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Wright Medical Buys Cartiva to Boost Lower Extremities Unit

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Wright Medical Buys Cartiva to Boost Lower Extremities Unit

Wright Medical's (WMGI) addition of Synthetic Cartilage Implant is likely to drive revenues in 2019; raised guidance for 2018 encourages.

Wright Medical Group N.V. WMGI recently entered into a definitive agreement to acquire Cartiva, Inc. for $435 million. Notably, the transaction will add Synthetic Cartilage Implant (SCI), Cartiva’s flagship product, to Wright Medical’s Lower Extremities business. The deal is expected to close in 2018.

The buyout is expected to prove accretive to Wright Medical’s net sales growth rate, adjusted EBITDA margin, non-GAAP earnings per share and cash flow in 2019, at constant currency.

About SCI

Georgia-based Cartiva is a private, orthopedic medical device company focused on treatment of osteoarthritis of the extremities.

SCI is the first of its kind, used for treating arthritis at the base of the great toe. Notably, the product received U.S. Premarket Approval (PMA) in 2016. Since the approval, the implant has been used in over 10,000 procedures in the United States.

Additional regulatory approvals have been obtained in Canada, EU, Brazil, Chile and Australia.

Wright Medical Pictures Gain

Wright Medical expects the Cartiva buyout to boost 2019 net sales by $47 million and adjusted EBITDA from continuing operations by $20 million.

Buoyed by a strong performance so far in the third quarter, Wright Medical raised its 2018 sales guidance. Excluding the impact of the Cartiva buyout, sales are expected within $812 million to $822 million, up from its previous guidance of $808-$820 million.

Thus, management expects the Cartiva deal to lend Wright Medical a competitive edge.

Lower Extremities Business at a Glance

Wright Medical’s Lower Extremities business mainly covers the foot, ankle and the biologics market.

In fact, in the recently reported second quarter, Wright Medical’s U.S. lower extremities business saw a year-over-year upside of 9% on approximately 15% growth in Total Ankle.

Market Prospects

Per an article by Grand View Research, the global orthopedic devices market is expected to reach $43.1 billion by 2024 at a CAGR of 4.4%. Factors such as rising demand for orthopedic surgeries owing to rise in road accidents and high prevalence of orthopedic ailments drive the market.

Hence, Wright Medical’s move has been a well-timed one.

Price Performance

In the past six months, shares of Wright Medical have rallied 36.7% against the industry’s decline of 13.5%.

Zacks Rank & Key Picks

Wright Medical carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader medical space are Intuitive Surgical ISRG, Integer Holdings Corporation ITGR and Masimo Corporation MASI.

Intuitive Surgical’s expected long-term earnings growth rate is 14.7%. The stock carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Integer Holdings has an expected earnings growth rate of 12.6% for the next year. The stock flaunts a Zacks Rank #1.

Masimo’s long-term earnings growth rate is projected at 14.8%. The stock carries a Zacks Rank #2 (Buy).

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