Wright Medical Group (WMGI) and BioMimetic Therapeutics (BMTI) recently revealed a definitive agreement for a business combination of the two companies. The deal will mesh BioMimetic’s line-up of biologic offerings with Wright’s range of orthopedic products and its strong sales set up.
As per the terms, the deal has a possible value of about $380 million for BioMimetic shareholders, or $12.97 per share, based on Wright’s finishing price on November 16, 2012. Every share of BioMimetic will be converted into an upfront payment of 0.2482 share of Wright common stock and a cash component of $1.50. This payment stream values BioMimetic at about $190 million ($6.47 per share).
Each share of BioMimetic will also fetch a marketable Contingent Value Right, which gives the owner an extra cash stream of up to $6.50 per share. This amount may be paid following BioMimetic’s receipt of approval from the Food and Drug Administration (:FDA) for its Augment Bone Graft and upon accomplishment of some sales targets.
The deal should materialize in the first quarter of the coming year subject to BioMimetic shareholder approval and standard closing clauses. The agreement has gotten the uniform approval of the board of directors of both companies.
Wright believes that the deal will dilute adjusted EBITDA till the second year post-FDA authorization for Augment Bone Graft and then turn accretive. Wright will provide more data on the fiscal impact of the deal after the closure.
BioMimetic is dedicated to creating regenerative medicinal offerings which facilitate repair of musculoskeletal injuries with a protein therapy offering called Augment Bone Graft. This product is facing late stage review at the FDA as a substitute for autologous bone graft in ankle and foot procedures. Should the offering receive FDA approval, it will be the first clinically established protein therapy to enter the orthopedics business in the last 10 years or so.
Wright’s focus on niche technologies lends some support amid economic cyclicality. Moving forward, revenue growth will be supported by new product launches. Moreover, new deals in extremities are expected to bolster growth in this segment. The company’s restructuring initiatives should also boost future profitability.
Our views on Wright are moderated by intense competition from larger players and pricing pressure. Wright competes with much bigger names such as Zimmer Holdings (ZMH), Stryker (SYK) and Smith & Nephew (SNN). Moreover, the company remains exposed to procedure volume headwind. Our Neutral recommendation is supported by a short-term Zacks #3 Rank (Hold).
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