Smith & Nephew Spins Out Biologics Business

Abstract

Smith & Nephew is to form a joint venture with Essex Woodlands, a specialist healthcare growth equity and venture capital firm, to create a US-based joint venture with the goal of advancing its Biologics and Clinical Therapy solutions.

According to a press release the new entity, called Bioventus LLC (“Bioventus”), will be 51% owned by Essex Woodlands and 49% by Smith & Nephew. In addition to this shareholding, Smith & Nephew will receive approximately $98 million cash, which will be used to pay down debt, and a $160 million 5-year note from Bioventus. Smith & Nephew will transfer the vast majority of its US Biologics team and Clinical Therapies business to Bioventus and, for the time being, Smith & Nephew will continue to distribute Clinical Therapies products outside of the US.

Background

In 2010 Smith & Nephew’s Biologics and Clinical Therapies business generated a trading profit of $44 million on revenues of $223 million (of which $33 million came from sales outside of the US) and as at 1 October 2011 had unaudited gross assets of $121 million. Back in November we reported on the company’s most recent financials and the measures it was taking to combat challenging market conditions.

The plan

Bioventus will continue to market its current portfolio of products, including the EXOGEN® Ultrasound Bone Healing System and SUPARTZ® and DUROLANE® joint fluid therapies, and will seek to add further offerings. Smith & Nephew and Essex Woodlands are committed to investing a significant proportion of Bioventus’ cash flow into R&D over the next five years. The business will continue to be headquartered in Durham, North Carolina and the existing management team, led by its current President, Mark Augusti, will transfer to Bioventus. Smith & Nephew will retain its research facility at York, UK.

The transaction is expected to be completed in the next few months and will be modestly earnings dilutive.

Company comments

Olivier Bohuon, Chief Executive Officer of Smith & Nephew, said; “In a single act we have given our existing Biologics business the resources to address longer-term development projects, retained access to the exciting area of orthobiologics, realised value for reinvestment in nearer-term opportunities, and freed up management resource to focus on driving efficiencies in established markets. Essex Woodlands are strong partners and the joint venture will benefit from their significant expertise in developing healthcare businesses.”

Marty Sutter, Founding Partner and Managing Director of Essex Woodlands said, “We see tremendous growth potential with this new venture as more patients discover how active products can help heal and treat joint and bone ailments without invasive surgery. Smith & Nephew has built an excellent business and we are excited about the prospect of working with the management team on the next phase of growth as it brings more active therapeutic products to market.”

Source: Smith & Nephew