Smith & Nephew to Acquire BlueSky Medical

Seeking to expand its wound-care business into the rapidly growing negative-pressure therapy sector, Smith & Nephew plc (London) announced earlier this month that it intends to acquire BlueSky Medical Group Inc. (Carlsbad, CA). Details of the purchase include an initial payment of $15 million, with the potential for additional performance-based incentives of up to $95 million.

According to Smith & Nephew, the global market for negative-pressure wound therapy had a 2006 valuation of $1.2 billion and is growing at an annual pace of 12% in the United States—and more than twice that rate in other regions.

BlueSky, which manufactures the Versatile 1 wound vacuum system, has an estimated 5% of the global market for pumps and accessories used in negative-pressure therapy. BlueSky founders Richard Weston and Tim Johnson have agreed to assist with the integration of their company into Smith & Nephew's advanced wound management business.

Negative-pressure wound therapy is intended to promote and accelerate healing by applying subatmospheric pressure to an open wound. It is typically used to treat chronic wounds such as diabetic ulcers, pressure sores, and hard-to-heal conditions, as well as acute wounds stemming from trauma, burns, and surgical procedures. Although Smith & Nephew is the world leader in wound-care dressings, negative-pressure wound therapy is an entirely new sector for the company's wound-care division, which accounts for 27% of the company's overall business.

“We are very excited by this acquisition and the market position that this will give us,” said Joe Woody, president of Smith & Nephew's advanced wound management division. “We look forward to adding BlueSky's products to our customer solutions for hard-to-heal wounds and to working with these exciting products. With our global scale, distribution channels, and customer understanding, we can effectively leverage BlueSky's sales and profits into a substantial business.”

With the acquisition of BlueSky, Smith & Nephew becomes the only major medtech company in the negative-pressure therapy space. However, analysts expect other dominant players in wound-care management to enter the negative-pressure market as the technology continues to gain strength in both current and new treatment modalities.

A smaller firm, Boehringer Wound Systems LLC, a subsidiary of Boehringer Laboratories Inc. (Norristown, PA), recently introduced its Engenex negative-pressure wound care therapy system.

According to The Global Market for Advanced Wound Care Products 2007, a research report published in March by Espicom Ltd. (Chichester, UK), the worldwide wound-care market is estimated at $7.2 billion. The report states that advanced treatment approaches are expected to continue posting double-digit annual growth rates, outpacing growth in traditional wound-care products.

In light of such figures, industry analysts have generally viewed Smith & Nephew's acquisition of BlueSky as a good move for both companies. Backed by the global resources of Smith & Nephew, BlueSky's market share is expected to increase substantially. However, the acquisition also draws Smith & Nephew into BlueSky's ongoing patent dispute with Kinetic Concepts Inc. (KCI; San Antonio, TX).

KCI filed its initial patent infringement suit against BlueSky in 2003, and BlueSky filed a counterclaim in February 2005. Last August, a jury verdict stipulated that BlueSky had not infringed on KCI's VAC technology patent. However, the verdict also upheld the validity and enforceability of KCI's patent. The loss of the infringement suit was seen as a major blow to KCI, whose negative-pressure wound therapy business reportedly accounts for about 80% of the company's revenues. KCI is currently appealing the verdict.

In addition, only days after Smith & Nephew announced its intention to acquire BlueSky, KCI announced that it had filed a new patent infringement suit against Smith & Nephew and BlueSky in the Federal District Court for the Eastern District of Texas. In conjunction with the announcement, the company reported that the patent relating to KCI's VAC technology had been awarded a continuation. The company contends that this development “further broadens the intellectual property around negative-pressure wound therapy.”

Catherine M. Burzik, president and CEO of KCI, said that issuance of the continuation patent strengthens the company's intellectual property around its VAC therapy. “We will continue to enforce and protect our intellectual property rights around the world while further investing in R&D and core competencies aimed at advancing the quality and effectiveness of care for patients with complex, hard-to-heal wounds,” she said.

The case is expected to go to trial in early 2008.

Separately, KCI also filed a new suit against Medela Inc. (Baar, Switzerland) for infringement of the same patent related to VAC technology. Medela—which introduced its Invia negative pressure wound therapy system last month—is also a defendant in the case that is currently on appeal.

Weston formed BlueSky in 2002, shortly after he left Medela. KCI named Medela in its initial suit because Medela had previously agreed to cease marketing its Vario suction pumps for wound therapy. KCI asserted that there was collusion between Medela and Weston to set up BlueSky in the United States for the express purpose of introducing a competitive wound-care product. KCI claimed that product was predicated on its patented technology.

© 2007 Canon Communications LLC

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