LONDON (MarketWatch) — U.K. medical device maker Smith & Nephew PLC (SN.LN) is spinning off its U.S.-based biologics division into a joint venture that will be majority owned by health-care private equity specialist Essex Woodlands, in a move to focus its resources on other business areas and cut costs.
Europe’s largest maker of hip and knee replacements said the move will provide a cash injection to the division to fund its search for innovative ways to heal joints. Biologics are drugs synthesized from living organisms or their products.
“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, realized value for reinvestment in nearer-term opportunities, and freed up management resource to focus on driving efficiencies in established markets,” said Chief Executive Olivier Bohuon, who took the position in April 2011, in a statement. “Essex Woodlands are strong partners and the joint venture will benefit from their significant expertise in developing health-care businesses,” he added.
The new entity, called Bioventus LLC, will be 51% owned by Essex Woodlands and 49% by Smith & Nephew. The U.K. company will also get around $98 million in cash, which will be used to pay down debt, and a $160 million five-year note from Bioventus.
The business will continue to be headquartered in Durham, N.C. and the existing management team, led by its current president, Mark Augusti, will transfer to Bioventus. Smith & Nephew will retain its research facility in York, northern England.
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.”
Merchant Securities analyst Navid Malik said the move is “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.”
Smith & Nephew’s biologics and clinical therapies business last year generated a trading profit of $44 million on revenue of $223 million, of which $33 million came from sales outside the U.S., and as of Oct. 1, 2011 had unaudited gross assets of $121 million.
The transaction is expected to be completed in the next few months and is expected to reduce Smith & Nephew’s earnings per share slightly.
The spinoff comes as Smith & Nephew’s key orthopedics business is being held back by squeezed health-care budgets.
The company in November said third-quarter profit fell slightly but that it expects improvements in the fourth quarter, as it accelerates a program of cost cuts. Full-year results will be released on Feb. 1.
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