Wright Medical’s $435MM acquisition of Cartiva last month is another execution of the company’s priority to expand its lower extremities portfolio in 2018. This year, Wright has launched the INVISION PROPHECY total ankle, AUGMENT Injectable Bone Graft and PROstep Minimally Invasive Surgery System. Cartiva’s Synthetic Cartilage Implant (SCI) gives Wright a novel technology to treat arthritis in the great toe.
|Cartiva's Synthetic Cartilage Implant|
Wright’s purchase of Cartiva, expected to close in 4Q18, enhances its position in the foot and ankle space by providing access to what Wright leadership described as a ~$420MM addressable market in the U.S. SCI is also entered in clinical studies for the treatment of first carpometacarpal joint osteoarthritis at the base of the thumb.
Wright is one of several companies making investments in foot and ankle. One factor driving this activity is desirable patient demographics—think younger and more active/athletic. Through this lens, Cartiva’s novel SCI technology made it a prime acquisition target, as we noted in in THE ORTHOPAEDIC INDUSTRY ANNUAL REPORT®.
- SCI represents an alternative to fusion—the current standard of care for great toe arthritis—and was reportedly the first synthetic cartilage device to gain FDA approval upon receiving its PMA in 2016. It was announced that the first commercial U.S. patient received the implant the week after approval.
- SCI is a biocompatible, durable, low-friction organic polymer that functions similar to the body’s natural cartilage. To date, >10,000 implants have been employed in the U.S. The device gained CE Mark approval in the European Union in 2002 and is also on the market in Australia, Brazil, Canada and Chile. The 35-minute procedure is typically performed in an outpatient setting, consistent with the industry trend of procedures shifting to ASCs.
- Earlier this year, Cartiva reported that five-year follow-up results demonstrated SCI’s ability to provide long-term durability in pain and functional improvements in the treatment of great toe arthritis, which is the most common arthritic condition of the foot with more than 120,000 surgeries performed annually in the U.S. Specifically, the clinical data referenced above demonstrate that SCI provides durable pain relief (patients achieved a 97% median reduction in pain); sustainable functional improvement (patients demonstrated a 176% median improvement in sports activities); motion preservation (patients experienced a 25% improvement in range of motion from baseline); and high patient satisfaction (93% of patients say they would have the procedure again). All of these potential benefits suggest SCI to be an attractive option to those younger, more athletic patients who seek greater mobility while preserving the option to eventually go the fusion route, if necessary.
Cartiva represents an opportunity for Wright, as they compete in the increasingly crowded foot and ankle segment. In comments accompanying the purchase of Cartiva, Wright President and CEO Robert Palmisano said that “in addition to the excellent strategic fit, the transaction is financially compelling, as the combination of high gross margins, very low instrument and inventory investment and limited infrastructure to be integrated, make the transaction attractive from a projected return on investment standpoint.
“Our core foot and ankle business has continued to gain momentum throughout the third quarter, and we expect this acquisition to further accelerate our growth prospects in this part of our business.”
Analysts note that Wright’s salesforce is more than double the size of Cartiva’s, which can drive market penetration in the years ahead. There could also be cross-selling opportunities between the two businesses, with Wright bringing Cartiva to existing Wright customers and Cartiva’s SCI offering a point of entry for Wright products with non-customer surgeons.
Palmisano also noted that bidding to purchase Cartiva was competitive—Wright’s peers were looking to scoop up SCI for themselves. ConMed, DePuy, Smith & Nephew, Stryker, Zimmer Biomet and now Wright have purchased companies in the last two years to boost their positions in the arthroscopy/soft tissue market. Moving forward, it will be interesting to see which novel technologies, like Cartiva, will be acquired.
In any case, it is clear that the current M&A environment means players of all sizes will continue to consider acquisitions to expand their footprint in industry.