MiMedx Group agrees to buy Stability Biologics

Download PDF Copy

Reviewed

MiMedx Group, Inc.Jan 11 2016

MiMedx Group, Inc. (NASDAQ: MDXG), the leading regenerative medicine company utilizing human amniotic tissue and patent-protected processes to develop and market advanced products and therapies for the Wound Care, Surgical, Orthopedic, Spine, Sports Medicine, Ophthalmic, and Dental sectors of healthcare, announced today that it has signed a definitive agreement to acquire Stability Inc., d/b/a Stability Biologics, a provider of human tissue products to surgeons, facilities and distributors serving the surgical, spine and orthopedics sectors of the healthcare industry. The Company also announced today its revised outlook for 2016, which includes the expected impact of the acquisition on forecasted 2016 results.

Stability Biologics is privately held and was founded in 2010. The company is headquartered in Nashville, Tennessee and its state-of-the-art tissue processing center is located in San Antonio, Texas. During its five year history, Stability Biologics has evolved from its initial focus as a distributor of allografts, to its current position as an integrated provider in the surgical, spine and orthopedics sector of healthcare specializing in human tissue and bone product design and development, tissue processing and sales and distribution.

MiMedx expects the transaction to be accretive to Full Year Adjusted EPS* in 2016, and it projects the 2016 Stability Biologics revenues generated from its processed tissue and bone product sales and distribution to be at least $15 million. The transaction is subject to customary conditions of closing, which is expected to occur by mid-January 2016. Following the transaction, Stability Biologics will operate as a wholly-owned subsidiary of MiMedx.

Management Commentary on Acquisition

Parker H. "Pete" Petit, MiMedx Chairman and CEO, said, "We are pleased to have Stability Biologics join us, and we look forward to welcoming all of their associates to MiMedx. We also look forward to welcoming Brian Martin, their CEO, and Tom Johnston, their President, to the MiMedx senior executive team. Brian and Tom were the founders of Stability Biologics, and they have developed an outstanding reputation and tremendous relationships within the surgical, spine and orthopedics sectors of healthcare. We are pleased that they will be joining MiMedx, and we will greatly benefit from their expertise and extensive experience. Brian and Tom, along with the Stability Biologics leadership team of co-founder Martin P. Hall Jr., their Executive Director; Dr. Erik Erbe, Chief Science Officer; David Dorsey, Vice President; Rusty Adams, Vice President of Quality Systems and Regulatory Affairs; Brent Smith, Executive Vice President; and Scott Walsh, Vice President of Production will become members of our management team."

"We understand that the growth opportunities in the surgical, sports medicine, and orthopedics (SSO) area will require a more diverse sales organization and sales channels consisting of direct sales employees as well as sales agents and distributors. In developing our strategy in this market sector, we planned to add new product offerings, both internally developed and acquired. The acquisition of Stability Biologics will be a perfect complement to this strategic initiative as it brings an experienced sales distribution organization consisting of about 100 independent sales representatives that are focused in specific surgical areas. The acquisition will also allow MiMedx to immediately bring our surgically related products to the market through the Stability Biologics sales representatives. In addition, Stability Biologics is just beginning to develop revenues associated with their new products as a manufacturer," added Petit.

Bill Taylor, MiMedx President and COO, stated, "We are excited about the potential benefits both organizations will gain from this transaction. Stability Biologics brings us the ideal combination of HCT/P products, intellectual property, sales and distribution and employee talents in a strategic market sector with great growth potential. Their products should also strengthen and complement the sales of the MiMedx tissue products. We believe MiMedx brings to Stability Biologics a parent organization with the operating efficiencies, infrastructure, capitalization, strategic direction and vision to dramatically propel its growth opportunities. Stability Biologics is also at the point in their growth where they needed a broader business foundation in the clinical, scientific, reimbursement and contracts areas. These are critical competencies of MiMedx that will accelerate the Stability Biologics growth potential. We believe this is a timely union."

Stability Biologics has developed an innovative proprietary platform in bioactive bone graft products and tissue allografts including structural/particulate bone, tendons/ligaments, structural allografts, demineralized bone matrix (DBM) and skin products for burns and traumatic wound care. Most recently, Stability Biologics introduced Physio™, a unique bone grafting material comprised of 100% bone tissue with no added carrier, thus maximizing bone forming potential. The Bone Graft Substitute (BGS) market is estimated at $1.7 billion in 2015 and growing to $2.3 billion by 2023. Physio's proprietary manufacturing process retains bioavailable growth factors, such as BMP 2, 4, 7 and VEGF, osteogenic proteins, and biologic calcium phosphate minerals. Physio's microstructure offers superior handling, injection and moldability, as well as exceptional wetfield integrity, stability and retention of the graft in the surgical field.

"The prospect of combining the collective MiMedx and Stability Biologics portfolios of products and adding the more than 100 person Stability Biologics sales network focused on spine and orthopedics is an ideal complement to MiMedx and our SSO growth initiative," commented Taylor.

Petit said, "Stability Biologics has created a spine and orthopedic related product line that matches extremely well with the MiMedx SSO products. We believe Physio will be positioned in the market as a complement to the MiMedx OrthoFlo and AmnioFix® product lines. Also, in the months ahead, we expect to announce some new innovative OrthoFlo developments. The Stability Biologics product line also addresses basic products associated with the management of bone fractures with their DBM, cancellous bone and bone putty products. In addition, they offer skin allografts that we believe augment the MiMedx burn product line. In summary, after reviewing numerous product and corporate acquisition opportunities, we feel we have found the most optimal opportunity that will continue to expedite the growth of our SSO product offerings in regenerative medicine."

"The MiMedx SSO agents and distributors will be cross-trained on Stability Biologic's products, which are accretive to our portfolio, and the Stability Biologics agents and distributors will be cross-trained on the MiMedx products. This will give MiMedx a resource of approximately 100 additional individuals immediately trained on our products and offering our products to the market in addition to the Stability Biologics products," noted Taylor.

The definitive agreement provides that the purchase consideration for Stability Biologics will be a combination of cash and stock. MiMedx expects to pay $10 million at the closing, comprised of 60% cash and 40% stock, plus assumed debt, with future contingent consideration to be paid through a two-year earn out arrangement. The earn out will be based on the 2016 and 2017 performance of the Stability Biologics business, and may be the larger portion of the overall consideration for the transaction. The earn out will also be paid in the form of 60% cash and 40% stock.

Commenting on the MiMedx revised 2016 guidance, Petit concluded, "We are very excited about the positive impact this acquisition is expected to have; however, we are being conservative with our forecast until we see the impact of our combined sales organizations. We have revised the guidance we published in our December 16^th press release to conservatively reflect the positive impact of this strategic acquisition."

2016 Revised Guidance Highlights

The Company's full year 2016 expectations, inclusive of the Stability Biologics acquisition, are: