Integra LifeSciences orthopaedic portfolio suffered from the Covid-19 pandemic, but analysts believe it will make Smith & Nephew money in the future
The $240m acquisition of Integra LifeSciences’ extremity orthopaedics business by medical devices giant Smith & Nephew is likely to pay off in the future, say analysts.
Data and analytics firm GlobalData said although the acquired business has suffered financially from Covid-19, it could contribute to increased revenue as elective procedures slowly increase in the US, and Smith & Nephew looks to increase its sales in countries less disrupted by the pandemic.
According to the analytics firm, Integra LifeSciences derived more than 90% of revenue selling its musculoskeletal implanted devices in the US and Europe – two regions that are currently hotspots for the SARS-CoV-2 virus that causes the disease.
GlobalData medical devices analyst Kamilla Kan said: “Although acquiring a business that has been badly impacted by the pandemic could be considered a risky move, with hospitals in North America slowly increasing the purchasing of medical device equipment and gradually resuming the elective procedures, Smith & Nephew’s US sales should see an upward movement in the future – providing a positive impact on the company’s revenue by the end of 2020.
“Furthermore, the geographic broadening of its business will also provide some resilience against the effects of the Covid-19 pandemic, since countries in the Asia-Pacific region are successfully controlling the spread of the disease, which provides a chance for companies to improve their sales even further.”
Integra LifeSciences orthopaedic acquisition fits Smith & Nephew long-term strategy
In its second-quarter financials, Integra LifeSciences reported a 49% reduction in orthopaedic sales, which it attributed to the reduction in elective procedures as hospital capacity was prioritised for patients suffering from Covid-19.
However, it also said the this area of the business experienced the strongest improvement, recovering from an April low of 80% to mid-single-digit decline rates in June.
Prior to this, Smith & Nephew CEO Ronald Diggelmann told analysts in a call about its own second-quarter earnings that the current period was “a watershed moment” for its business, suggesting that acquiring “distressed assets” that fit with its strategic goals would contribute to its reputation as “a good owner out in the market”.
When the acquisition deal was announced by Smith & Nephew on 29 September, the company said the Integra LifeSciences orthopaedic portfolio was “highly complementary” to its existing orthopaedics offering, in particular providing entry into the shoulder replacement, and foot and ankle, segments.
Smith & Nephew global orthopeadics president Skip Kiil said: “Integra’s extremity orthopaedics business is an established global player in the rapidly growing extremities segment, including total shoulder replacement, and has a well-regarded specialised sales channel and a strong pipeline of new products.
“This strategic acquisition represents a significant opportunity to strengthen Smith & Nephew’s position in a high-value area and allows us to offer a leading extremities portfolio to customers.”