Smith & Nephew puts up $275m for Blue Belt, misses with Q3 top line

Smith & Nephew (NYSE:SNN) said today that it agreed to acquire robot-assisted surgery company Blue Belt Technologies for $275 million, but missed top-line expectations for the 3rd quarter.

Minneapolis-based Blue Belt makes the portable Navio system, which is designed to work with 8 different knee systems, including Smith & Nephew’s Zuk and Journey Uni devices. The London-based medical products giant, noting that Blue Belt is its “most successful” implant sales partner, plans to continue to support implants from other manufacturers with the Blue Belt system.

“Our experience working with Blue Belt Technologies and our customer insight has convinced us that robotics will become increasingly mainstream across orthopedic reconstruction in the foreseeable future,” Smith & Nephew CEO Olivier Bohuon said in prepared remarks. “This acquisition is a compelling strategic move, with the combination of complementary products and R&D programs creating a platform from which we can shape this exciting new area of surgery. It reinforces our distinctive orthopedic reconstruction strategy, which combines cutting edge innovation, disruptive business models and a strong emerging markets platform to drive outperformance.”

“Blue Belt Technologies has redefined robotics in orthopaedic surgery, establishing strong traction with customers who are attracted by the high degrees of implant placement accuracy made possible by Navio, as well as its ease of use, portability and attractive economics. We are delighted to be joining with Smith & Nephew, with whom we share a passion for innovation and a mission to support healthcare professionals. Together, we will realise the many opportunities to bring the benefits of robotics-assisted surgery to more patients and new indications,” added Blue Belt president & CEO Eric Timko.

A total knee system is slated to launch in 2017 for its Journey II implant, Smith & Nephew said, and a revision knee system is in the pipeline. Blue Belt’s development program for a bi-cruciate-retaining implant will be incorporated into the British company’s own bi-cruciate-retaining knee arthroplasty program, the Journey II XR implant. Total hip arthroplasty and adjacencies including sports medicine are also on the horizon, the company said.

Blue Belt’s medium-term revenues are expected to grow at a 50% clip from their $19 million level now, but R&D expenses are forecast to dilute trading profit margin by roughly 60 basis points next year, Smith & Nephew said. Blue Belt employs about 120 workers in Minneapolis, Pittsburgh and Manchester, U.K.

Third-quarter sales miss expectations

SNN shares were off -6.3% to $33.12 apiece in pre-market trading today after Smith & Nephew reported lower-than-expected sales for the 3 months ended Sept. 26. Smith & Nephew posted sales of $1.11 billion, down -3.7% compared with Q3 2014 and $21 million, or -1.9%, below the consensus expectation on Wall Street.

“We are pleased with our progress in 2015, with the 3rd quarter again demonstrating that our actions are delivering a strong performance, such as our above-market revenue growth in knee implants and the sustained improvement in advanced wound care. We had a good quarter in the U.S., our largest market, and are successfully stabilizing our European business which delivered a 2nd consecutive quarter of revenue growth against a market backdrop that remains challenging,” Bohuon said.

U.S. sales of $532 million were up 5.3%, but revenues from established overseas markets were down -14.9% to $400 million. Emerging market sales were flat at $173 million. Knee implant sales grew 3.5% to $205 million for the quarter; advanced wound care sales were off -4.8% to $316 million.

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