On November 22, 2023, the British orthopedic giant Smith & Nephew (Agili-C™ implant, London Stock Exchange code: SN, New York Stock Exchange code: SNN) announced that the acquisition of Israeli orthopedic implant company CartiHeal has entered the formal agreement stage.
According to the terms of the agreement,Smith & Nephew will pay an initial cash consideration of $180 million at the closing of the transaction and up to an additional $150 million in cash based on the financial performance of CartiHeal post-acquisition.(That is, the maximum acquisition budget is $330 million, approximately 2.34 billion RMB)In addition, all employees of CartiHeal will be integrated into Smith & Nephew.
The transaction is expected to be completed in the first quarter of 2024, with the goal of reaching break-even in transaction profits by 2027, and achieving a return on invested capital (ROIC) exceeding the weighted average cost of capital (WACC) by the fifth year. The funding for this acquisition comes from the company’s existing cash and debt facilities.
Smith & Nephew's acquisition this time mainly targets CartiHeal's core product, the Agili-C™ implant.Agili-C™ is a cell-free, off-the-shelf implant for the treatment of trauma, cartilage defects, and osteochondral injuries.The implant is a porous, biocompatible, absorbable biphasic scaffold made of interconnected natural inorganic calcium carbonate (aragonite), designed to promote the natural regeneration of articular cartilage and repair the structure of subchondral bone by providing a supportive structure and promoting cell growth.During the implantation process, the doctor needs to drill holes in the cartilage, ensuring that the size of the holes seamlessly matches the selected implant, and then place the Agili-C™ implant into the hole with a perfect fit.Agili-C™ received the FDA's Breakthrough Device Designation in 2020 (a designation that provides additional advantages during the market approval process, akin to a "fast-track" or "green channel"), and then obtained FDA PMA approval in March 2022 (PMA approval applies to medical devices identified by the FDA as high-risk, new technology, or without similar marketed products). The final FDA approval was based on the results of a two-year randomized controlled trial.
This experiment involved 251 participants (patients with mild to moderate osteoarthritis) and aimed to compare the efficacy of Agili-C™ technology with the current standard of care (debridement combined with microfracture surgery for cartilage defect areas) in treating knee surface injuries (cartilage and osteochondral damage).Clinical Trials Prove Agili-C™ Superior Treatment Outcomes. After four years of follow-up, the trial still showed significantly improved patient-reported outcome scores in patients using Agili-C™ implants, with a low rate of surgical reintervention. The postoperative efficacy difference compared to patients treated with standard care was statistically significant. These results demonstrate that the Agili-C™ implant has the potential to become the new standard for articular cartilage repair.Approximately 700,000 patients in the United States currently undergo cartilage repair surgery each year. The Agili-C™ implant not only provides a one-step solution for treating osteochondral injuries but also covers a broad patient population, including those with mild to moderate osteoarthritis.For the majority of patients, this implant can meet the needs of more patients and is expected to become a routine treatment option.Deepak Nath, CEO of Smith & Nephew, stated: "The acquisition of this disruptive technology is part of the company's investment strategy in the sports medicine business."Agili-C™ Implant Demonstrates Excellent Clinical Performance and Highly Complements the Company's Existing Knee Repair Product Portfolio"Our company has successful commercial experience in the high-growth biologics field, and we believe that with this new technology, the company will achieve even greater success in the future."
Scott Schaffner, President of Sports Medicine at Smith & Nephew, also stated: "The success of the REGENETEN Tendon Repair Bioinductive Patch has already demonstrated our company’s expertise in market development and commercialization. We have the ability to make new technologies the new standard of care."On November 29, 2023, Smith & Nephew's "Meet the Management" event will discuss this acquisition.
About CartiHeal
CartiHeal, founded in Israel in 2009, is a university spin-off company specializing in the development of proprietary implants for the treatment of trauma, osteoarthritis, and cartilage and osteochondral injuries.
The company currently maintains a small facility near Tel Aviv (the second-largest city in Israel) and has a sales office in New Jersey, USA. CartiHeal possesses a substantial amount of raw materials in the U.S., sufficient to support future product promotion in the country.Smith & Nephew was founded in the UK in 1856, with nearly 20,000 employees currently. Its products are marketed in over 100 countries worldwide. The company's stocks are listed on the New York Stock Exchange and the London Stock Exchange, and it is a constituent of the FTSE 100 Index in the UK. The company’s main businesses include: Orthopaedics, Sports Medicine & ENT, and Advanced Wound Management.The company is organized around three global franchise segments, a model that provides better insight into customer needs and enables the full utilization of the resources within these franchise segments to meet those needs.
In November 2023, Smith & Nephew announced its third-quarter financial results as of September 30, 2023. The revenue for the third quarter was $1.357 billion, representing an 8.5% year-over-year increase. Orthopedics revenue grew by 8.3% year over year, while Sports Medicine and ENT revenue increased by 11.1%, and Advanced Wound Management revenue rose by 3.6%.
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