British medical device company Smith & Nephew plc (S&N; London), stirred up the orthopedics sector last month with its plan to acquire Centerpulse AG (Zurich, Switzerland) for around 1.5 billion ($2.35 billion), a bid that would create the world's third-largest orthopedics company. The deal, consisting of 25.15 new S&N shares and CHF 73.42 cash for each Centerpulse share, is still subject to regulatory approval but has been accepted by Centerpulse and should have a positive impact on earnings from 2005 forward, S&N said. The combined company, to be called Smith & Nephew Group, would trail only the DePuy (Warsaw, Indiana) unit of Johnson & Johnson (J&J; New Brunswick, New Jersey) and Stryker (Kalamazoo, Michigan) in the global market for hip, knee and other joint replacements. The market, which is valued at about $14 billion in annual sales, is growing at around 15% a year.
Formerly called Sulzer Medica, Centerpulse which ranks as Europe's biggest orthopedics firm has been cited as a takeover target since it paid out $725 million last year to settle a U.S. lawsuit over faulty knee and hip implants. Over the past several months, Centerpulse has sold off its cardiovascular businesses, including Carbomedics (Austin, Texas), Intratherapeutics (St. Paul, Minnesota), Mitroflow (Richmond, British Columbia) and Vascutek (Glasgow, Scotland), as part of what it said was a strategy to focus on its core sectors of orthopedics, spine and dental implants.
Analysts said the link-up is sensible, but that Smith & Nephew needs to reveal more about the strategy of the combined group. "This isn't a cost-cut combination, it's a build-and-platform growth combination," said Chris O'Donnell, S&N's chief executive, adding that it would result in few job cuts. The deal focuses S&N squarely on orthopedics, which would generate around 75% of the combined company's revenue. While at the helm, O'Donnell has restructured S&N into four core divisions: orthopedics, wound management, endoscopy and rehabilitation, but always said he was on the lookout for an orthopedics acquisition.
"This transaction is an important strategic step for both companies," O'Donnell said during a conference call. "It brings together two highly complementary businesses, transforming the scale of both of our orthopedics businesses, as well as providing an enhanced position in the rapidly growing spine segment." Concurring with O'Donnell's assessment was Dr. Max Link, chairman and chief executive of Centerpulse. "We are delighted to be creating, with Smith & Nephew, one of the world's leading orthopedics companies, which will have increased strength and the resources to prosper as a global player in its sector." He added that he believes that a combination with S&N represents "an attractive opportunity" for shareholders and strongly recommended that Centerpulse shareholders accept the offer.
As part of the deal, S&N also will make a recommended offer for InCentive Capital AG (Zug, Switzerland), a listed investment company that has a 19% stake in Centerpulse. The offers for Centerpulse and InCentive will together result in the issue of 298 million new S&N shares and the payment of a net 400 million in cash, after taking account of InCentive's expected cash balances.
"The transaction wasn't a particular surprise as such, only the timing," said Yasemin Ersan, analyst at Zuercher Kantonalbank (Zurich, Switzerland) in a report. He added that the takeover price of 12 times Centerpulse's operating profit is fair. "The transaction makes sense and gives the new company a strong presence in the U.S. and Europe."
While Centerpulse is the largest orthopedics group in Europe, it only has a 6% slice of the U.S. market. The combined company will have a U.S. sales force of around 900, comparable to Stryker but still behind DePuy. Outside the U.S., the three companies will have roughly comparable sales forces. Centerpulse brings with it a presence in the spine market, which is the fastest-growing segment of the orthopedics sector, a strong dental implant business and access to key orthopedic surgeons, Smith & Nephew said. The deal roughly values Centerpulse at 2.5 times 2002 sales and 14 times earnings before interest, tax and amortization, compared with S&N's multiples of 3.5 and 16 times, respectively, and while this is significant, some analysts speculated that a counter bid could arise from one of the numerous competitors.
"I'm astonished that the offer is not much more than the market value and somebody might come in with a better offer," Claude Zehnder, analyst with Zuercher Kantonalbank, told Reuters. Analysts at private bank Pictet & Cie (Geneva, Switzerland) said they thought U.S. orthopedics firm Zimmer (Warsaw, Indiana) and Stryker both might be interested in Centerpulse to step up pressure on J&J's DePuy unit.
S&N said the deal, which will create a company with a market value of around 4.7 billion, would boost earnings per share of the combined group by mid-single digits in 2004 before integration costs, accelerating to double digits in 2005.
S&N said it expects cost savings of 45 million a year by 2005, with exceptional cash costs of 130 million. It also will assume Centerpulse's debts, which stood at 165 million as of Dec. 31.
Nellcor device targets early sepsis market
According to the National Initiative on Sepsis Education, severe sepsis is the most common cause of death in non-cardiac ICUs. Recent estimates put the toll at 1,400 lives lost worldwide each day, killing more people every year than breast cancer, colorectal cancer, pancreatic cancer and prostate cancer combined. And even worse news lies ahead. A recent study from the University of Pittsburgh (Pittsburgh, Pennsylvania), released at the 32nd Society of Critical Care Medicine (Des Plaines, Illinois) congress in San Antonio, Texas, found that the number of severe sepsis cases is increasing by 6.2% annually, and there has been nearly a 7% increase in the number of complex severe sepsis cases over the past seven years.
Sepsis is stealthy, often developing without large warning, and a key problem of this disease state is the lack of a quick, early warning system for detecting tissue hypoperfusion a physiologic manifestation of sepsis early enough to provide effective treatment. That's a problem that Nellcor (Pleasanton, California) is targeting with a new tool that looks and acts very much like a digital thermometer and indicates what may be an early sign of this disease.
The device is the N-80 CapnoProbe SL System. It is FDA-cleared only for the noninvasive measurement of sublingual (under-the-tongue) carbon dioxide, not specifically sepsis detection, but the measurement it provides is important, notes Michelle Eichbrecht, Nellcor product manager for the device. The device is simply placed in the patient's mouth, just like a thermometer, and in about a minute measures "how much CO2 is in the tissue under the tongue," Eichbrecht told The BBI Newsletter, saying that the N-80 CapnoProbe would be launched commercially by the end of the first quarter.
The CO2 measurement, Eichbrecht explains, correlates to what is going on in the gastric system, since the tongue is the most proximal part of the gastrointestinal tract. When the gut is in hypoperfusion in the event the body is threatened a cascade of physiologic events can occur. The tissues become ischemic from a lack of oxygen, and rising CO2 is the result. With this tissue damage (ischemia) the normal mucosal barrier of the gut is disrupted and bacteria can leak into the normally sterile environments (for instance, the blood), which may lead to a systemic infection. Sepsis, in simplest terms, is an infection that is not just local but rather has become systemic, attacking the entire body, according to Eichbrecht.
"The concept," she says, "is that when a patient has compromised blood flow, the body part that will sacrifice itself so that blood flows to more vital organs is the gastric system." She adds: "And when we look at CO2 levels under the tongue, it reflects whether perfusion there is normal or if there may be tissue hypoperfusion of this region [the GI tract]. If there is [hypoperfusion], it indicates that the body is compromised and is diverting blood flow away from that area."
Currently, clinicians depend on global parameters, such as blood lactate, blood pressure, urine output and so forth, to assess the perfusion status of their patients. But blood pressure readings may be slow to register sepsis, and low blood pressure may be highly ambiguous, indicating what may be a variety of problems other than sepsis. Blood tests are more direct perhaps, but they have the disadvantage of other standard lab tests primarily a turnaround time that delays the earliest possible intervention.
Another regional measure that is not new, Eichbrecht says, is gastric tonometry, a process of inserting a balloon into the stomach to measure the mucosal wall CO2 levels or perfusion compromise there, but a system that, because of its obvious difficulties to administer, hasn't received wide clinical adoption. At the same time, she says that physicians that have used gastric tonometry "and value the information that it gives, will be the earliest adopters for this product [the N-80 CapnoProbe]."
The system consists of a hand-held device and a disposable sensor that is placed under the patient's tongue. Fiber optic technology transmits light through the sensor, with carbon dioxide diffusing across a semipermeable membrane and into a fluorescent dye solution. The dye emits light that is proportional to the amount of CO2 present, and the light intensity is analyzed by the device and displayed as a numeric CO2 value. Overall, the system produces objective data that is more direct and more useful than the ambiguities of other systems and has proven to be comparable to gastric tonometry, one of the data sets supporting product approval.
Eichbrecht says that research is ongoing to establish the clinical value of the device, specifically, its ability to translate its quick findings to earlier intervention, with that earlier intervention hopefully saving lives and reducing morbidities. "Clinicians want you to [answer] two things. No. 1, does it work as well as what we currently use? And [No. 2] does it work better than what we currently use? That second step is what we're pursuing."
Prior to launch, the product is receiving "early customer preference testing," Eichbrecht says, adding that the early response has been "a lot of excitement in the marketplace." Besides hospitals, critical care and emergency medicine could be the primary beneficiaries of the device, especially when other vital signs may be marginal and a need to obtain other markers is required. "The total non-invasiveness of it, its ability to produce a result in 60 seconds," Eichbrecht says, "are the things that will appeal to emergency medicine."
Abiomed reports implant, tightens disclosures
Abiomed (Danvers, Massachusetts) last month reported still another patient implanted and another patient deceased in its trial of the AbioCor Implantable Replacement Heart, bringing the total number of those implanted to 10. Consistent with past practice, the company gave out no details concerning either the patients or the procedure and, at the same time, it announced even tighter control of information to be released about the trial, which intends the enrollment of 15 patients total.
With the 10th implant, three patients were reported alive and supported by the AbioCor, though one of these three shortly after succumbed. "We are very pleased with the rate of enrollment in the AbioCor clinical trial since the beginning of the calendar year," said Dr. Robert Kung, Abiomed's chief scientific officer. "We believe we have recaptured the momentum lost in 2002, and are working diligently to maintain that momentum."
With the announcement, Abiomed said it is changing the way in which trial information will be released to the public. "Going forward, Abiomed will be providing only monthly updates on the status of the clinical trial in order to keep our investors and the public informed of our progress," said Edward Berger, PhD, vice president for strategic planning and policy. He told BBI that these updates would include any significant events that have occurred within a given month, and that it is Abiomed's goal to eliminate special announcement of individual implants and or patient-specific events either positive or negative as they occur.
He said that the policy "is really what we would have hoped to have done from the very beginning of the clinical trial." However, he noted that the intense nature of public and media interest "really made it impossible in the early stages of the clinical trial to do that." He said that early on, the news media obtained information prior to a decision by Abiomed or the hospitals to actually publicize an implant. In those situations, he said "we were therefore sort of acting to keep rumors under control and to keep things accurate." He said that the company now believes the trial has advanced to a point where monthly updates should be sufficient to keep all interested parties "adequately informed" of material developments.