U.K.-based medical technology firm Smith & Nephew is spinning off its biologics business into a joint venture with the healthcare-focused growth equity and venture capital firm Essex Woodlands. The new entity will be called Bioventus, 51 percent owned by Essex Woodlands and 49 percent by Smith & Nephew.

Essex Woodlands will also pay Smith & Nephew $98 million, which will be used to pay down debt and give it a $160 million 5-year note from Bioventus. In return, Smith & Nephew is transferring most of its U.S. biologics team and clinical therapies business to the joint venture. Smith & Nephew will continue to distribute the products outside of the United States for the time being.

“In a single act we have given our existing biologics business the resources to address longer-term development projects, retained access to the exciting area of orthobiologics, realized value for reinvestment in nearer-term opportunities, and freed up management resource to focus on driving efficiencies in established markets,” says Olivier Bohuon, CEO of Smith & Nephew. The move will also allow Smith & Nephew to focus on developing its wound management business.

Bioventus will look to add new offerings and will continue to market the current portfolio of products, which includes a bone healing system and joint fluid therapy. Smith & Nephew and Essex Woodlands are committed to investing a significant proportion of Bioventus' cash flow into R&D over the next five years.

The joint venture will be headquartered in Durham, North Carolina, at the site of the clinical therapies division and will retain the existing management team, led by its current president, Mark Augusti. Smith & Nephew will retain its research facility at York, United Kingdom.

Although baby boomers are aging, they are reluctant to give up their active lifestyles. This has led to a growing market that addresses joint and bone problems. “We see tremendous growth potential with this new venture as more patients discover how active products can help heal and treat joint and bone ailments without invasive surgery,” says Marty Sutter, founding partner and managing director of Essex Woodlands. “We are excited about the prospect of working with the management team on the next phase of growth as it brings more active therapeutic products to market.”

Smith & Nephew’s areas of focus are orthopedic reconstruction, advanced wound management, sports medicine, trauma, and clinical therapies. It distributes its products in more than 90 countries and had $4 billion in sales in 2010.

In 2010 Smith & Nephew's Biologics and Clinical Therapies business generated a trading profit of $44 million on revenues of $223 million (of which $33 million came from sales outside of the United States). As of October 1, 2011, it had unaudited gross assets of $121 million. While the transaction is subject to regulatory approval, the companies expect it to be completed in the next few months. The deal will be “modestly” dilutive to earnings, the companies say.