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Quarterly Review

M&A Close-up: 2016 Transactions Year to Date

ORTHOWORLD’s M&A Activity database has logged 39 transactions year to date for 2016, already ahead of 2015’s whole-year total of 36. A variety of company types are represented (OEM, Supplier, Distributor, Private Equity), and the values range from $10 million to $1 billion.

All of the companies in ORTHOWORLD’s top five (DePuy, Zimmer Biomet, Stryker, Smith & Nephew and Medtronic, ranked by estimated orthopaedic revenue) were acquirers in 15 transactions combined, year to date. 

DePuy Synthes acquired BioMedical Enterprises, filling a key portfolio gap in elective foot and ankle surgery—bringing along products for hand and wrist, DBM and allograft, too. BME’s products are integrating into DePuy’s trauma portfolio, a declared segment of strategic focus for the company.
 

“Going forward, we are shifting more of our focus and resources to deliver new innovative products and target faster-growing categories within the market, such as elective foot and ankle. We also continue to strengthen the trauma franchise capabilities...” —Gary Pruden, Worldwide Chairman, Medical Devices (3Q15 earnings call)


Zimmer Biomet has logged the most transactions so far this year (six). First, let's look at Cayenne Medical and LDR.

Cayenne’s lineup includes soft tissue repair and reconstruction products for knee, shoulder and extremities, as well as the Mirror Partial Knee replacement, for which preliminary study results indicated short-term outcomes equivalent to the most ideal uni knee results published at that time.


The Mobi-C Cervical Disc


©2016 LDR Spine, USA Inc.
All Rights Reserved

 

While LDR provides a solid differentiated spine product portfolio with limited overlap, the primary attractor was the Mobi-C artificial cervical disc: the base for future cross-selling opportunities.

By ORTHOWORLD estimates, Arthroscopy/Soft Tissue Repair and Spine are ZBH’s
smallest revenue segments, at 2% and 4% of its 2015 orthopaedic revenue, respectively.

The four remaining transactions for ZBH weren’t focused on devices, but rather services or therapies or post-acute applications complementary to orthopaedic segments. To wit:

CD Diagnostics: The Synovasure diagnostic test for periprosthetic joint infection,
a complement to the Signature Solutions suite to support value-based healthcare. (Periprosthetic fracture occurs around components or implants of a total hip replacement; treatment most often requires surgery.)

Clinical Graphics: 3D imaging/ROM simulation technology, especially pertinent in treating hip conditions that benefit from early intervention, like femoroacetabular impingement and dysplasia. ZBH expects that joint preservation, which falls under
its Arthroscopy/Soft Tissue Repair portfolio, will be a significant growth driver.
(Clinical Graphics also offers a report to simulate the kinematics of fractured
shoulder joints, and is developing a shoulder instability report.)

Compression Therapy Concepts: DVT prevention devices
(simple, straightforward, post-surgical care—enough said)

Medtech ROSA: Robotics and navigation to support accuracy and repeatability in spine procedures (and CMF, and potentially other anatomical sites in the future)

Stryker is next, with five transactions year to date. (This doesn’t include the non-ortho-specific purchases, which you can read about elsewhere.)

What hasn’t Stryker said to convince us that they are firmly in favor of M&A and R&D-pipeline investments in support of growth? The company expects its M&A cadence for the next five years to be similar to that of the previous five. For reference, those years included purchases of Mako Surgical, Memometal Technologies, Orthovita, Pivot Medical, Small Bone Innovations, Trauson and certain spine assets from Vertiflex.

So far in 2016, Stryker has bolstered Arthroscopy/Soft Tissue Repair, Spine, Extremities and custom Joint Replacement:

BD’s vertebroplasty and vertebral augmentation products: Expanding their VCF footprint, complementing Stryker Instruments’ Interventional Spine business and further strengthening their Neurotechnology brand

Instratek: staple and hammertoe implants and minimally invasive soft tissue recession instrumentation for foot, ankle and upper extremity procedures

Ivy Sports Medicine: Minimally invasive meniscal repair, including CMI, the only FDA-approved collagen meniscus implant on the market

Safewire: Products that support minimally invasive spine surgery

Stanmore Implants: patient-specific and off-the-shelf implant systems for limb salvage


Smith & Nephew took on two acquisitions early in the year: Blue Belt Technologies and Piramal’s BST-CarGel assets.

Blue Belt marked SNN’s entry into the robotics world, starting with the partial knee segment. SNN seeks to expand its NAVIO indications to include total hip, sports medicine and total, bi-cruciate and revision knees, too; the total knee application gained FDA 510(k) clearance in 2Q16 and the first total knee procedure occurred in 3Q16.

SNN is vocal about the differences between NAVIO vs. Mako, citing advantages such as portability, price, a smaller footprint, ideal for ambulatory settings, etc.
 

“The list price of the NAVIO system is $445,000...less than half of the price of a Mako system...which is, I believe, a very big plus.” —Olivier Bohuon, CEO (3Q15 earnings call)



The NAVIO Surgical System

Image courtesy of Smith & Nephew
 


BST-CarGel is now part of the company’s broad Arthroscopy/Soft Tissue
Repair portfolio (you’ll remember its acquisition of ArthroCare in 2014);
the product is cleared for use in microfracture and bone marrow stimulation in
the treatment of focal cartilage tears in geographies like Australia, Canada and
most of the EU.

Medtronic is the last of the Top 5, with its acquisition of Responsive
Orthopedics
, the start-up focused on sales of low-cost hip and knee
replacements. A primary knee is slated for U.S. launch in 1H17, with a primary
hip to follow in 1H18. Why hips and knees for Medtronic in the U.S.?

The acquisition supports MDT’s Orthopedic Solutions initiative, which seeks to reduce system costs for hospital customers across an entire episode of
care while maintaining or improving outcomes. (No word on whether
other orthopaedic product types will be added to the mix.) It’s a step toward
MDT’s tactic to use episode of care bundles to enter new markets and share direct accountability for patient outcomes.

In its most recent earnings call, Medtronic leadership noted CMS’ plans to expand bundled payments beyond hips and knees to include acute myocardial infarction and coronary artery bypass graft procedures—areas of significant market presence already for MDT.

But it wasn't just the Top 5 companies in the mix…nor was it just OEMs making strategic purchases, year to date. Let’s keep going!

Corin announced plans to acquire Wright Medical’s hip and knee assets: the entire legacy Tornier large joints business. Considering that Wright has sought to be a purely extremities company for quite a while, and that those large joints are primarily sold ex-U.S.—Corin is headquartered in the U.K.—this works out well all around. (Further, Corin has a longstanding and deep focus on large joints, and purchased its own positioning technology to support hip procedures in 2014.) This deal is slated to close by year’s end.

Majority shares of LimaCorporate were acquired by EQT, a private equity firm, with Hansjorg Wyss as co-investor. (The latter was the majority shareholder of Synthes, now part of DePuy.)

This is interesting because of the level of muscle now at Lima’s disposal as it seeks to further establish its proprietary Trabecular Titanium technology in revision hips, boost its position in the knee market and further its growth in extremities joint recon and trauma, including shoulder and elbow. Lima’s new Advisory Board consists of Doug Kohrs, former CEO and president of Tornier, with more than 25 years of experience in the orthopaedic industry, as well as Eric Lohrer as a representative of Hansjörg Wyss.


Arcam Q10plus printer

Image courtesy of ARCAM
 

GE announced plans to acquire Arcam and SLM Solutions, both suppliers of additive manufacturing (AM) equipment. When we think about GE Healthcare, we envision bone mineral densitometers, fracture risk assessment and imaging tools, not 3D printing. We remain watchful on the future of Arcam’s ortho applications for AM, recognizing that ownership by GE lends major muscle and resources to support Arcam’s potential for that growing segment. We note, too, GE’s response to Arcam’s Board of Directors:
 

“GE intends to maintain Arcam’s current operations and locations. GE believes
the locations of all of Arcam’s operations provide strong business, operating and engineering talent as well as government and community support.

GE plans to retain and develop Arcam’s current and valuable management and employees. GE further desires to amplify the speed and energy of Arcam’s entrepreneurial culture with GE’s world-class engineering and operational
capabilities. GE does not intend to make any material changes for Arcam’s employees, including their terms of employment and the locations of business.”


In its 1Q16 call, Globus Medical leadership had noted a 1.5% market share ownership ex-U.S. and reiterated its desire to exit 2016 with ex-U.S. sales at double-digit growth vs. 2015. In 3Q16, it acquired Alphatec Spine’s international business.

This served to approximately double GMED’s international revenue and secure
immediate access to Brazil and Japan. (Per their 2Q16 call, more than half of what GMED expects to “do with the Alphatec acquisition is in Japan.”) Further, per the 2Q call, GMED’s ex-U.S. market share is now ~3%; there is plenty of room to grow.

France-based contract manufacturer In’Tech Medical, seeking to increase penetration in Asia-Pacific markets, acquired Ortho Solutions, a contract manufacturer in Malaysia. Ortho Solutions is registered with FDA and with the Ministry of Health in Japan. (Last year, In’Tech acquired U.S.-based Turner Medical.)

JRI Orthopaedics acquired Sheffield Medical Products, designer of the AEON cemented total hip, for which JRI had served as exclusive distributor and partial manufacturer. JRI will now offer the system under the brand name Avanteon.



AVANTEON Stem Head

Image courtesy of JRI orthopaedics
 

Having taken the system through 700 implantations (mostly local to Sheffield in the U.K.), Sheffield’s directors felt that JRI would be better positioned to continue AEON’s development and regulatory paths to new geographies.

LISI Medical, another France-based contract manufacturer, acquired Alcoa’s Remmele Medical operations. This nets LISI two locations in the U.S. and the addition of spine products to its lineup.

NuVasive is no longer truly pure-play spinal after 2016. The acquisition of
Ellipse Technologies diversified its revenue mix with the PRECICE limb-lengthening system, which may lead to partnerships in the treatment of
trauma and knee osteoarthritis. (NuVasive Specialized Orthopedics houses PRECICE and MAGEC, now.)

This plus other activities augmented internal growth and improved capital for the company. A purchase of its exclusive distributor, Mega Surgical, allows for direct distribution in Brazil, where direct is the preferred way to do business, per NUVA leadership. The Biotronic Neuronetwork acquisition doubled NUVA’s U.S. service offerings to health systems. (NuVasive Clinical Services—which is Biotronic + Impulse Monitoring—will support >75,000 cases annually, yielding the largest intra-op neuromonitoring provider in the U.S.)

SeaSpine purchased NLT, gaining access to vertical, lordotic and footprint-expanding interbody technologies for lumbar fusion; first products are expected to launch in 1H17. This is SPNE’s first acquisition since the spinout from Integra, and nets SPNE growth for its portfolio of differentiated interbody products.

ORTHOWORLD Members have online access to the full Orthopaedic Merger & Acquisition Activities Database from 1993 to the present. There’s a downloadable Excel version, too. Here’s an excerpt of year to date information