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Smith & Nephew's Rotation Medical Deal Aids Tissue Regen Arm

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Smith & Nephew plc’s (SNN - Free Report) recently-closed the acquisition of Rotation Medical Inc. is a significant achievement for the company in the emerging space of tissue regeneration. This development by the global orthopedics giant remains in line with its focused investment in new technologies to meet urgent clinical needs.

Notably, in October, Smith & Nephew had entered into a definitive agreement with Rotation Medical for its buyout. Incidentally, the acquired company is a developer of a novel tissue regeneration technology for shoulder rotator cuff repair. The deal was valued at an initial cash consideration of $125 million and up to $85 million over the next five years, based on the acquirer’s financial performance.

Smith & Nephew considers its Rotation Medical investment highly strategic as this will advance the company’s position in disruptive technologies and accelerate its transformation to higher growth. It is also encouraging to know that Rotation Medical’s Rotator Cuff System is highly complementary to its Sports Medicine portfolio.

The Rotator Cuff System, which helps in balancing biomechanics and biology to enhance the body’s natural healing response, already has a high customer adoption rate. Per Millennium Research Group’s data published in Sports Medicine Devices, US, 2016, more than 650,000 rotator cuff procedures take place every year in the United States at an annual growth rate of 5-6%.

Per the research report by BCC Research, the global tissue engineering and regeneration market is expected to reach $56.9 billion in 2019 from $17 billion in 2013 at a CAGR of 22.3%. This improvement not only signifies the huge growth potential of this space but also indicates how strategic the Rotation Medical takeover is for Smith & Nephew’s business. The company expects this buyout to be earnings neutral in 2018 as well as earnings accretive in 2019 apart from driving its strong top line growth.

Over the past three months, shares of Smith & Nephew have outperformed the broader industry. The stock has gained 2.6% compared with the broader industry’s 2.4% increase during the period.

Zacks Rank & Key Picks

Smith & Nephew carries a Zacks Rank #4 (Sell).

A few better-ranked medical stocks are PetMed Express, Inc. , Align Technology, Inc. (ALGN - Free Report) and Myriad Genetics, Inc. (MYGN - Free Report) , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

PetMed has a long-term expected earnings growth rate of 10%. The stock has rallied roughly 85.7% over a year.

Align Technologyhas a long-term expected earnings growth rate of 28.9%. The stock has gained 135.7% in a year.

Myriad Geneticshas a long-term expected earnings growth rate of 15%. The stock has soared 81.2% in a year’s time.

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