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Orthopedic devices maker Wright Medical Group (WMGI - Analyst Report) recently reported that it had concluded its take over of BioMimetic Therapeutics. This deal will amalgamate Wright Medical’s strong sales team and product lineup with BioMimetic’s biologics offering pipeline. 

On Nov 19, 2012, Wright Medical revealed its intention to take over BioMimetic Therapeutics for an initial cash payment of $190 million to be followed by subsequent milestone outflows up to another $190 million. However, this will only be triggered if the Augment Bone Graft technology receives FDA nod.

BioMimetic placed, in June 2012, a responsive Premarket Approval (PMA) modification in response to the FDA’s request for more data. Wright Medical expects a final regulatory decision during the timeframe between Apr 2013 and Jan 2014. Should the Augment Bone Graft receive the regulatory nod, it will be a new protein therapeutic substance to enter the market after many years.   

Including the effect of BioMimetic, Wright Medical’s sales band stands in the neighborhood of $485 million to $495 million for 2013. The deal adversely affects earnings per share by about 32 cents to 34 cents resulting in loss per share in the range of 26 cents to 34 cents (including stock based compensation expense) for 2013. Free cash flow is expected in the range of nil to $5 million.  

Orthopedics is one of the largest medical device market segments worldwide. Lukewarm demand is exacerbated by pricing pressure particularly in Europe. In particular, the reconstructive market fundamentals (pricing and volume) have languished in the recent past but are showing signs of recovery. The joint replacement market has been hit by patient deferral of elective procedures, leading to weak demand for hip and knee implants.

Pricing compressions on hips, knees and spine products, which have impaired the performances of certain orthopedic companies in the past, remain a key concern at the macro level. We note Wright Medical’s inadequacy to post sales growth in recent times.

Our views on the company are moderated by intense competition from larger players and pricing pressure.  Wright Medical competes with much bigger names such as Zimmer Holdings (ZMH - Analyst Report). The stock carries a Zacks Rank #3 (Hold).

Wright Medical carries a Zacks Rank #3 (Hold). CareFusion Corporation (CFN - Analyst Report) and Covidien plc (COV - Analyst Report) carry a Zacks Rank #2 (Buy) and are expected to do well.

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