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Smith & Nephew joins regeneration race with US$780mln US buy

Last updated: 06:24 28 Nov 2012 EST, First published: 07:24 28 Nov 2012 EST

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Smith & Nephew (LON:SN.) has paid a full price for its latest acquisition Healthpoint Biotherapeutics, brokers said today, though most praised the deal’s logic.

The UK artificial joints group will pay US$782mln (£488mln) for Texas-based Healthpoint to significantly boost the company’s presence in the fast growing area of regenerative medicines.

The US firm operates in the bioactives market, a branch of regenerative medicine that encourages the body to heal itself through the use of enzymes and which is now being increasingly used to treat chronic wounds.

Healthpoint is best known for Santyl, an ointment for the removal of dead tissue in wounds. It also has a late stage trial underway for a leg ulcer treatment. 

Credit Suisse said that the deal reduces the importance of the mature orthopaedics market for Smith & Nephew (S&N) and will significantly increase the percentage of wound care sales in the total.

S&N’s artificial joints business accounts for about 35% of its business currently with wound care about a quarter prior to today’s purchase.

The Swiss broker added that cash consideration may reduce the likelihood of a share buyback, though it does not rule it out completely.

S&N chief executive Olivier Bohuon said, strategically, Healthpoint would reinforce the wound care division by bringing in material revenues from a fast growing product range, an attractive pipeline and commercial and research & development (R&D) capabilities.

Panmure Gordon added the strategic rationale seemed sensible and consistent with management strategy, but a price equal to 4.1 times revenues and 71 times underlying earnings “will require some explaining”. 

Smith & Nephew, though, is not alone in moving into regenerative medicine acquisitions with the sector seeing a number of high value takeovers in the past eighteen months.

Last June, Shire (LON:SHP) paid US$750mln for Advanced BioHealing though this was subsequently dwarfed by the multi-billion acquisition of Kinetic Concepts by a consortium led by private equity group Apax.

AIM-listed start up Tissue Regenix (LON:TRX) also raised £25mln at the end of last year at a very difficult time for small companies to get funding.

It specialises in decellularised tissue scaffolds, a process that enables the use of replacement body parts without the problem of rejection. It recently appointed Greg Bila, formerly of Kinetic Concepts, to head up a new US operation. 

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