Smith & Nephew buys Osiris in regenerative medicine push

Osiris makes medical products used to treat skin, bone and cartilage damage, with the bulk of its revenues coming from Grafix and Stravix – two cryopreserved placental tissue products used respectively as a skin substitute for wound healing and a surgical wrap for soft tissue repair.

UK-based S&N is paying $19 in cash per share in Osiris, a 37% premium on its average share price in the last three months but a little below its closing level yesterday.

S&N has made no secret of its desire to make bolt-on acquisitions to diversify its business under recently-appointed CEO Namal Nawana, and had been linked to a possible $3 billion takeover of spinal surgery company NuVasive last month which thus far hasn’t come to fruition.

Commenting on the Osiris deal, Nawana said it would give S&N "greater presence in the fast growing regenerative medicine market…and will help immediately accelerate our wound management business as well as provide longer term innovations in additional channels and indications."

The company’s strategy "includes acquiring fast-growing technologies where we can broaden distribution and add value," said Namal on a conference call, noting that it also ramps up the company’s position in the US wound care market.

Osiris’ revenues have been on a healthy upward path of late with sales in the first nine months of 2018 rising almost 19% to $102 million, with 70% of product sales coming from Grafix and Stravix, and growth driven by a new version of Grafix that is easier to apply and transport. For comparison the overall US skin substitute market – valued at approximately $900 million – is growing at around 7% per year.

Simon Fraser, who heads up the advanced wound management business at S&N, said "Grafix offers a compelling new option for managing hard to heal wounds and Stravix expands our tissue repair portfolio."

The US company is a minnow in comparison to S&N, which reported sales of $4.9 billion last year, but the two skin substitute products will slot into S&N’s own portfolio of tissue debriders, wound healing products and Regranex for ulcers.

Osiris’ workforce of 360 will be integrated into S&N’s headcount of around 16,000 workers, and the deal is expected to close in the second quarter.

Nawana also intimated further add-ons could be on the cards as the company looks to extend its business beyond orthopaedics, wound care and sports medicine, telling analysts the integration will be no impediment to signing additional deals.

It comes after earlier acquisitions of Ceterix Orthopaedics in December for up to $105 million and tissue regeneration firm Rotation Medical for $210 million towards the end of 2017.

The takeover is an opportunity for Osiris to put a difficult couple of years in its rear-view mirror, in particular a financial scandal in 2017 in which former company executives were accused by the US Securities & Exchange Commission (SEC) of overstating revenues and misleading investors and auditors.

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