Avanos Medical (AVNS) Set to Acquire OrthogenRx for $160M
Avanos Medical, Inc. AVNS recently inked a deal to acquire OrthogenRx, Inc. for a total consideration of $160 million. The purchase price comprises $130 million in cash on completion and an additional $30 million in contingent cash consideration that will be paid on the achievement of growth milestones associated with the company’s commercial hyaluronic acid (HA) therapy products — GenVisc 850 and TriVisc.
OrthogenRx has emerged as a leader in viscosupplementation therapies for the treatment of knee osteoarthritis (OA) pain.
The buyout is projected to be completed in the first quarter of 2022, subject to customary closing conditions. The transaction will be financed via a combination of funds from Avanos Medical’s existing credit facility and available cash.
It is worth mentioning that Avanos Medical anticipates the new business to contribute around $65 million in revenues in 2022 and be instantly accretive to gross and operating margins.
Per management at Avanos Medical, the buyout is likely to provide a boost to its chronic pain portfolio through offering a continuum of care treatment options for patients suffering from knee OA.
Deal Rationale
For investors’ note, the treatment of OA knee pain with HA therapy presents a commercial opportunity of $1 billion in the United States. The addition of GenVisc 850 and TriVisc (both approved by the FDA and indicated for treating OA knee pain in patients) is likely to further complement Avanos Medical’s pain portfolio of COOLIEF Cooled Radiofrequency treatment for knee OA.
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Per management, the transaction is a strategic fit for the company. The buyout will enable Avanos Medical to further solidify its relationships with healthcare providers as it seeks to be their preferred partner in treating musculoskeletal pain.
Market Prospects
Per a report by MarketsandMarkets, the osteoarthritis therapeutics market was worth $7.3 billion in 2020 and is expected to reach $11 billion by 2025, witnessing a CAGR of 8.7% during the forecast period (2020-2025). Hence, the announcement of this acquisition is well-timed for Avanos Medical.
Recent Development
This month, the company introduced its PainBlock Pro data collection and patient engagement app that enables healthcare providers to track patients’ recovery in real-time for up to 10 days after surgery. The app/text message-based platform is easy to use and helps in tracking patient progress by collecting patient-reported outcomes (PROs) through quick daily surveys, pre and post-surgery, via the completion of the pain management therapy.
Price Performance
Shares of the Zacks Rank #3 (Hold) company have lost 30.3% in the past year against the industry’s growth of 6%.
Stocks to Consider
Some better-ranked stocks in the broader medical space include Thermo Fisher Scientific Inc. TMO, McKesson Corporation MCK and NextGen Healthcare, Inc. NXGN.
Thermo Fisher surpassed earnings estimates in each of the trailing four quarters, the average surprise being 9.02%. The company currently carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Thermo Fisher’s long-term earnings growth rate is estimated at 14%. The company’s earnings yield of 3.7% compares favorably with the industry’s (3.6%).
McKesson beat earnings estimates in each of the trailing four quarters, the average surprise being 19.9%. The company currently carries a Zacks Rank #2.
McKesson’s long-term earnings growth rate is estimated at 8.9%. The company’s earnings yield of 9.9% compares favorably with the industry’s 3.2%.
NextGen Healthcare surpassed earnings estimates in each of the trailing four quarters, the average surprise being 16%. The company currently carries a Zacks Rank of 2.
NextGen Healthcare’s long-term earnings growth rate is estimated at 8.5%. The company’s earnings yield of 5.9% compares favorably with the industry’s (4.1%).
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