- The U.K. Competition and Markets Authority on Tuesday suggested that Stryker's proposed divestiture of its Scandinavian Total Ankle Replacement (STAR) product line, detailed by the company in a filing Wednesday, could clear the country's regulatory hurdles for the proposed $4 billion acquisition of Wright Medical Group.
- CMA on June 30 raised concerns that the purchase of Wright could result in Stryker controlling 90% of Britain's total ankle replacement prostheses market, leading to higher prices and less choice for hospitals and patients. The agency gave Stryker until July 7 to address the concerns, at which point the medtech reportedly proposed the STAR product divestiture.
- In response to Stryker's offer, the agency issued Tuesday's statement indicating there are "reasonable grounds for believing that the undertakings offered by Stryker, or a modified version of them, might be accepted by the CMA under the Enterprise Act 2002."
CMA announced in April it was investigating Stryker's planned acquisition of Wright and in May officially launched the initial inquiry to determine if the merging of the two companies would substantially harm competition.
Results of the agency's Phase 1 investigation released June 30 concluded the proposed Stryker-Wright merger would "give rise to a realistic prospect of substantial lessening of competition" as a result of "horizontal unilateral effects" in the supply of total ankle replacement prostheses products in the U.K.
"The Parties have an extremely high combined share of supply of [90-100]% by revenue in the supply of total ankle replacement prostheses products in the UK, with a significant increment of [10-20]% arising as a result of the Merger. Wright is by far the largest firm in the market, having a share of supply of [70-80]%, and the Merger will remove its only sizeable competitor in the UK with a share of above 10%," CMS reported in its Phase 1 decision.
Following the Phase 1 investigation, CMA warned that if Stryker could not sufficiently address its concerns about the anti-competitive nature of the Wright deal the proposed merger would be referred for a Phase 2 investigation.
For now, at least, it appears the medtech's offer to divest the STAR product line has allayed the concerns of U.K. regulators. Analysts have expected the combination of Stryker and Wright's ankle businesses may face hangups from regulators since the deal was first announced last November.
Stryker's STAR product line, part of the company's foot and ankle solutions portfolio, is intended for use as a non-cemented implant to replace a painful arthritic ankle joint due to osteoarthritis, post-traumatic arthritis or rheumatoid arthritis. Jefferies analysts previously estimated STAR to be a $20 million to $30 million product line.
Stryker in 2014 acquired the assets of Small Bone Innovations, including the STAR product, in a $375 million all-cash transaction. At the time, the medtech said the product line, sold in more than 40 countries and the only PMA-holding, cementless, three-piece total ankle replacement system, would strengthen its foot and ankle portfolio.
In a filing Wednesday with the U.S. Securities and Exchange Commission, Stryker notified the SEC about the latest developments with the STAR divestiture offer to the U.K. agency. "In lieu of a Phase 2 investigation, the CMA will consider the proposed undertakings," the company reported.
U.S. regulators appear to still be weighing the Stryker-Wright deal. The Federal Trade Commission in January extended its review of the companies' proposed merger. A so-called second request, received Dec. 31, at the time indicated the FTC was asking for additional information from both medtechs to determine the competition effects of the deal.
If they decide there are anti-competitive concerns, U.S. regulators have the power to seek an injunction to stop the acquisition or challenge it in administrative litigation.