Smith & Nephew (SN.) chief executive Olivier Bohuon has moved decisively to stamp his mark on the hip and knees company by paying $782m (£488m) for private US healthcare company Healthpoint, which specialises in treating difficult wounds. The company's share price fell after investors realised the premium Healthpoint had commanded - more than four times sales and an astonishing 71 times cash profits.
In a sense, the strategic rationale is sound as wound care is growing far more quickly than the mature joints and devices market. But a lot of Healthpoint's value rests on a successful Phase III trial for diabetic leg ulcers. This is a notoriously difficult to treat condition and valuations for companies in the sector have gone through the roof recently, but have, paradoxically, delivered little tangible value for the acquirers. For example, in May 2011 Shire paid $750m to Advanced BioHealing for Dermagraft, an unsuccessful product that Smith & Nephew had flogged off in 2006. Shire enjoyed no more success and abandoned Dermagraft trials for leg ulcers in August last year.
