Stryker Continues Spending Spree With Purchase of Orthovita

Buying out the competition seems to be in vogue these days in the orthopedic industry. A mere three weeks after Johnson & Johnson purchased Swiss device manufacturer Synthes Inc. for $21.67 billion (one of the largest deals in history), Stryker Corp. followed suit with the $316 million acquisition of orthobiological developer Orthovita Inc.

Stryker executives announced the deal on Monday, saying the company has agreed to pay $3.85 per share for Orthovita, a 41 percent premium over the firm’s closing share price the previous trading day (May 13). The buyout price includes net debt of $12 million.

The boards of both companies have approved the deal, which also requires approval from the holders of at least half of Orthovita’s shares as well as clearance from antitrust regulators. The holders of 14.5 percent of Orthovita shares also already have endorsed the deal. Stryker will start an offer for Orthovita shares within 10 days; it expects to close the deal by June 30.

Analysts believe the acquisition will help Stryker better compete against its larger rivals and further diversify its product base. Last fall, the Kalamazoo, Mich.-based orthopedic manufacturing giant purchased the neurovascular business of Boston Scientific Corp. for $1.5 billion, a move executives deemed both important and strategic as the company attempts to offset slowing hip and knee implant sales with products in potential growth markets. The neurovascular business acquisition gave Stryker a division that has generated operating margins of more than 30 percent for Boston Scientific.

Stryker’s strong cash position has enabled the firm to go on a virtual spending spree over the last 18 months, gobbling up the likes of the Sonopet Ultrasonic Aspirator from Mutoh Co. and Synergetics U.S.A. ($67 million); Gaymar Industries Inc., an Orchard Park, N.Y.-based developer of surface and pressure ulcer management devices ($150 million); and the Porex Surgical division of Aurora Capital Group, which develops porous polyethylene products for reconstructive surgery of the head and face (terms were undisclosed).

“We consider this deal [Orthovita] a good fit for Stryker and believe the company should be able to drive a turnaround in Orthovita’s performance over the next 12 to 24 months,” Jeff Johnson, an analyst with Robert W. Baird & Co., told Reuters.

Stryker executives agree.

“We believe the collective talent of our sizable sales forces across multiple franchises positions us to build on Orthovita’s success and accelerate sales growth,” Stryker Chairman, President and CEO Stephen P. MacMillan said. “With this acquisition we are expanding our orthobiologics product portfolio and strengthening our competitive position in key segments of the spine, orthopaedics and biosurgery markets.”

Orthovita’s products include Vitoss bone grafts and Cortoss bone augmentation material as well as Vitagel, which is designed to reduce bleeding. Last year, the company generated $95 milliion in sales.

“This transaction is a great event for our shareholders, customers and employees,” Orthovita President and CEO Antony Koblish said. “This transaction delivers significant value to our shareholders and allows us to combine our portfolio of orthobiologic and biosurgery products as well as our proprietary biomaterials pipeline with Stryker’s sales and marketing teams. We look forward confidently to an exciting future with a great partner.”