniel Hann.

Biomet also said that it does not expect to disclose developments with respect to its exploration of strategic alternatives unless required.

Robin Young, a medical device industry analyst in Wayne, Pennsylvania, who puts out a publication called Orthopedics This Week, said he “wouldn’t bet against” the combination.

He noted that S&N’s CEO, Christopher O’Donnell has “never lost sight of his desire to build scale in the global orthopedics market.” And his interest may be whetted by the company’s failed attempt to acquire Centerpulse (Zurich, Switzerland) back in 2003. Rival bidder Zimmer trumped its $2.35 billion bid to buy Centerpulse with a $3.21 billion offer of its own (Medical Device Daily, Oct. 3, 2003). That deal allowed Zimmer to become the No. 1 pure play orthopedics company.

Young said that if the Biomet/S&N merger is consummated, it would represent the largest orthopedic transaction in history and give O’Donnell the victory he was once denied.

If successful, the merger “would create the largest orthopedic company with the most employees, the most sales, the most products and the largest global footprint,” Young said.

He estimated the value of the transaction would be about $10 billion — easily eclipsing Zimmer’s $3.8 billion purchase of Centerpulse in 2003 or Johnson Johnson ’s (New Brunswick, New Jersey) $3.5 billion purchase of DePuy (Warsaw, Indiana) in 1998 as the largest orthopedic merger in history.

Combined, the companies would bring to bear on the global orthopedic market 7,600 employees (12,000 employees when considering S&N’s endoscopy and advanced wound care businesses). By comparison, Zimmer employs 6,700 employees globally. In terms of revenues, the combined company would likely generate over $4.8 billion in annual revenues ($3.8 billion in orthopedics).

Combined, Young said the two companies would represent the: No. 1 manufacturer in a broadly defined orthopedics market with a No. 2 share in knee replacement/repair products, a No. 3 market share in trauma and a No. 4 market share in hip replacement.

Currently S&N and Biomet represent the fourth and fifth largest orthopedics firms in the world respectively.

In other dealmaking news:

• Viasys Healthcare (Conshohocken, Pennsylvania) reported that it has acquired the assets of BioBeat Medical (Kadima, Israel) for about $4.5 million. The acquired products — Sonara and Sonara/tek incorporate advanced digital Transcranial Doppler (TCD) technology.

TCD is a non-invasive method of measuring blood flow velocities in the arteries of the brain using ultrasound Doppler technology.

“We believe this acquisition represents a significant addition of neurovascular technology to the NeuroCare portfolio,” said Lori Cross, group president of Viasys NeuroCare. “This acquisition provides our neurovascular business with advanced TCD tools for diagnosis, monitoring and treatment of cerebrovascular disease, especially stroke.”

The Sonara and Sonara/tek will be launched this month to the European market. The products will be launched in the U.S. market immediately upon FDA 510(k) clearance, which is currently pending.

Viasys is focused on respiratory, neurology, medical disposable and orthopedic products.

• Andover Medical (AMI; North Andover, Massachusetts) said it has entered into a letter of intent to acquire orthopedic solutions company Rainier Surgical (Auburn, Washington). Financial terms were not disclosed.

For AMI, the acquisition will represent another consolidation in the orthopedic durable medical equipment (DME) market and furthers the company’s objective of consolidating businesses to increase revenue, gain efficiencies and increase profit margins, it said.

“Rainier has committed to a mission that calls for a strategically-focused expansion of partnerships with new and existing customers through our distribution, inventory management programs and other value-added services” says Garth Luke, president of Rainier Surgical. “When AMI and RSI complete the merger our inventory management services and joint solutions will create overall practice management efficiencies for healthcare providers.”

Rainier Surgical is a leading distributor of Orthopedic DME services in the Northwest. It serves more than 300 healthcare providers in acute-care hospital, clinics and physician offices in Washington, Oregon, and Northern Idaho.

• Amedisys (Baton Rouge, Louisiana), one of largest home health nursing companies in the U.S., reported the acquisition of the home health agency of Sun Health (Sun City, Arizona). The transaction, which is expected to contribute about $4.5 million in annualized revenues, represents Amedisys’ initial entry into Arizona.

Terms of the acquisition purchase agreement were not disclosed.

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