Smith & Nephew ($SNN) has agreed to spin off its biologics and clinical therapies business into a joint venture--dubbed Bioventus--with venture capital firm Essex Woodlands. The resulting entity will be 51% owned by Essex Woodlands and 49% by S&N.
As part of the deal, S&N will receive about $98 million cash to pay down debt, and a $160 million 5-year note from Bioventus. It will transfer the majority of its U.S. biologics team and clinical therapies business to Bioventus but will continue to distribute clinical therapies products outside the U.S.
Bioventus will market S&N products, including the Exogen ultrasound bone healing system and joint fluid therapy, as well as look for new product offerings. The unit will remain headquartered in Durham, NC, and Mark Augusti, current president of the biologics unit, will transfer to Bioventus. Smith & Nephew will retain its research facility at York, U.K.
"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," S&N CEO Olivier Bohuon explained. "Essex Woodlands are strong partners and the joint venture will benefit from their significant expertise in developing healthcare businesses."
Market Watch quotes Merchant Securities' Navid Malik as saying he sees the move as "positive for Smith & Nephew as it allows the company to focus more of its resources on other areas of its business such as wound care. The new CEO is determined to drive greater efficiencies through and improve the geographic reach of the business into more key emerging markets."
S&N's biologics and clinical therapies business generated a trading profit of $44 million on revenues of $223 million in 2010, according to the company.
News of the spinoff/JV comes two months after the company reported disappointing Q3 results. Bohuon said at the time the company had to adapt more quickly to meet market challenges, as Reuters notes. Indeed, the company has been the subject of takeover rumors recently, with companies like Biomet and Stryker ($SYK) being named as suitors.
Still, the company is hopeful about expanding by pumping up sales in Brazil, Russia, India and China. It plans to up its R&D budget by $300 million over the next 5 years and raise sales in these countries from $170 million currently to $500 million in 2016.