Bioventus agrees to installment payment plan to close locked-in $315 million buyout of CartiHeal

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Diving Brief:

  • Bioventus has found a way forward for its stalled takeover of CartiHeal, accept to a staggered payment plan that JP Morgan analysts called an “expensive resolution” to the standoff.
  • Originally, Bioventus planned to fund the $315 million takeover of the joint repair company with a bond issue. However, this plan collapsed due to “adverse market conditions”. The deal is now back on after CartiHeal agreed to accept a deferred payment over five installments.
  • With deferred payments subject to interest and Bioventus increasing its forward charge to fund the deal, JP Morgan analysts see the deal as an expensive solution that could yet be viewed favorably. Craig-Hallum analysts called the deal a neutral to positive outcome.

Overview of the dive:

Bioventus got an option to buy CartiHeal in 2020 as part of its $15 million capital investment in the Israeli developer of Agili-C, a coral-derived biodegradable implant for the treatment of bone and cartilage defects in the knee joint. FDA has obtained premarket approval to the device in March 2021. Six months later, North Carolina-based Bioventus filed $50 million for a potential purchase of CartiHeal after seeing clinical data on Agili-C.

In April, Bioventus exercised its option to buy CartiHeal, agreeing to pay $315 million to close the deal. A $415 million debt offer was then put forward, only to be quickly dropped. Bioventus’ the stock price fell Following the news, amid investor concerns, he would either sell shares or sign an unfavorable debt deal to fund the takeover.

This week, Bioventus revealed that it had found a way to avoid both of these scenarios. After filing the $50 million last year, Bioventus owes $265 million. The company will pay $50 million upfront and spread the remaining $215 million over five payments from 2023 to 2027, freeing it from the need to raise a large sum to fund the deal. Craig-Hallum analysts see merit in the structure of the deal.

“We believe this resolution is a neutral to positive net result for [Bioventus] shareholders,” the analysts wrote in a note to investors. “The real bright spot of the renegotiated deal is the vendor financing to make the terms loaded in the backend and with rates much more favorable than the market. This prevents [Bioventus] to return to the market for unfavorable debt terms or permanent equity dilution.

JP Morgan calls it an “expensive solution,” pointing to the $8 million fee Bioventus is paying for CartiHeal, the 8% interest rate on deferred payments, the need to extend an existing term loan agreement and lowering a step threshold. . Bioventus will pay $135 million if sales for the last twelve months exceed $75 million. Originally, sales would have had to exceed $100 million to trigger the milestone.

In exchange for the expense, Bioventus will secure ownership of an implant designed to make it easier, faster and more cost-effective to regenerate cartilage and subchondral bone. Bioventus predicts that the US opportunity for the device will grow from $110 million today to nearly $200 million by 2026. Use cases in other joints could open markets collectively valued at more a billion dollars.

As Bioventus tries to increase sales, it will come up against Vericel’s MACI, an autologous cellular scaffold for the treatment of symptomatic cartilage abnormalities of the knee. Craig-Hallum analysts believe Agili-C has a competitive edge.

“Cartilage defects remain undertreated and the current standard of care [for] the microfracture leaves much to be desired from an earnings perspective,” the analysts wrote. “While Vericel’s MACI has made progress in meeting this need, we believe adoption has been hampered by the need for two procedures and the long turnaround times required to use the MACI product, as well as a rehabilitation period of 6 to 9 months after the operation before returning to recreational activities.

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Elaine R. Knight