Businesswire07.29.16
Derma Sciences Inc., a tissue regeneration company focused on advanced wound and burn care, is acquiring BioD LLC for an immediate transaction value of $21.3 million and a potential total transaction value of an estimated $77.8 million. This includes an upfront payment of cash and common stock of $21.3 million, as well as potential product regulatory milestone payments in aggregate estimated to be up to $30 million and earn outs based on incremental net sales growth of up to $26.5 million.
BioD is a privately held company that develops and commercializes proprietary regenerative medicine products derived from placental/birth tissues for use in a broad range of clinical applications, including orthopedic, spine and ophthalmic channels. The transaction, which has been approved by the boards of directors of both companies, is expected to close next week.
Financial and strategic highlights of the transaction include the following:
Following the transaction, BioD will operate as a wholly owned subsidiary of Derma Sciences and will continue to be led by BioD’s president and CEO Russell Olsen. Additionally, BioD will receive a board observer seat on the Derma Sciences Board of Directors.
“The acquisition of BioD is a powerful strategic business fit with Derma Sciences and furthers our commitment to being a provider of advanced wound care and regenerative medicine products. Combining BioD with Derma Sciences enhances our scale, and provides for a diversified and growing revenue base of complementary, high-margin advanced wound care and tissue regeneration products,” said Stephen T. Wills, executive chairman and interim principal executive officer of Derma Sciences. “We know BioD well, having licensed two of their products in January 2014, and we are very excited to add their full portfolio of innovative products as well as 51 personnel, including R&D scientists, manufacturing and processing experts, clinical support and customer service staff and direct sales representatives, as well as an expansive independent sales rep infrastructure.”
In January 2014 Derma Sciences licensed two of BioD’s products: AMNIOEXCEL, an amniotic extracellular membrane product that is a sterile, room-temperature stable, resorbable tissue allograft derived from human amnion that provides a natural scaffold for tissue repair and regeneration; and AMNIOMATRIX, a cryopreserved allograft derived from human placental tissues that is used as a wound covering in the treatment of localized tissue defects, which Derma Sciences sells to wound care centers for treatment of chronic or non-healing wounds.
“BioD is a prime example of the kind of acquisition we look for to advance our growth strategy. In addition to bringing high-margin revenue of $22 million for the last 12 months, BioD will transform our P&L while also providing significant opportunities for cross-selling and G&A expense synergy. On a pro forma basis including the BioD business in our 2015 results and eliminating our First Aid Division (FAD), the sale of which we announced earlier, our 2015 gross margin increases from approximately 39 percent to approximately 52 percent, and the percentage of total revenues represented by our Advanced Wound Care business increases from approximately 49 percent to approximately 70 percent,” Wills said.
The four BioD product families gained through this acquisition are:
“Derma Sciences has been a wonderful partner over the past several years,” said Russell Olsen, president and CEO of BioD. “In particular, we are very pleased with the progress they have made in conducting clinical studies to support positive coverage determinations from Medicare Administrative Contractors (MACs) for AMNIOEXCEL. We view this combination as a positive for all parties, in particular as we leverage the capabilities inherent in both companies to achieve greater growth than either of us could alone. The 38 Derma Sciences sales reps and 25 independent sales reps, and the 235 BioD independent sales reps and seven direct sales reps have virtually no overlap in their call-points and customer bases. As such, we look forward to sales synergies and greater efficiencies as all members of the combined organization sell a larger number of clinically differentiated, high-margin products. I know we are excited to be introducing certain Derma Sciences products to BioD’s hospital and office-based customers.”
Olsen joined BioD in 2013 as chief operating officer and was named president and CEO in 2014. He has more than 25 years of executive management, sales and marketing experience in the medical and dental industries, having served as president of both Straumann and Keystone Dental. Olsen acquired executive management experience from Fortune 500 companies Bristol-Myers Squibb and Smith & Nephew plc, as well as most recently serving as CEO of CloudDDS, a dental technology company.
Private Placement
In addition to the proposed acquisition of BioD, Derma Sciences announces that certain BioD shareholders intend to purchase $2 million in shares of Derma Sciences common stock at a price of $4.1692 per share. These commitments will be funded on or before the closing of the BioD acquisition.
“The Derma Sciences Board of Directors is very pleased that BioD investors intend to participate in this financing at Derma’s current valuation. We believe this is a tremendous show of support and confidence in their view of this transaction and pro forma entity, and also reflects well on our business strategy, execution and future prospects,” said Wills. “This financing, along with proceeds from the sale of our FAD business and the sale of part of our investment in Comvita, strengthens our balance sheet and allows us greater flexibility to take advantage of accretive business opportunities.”
Derma Sciences will continue to be well-capitalized following the close of the BioD acquisition, the sale of its FAD, the sale of Comvita equity and the equity investment by BioD shareholders, and will have pro forma cash and short-term investments of approximately $42 million excluding transaction fees, plus approximately $16 million of marketable securities related to its remaining equity stake in Comvita Limited.
Greenhill & Co., LLC served as financial advisor and Thompson Hine LLP served as legal advisor to Derma Sciences for the BioD acquisition. Canaccord Genuity Inc. served as financial advisor and Baker, Donelson, Bearman, Caldwell & Berkowitz P.C. served as legal advisor to BioD.
Based in Memphis, Tenn., BioD was incorporated in 2005 to focus on developing allografts from placental tissue to aid in wound healing. It has more than 25 U.S. patents issued and pending covering its products, proprietary processing techniques and the clinical use of its products. Its products are used in a broad range of clinical applications including the treatment of complex chronic wounds, acute wounds and localized areas of injury on inflammation. Its products are also used for filling soft tissue defects or voids. The BioD products are manufactured using its proprietary CryoPrime and DryFlex processing technology. BioD also has an active research and development program and has seven clinical trials underway and one study published in a peer-reviewed journal.
Derma Sciences is a tissue regeneration company focused on advanced wound and burn care. It offers a line of products with patented technologies to help better manage chronic and hard-to-heal wounds, many of which result from diabetes and poor vascular functioning. The Company sells AMNIOEXCEL amniotic allograft membrane and AMNIOMATRIX amniotic allograft suspension into the $500 million market for skin substitute products. TCC-EZ is a gold-standard total contact casting system for diabetic foot ulcers. Derma Sciences’ MEDIHONEY product line is a brand of honey-based dressings for the management of wounds and burns. The product has been shown in clinical studies to be effective in a variety of indications. Other products introduced into the $14 billion global wound care market include XTRASORB for better management of wound exudate, and BIOGUARD for barrier protection against microbes and other contaminants. The company also offers a full product line of traditional dressings.
BioD is a privately held company that develops and commercializes proprietary regenerative medicine products derived from placental/birth tissues for use in a broad range of clinical applications, including orthopedic, spine and ophthalmic channels. The transaction, which has been approved by the boards of directors of both companies, is expected to close next week.
Financial and strategic highlights of the transaction include the following:
- Immediately accretive to Derma Sciences’ revenues, margins, EBITDA and earnings.
- Upfront consideration of $21.3 million includes $13.8 million in cash and 1.8 million shares of Derma Sciences common stock, valued at $7.5 million utilizing a 10-day volume-weighted average price (VWAP) as of July 26, of $4.1692.
- Potential product regulatory milestone payments in 2016 and/or 2017 in aggregate up to $30 million, payable in up to 35 percent common stock at Derma Sciences’ discretion.
- Potential net sales growth earn outs in 2017 and 2018 of up to $13.25 million each year, based on a multiple of incremental net sales and payable in cash.
- Brings four proprietary placental/birth tissue allograft product families with revenue of $18.6 million for 2015 and $22.2 million for the trailing 12 months ended June 30.
- 2015 gross margin of 87.2 percent, net income margin of 15.6 percent and double-digit revenue growth.
- Adds 235 independent sales representatives and seven direct sales representatives to Derma Sciences’ 80-person sales organization, which includes 38 direct sales representatives and 25 independent sales representatives, and expands customers to include inpatient, orthopedic, spine, neurology and ophthalmic channels.
Following the transaction, BioD will operate as a wholly owned subsidiary of Derma Sciences and will continue to be led by BioD’s president and CEO Russell Olsen. Additionally, BioD will receive a board observer seat on the Derma Sciences Board of Directors.
“The acquisition of BioD is a powerful strategic business fit with Derma Sciences and furthers our commitment to being a provider of advanced wound care and regenerative medicine products. Combining BioD with Derma Sciences enhances our scale, and provides for a diversified and growing revenue base of complementary, high-margin advanced wound care and tissue regeneration products,” said Stephen T. Wills, executive chairman and interim principal executive officer of Derma Sciences. “We know BioD well, having licensed two of their products in January 2014, and we are very excited to add their full portfolio of innovative products as well as 51 personnel, including R&D scientists, manufacturing and processing experts, clinical support and customer service staff and direct sales representatives, as well as an expansive independent sales rep infrastructure.”
In January 2014 Derma Sciences licensed two of BioD’s products: AMNIOEXCEL, an amniotic extracellular membrane product that is a sterile, room-temperature stable, resorbable tissue allograft derived from human amnion that provides a natural scaffold for tissue repair and regeneration; and AMNIOMATRIX, a cryopreserved allograft derived from human placental tissues that is used as a wound covering in the treatment of localized tissue defects, which Derma Sciences sells to wound care centers for treatment of chronic or non-healing wounds.
“BioD is a prime example of the kind of acquisition we look for to advance our growth strategy. In addition to bringing high-margin revenue of $22 million for the last 12 months, BioD will transform our P&L while also providing significant opportunities for cross-selling and G&A expense synergy. On a pro forma basis including the BioD business in our 2015 results and eliminating our First Aid Division (FAD), the sale of which we announced earlier, our 2015 gross margin increases from approximately 39 percent to approximately 52 percent, and the percentage of total revenues represented by our Advanced Wound Care business increases from approximately 49 percent to approximately 70 percent,” Wills said.
The four BioD product families gained through this acquisition are:
- BioDFactor Viable Tissue Matrix, a cryopreserved allograft derived from the human placental tissues developed for use as a wound covering in the treatment of localized tissue defects or areas of inflammation.
- BioDRestore Elemental Tissue Matrix, a morselized, flowable tissue allograft derived from amniotic tissues. Amniotic tissues have been shown to support soft tissue repair, reduce inflammation and minimize scar tissue formation.
- BioDFence Resorbable Adhesion Barrier, a sterile, resorbable adhesion barrier allograft derived from the human amnion that provides a structural barrier to reduce scar tissue formation. The allograft comes hydrated and in saline solution and has a five-year shelf life.
- BioDOptix Amniotic Extracellular Matrix, a dehydrated, extracellular membrane allograft derived from human amniotic tissue for use as a scaffold for ocular tissue repair and regeneration.
“Derma Sciences has been a wonderful partner over the past several years,” said Russell Olsen, president and CEO of BioD. “In particular, we are very pleased with the progress they have made in conducting clinical studies to support positive coverage determinations from Medicare Administrative Contractors (MACs) for AMNIOEXCEL. We view this combination as a positive for all parties, in particular as we leverage the capabilities inherent in both companies to achieve greater growth than either of us could alone. The 38 Derma Sciences sales reps and 25 independent sales reps, and the 235 BioD independent sales reps and seven direct sales reps have virtually no overlap in their call-points and customer bases. As such, we look forward to sales synergies and greater efficiencies as all members of the combined organization sell a larger number of clinically differentiated, high-margin products. I know we are excited to be introducing certain Derma Sciences products to BioD’s hospital and office-based customers.”
Olsen joined BioD in 2013 as chief operating officer and was named president and CEO in 2014. He has more than 25 years of executive management, sales and marketing experience in the medical and dental industries, having served as president of both Straumann and Keystone Dental. Olsen acquired executive management experience from Fortune 500 companies Bristol-Myers Squibb and Smith & Nephew plc, as well as most recently serving as CEO of CloudDDS, a dental technology company.
Private Placement
In addition to the proposed acquisition of BioD, Derma Sciences announces that certain BioD shareholders intend to purchase $2 million in shares of Derma Sciences common stock at a price of $4.1692 per share. These commitments will be funded on or before the closing of the BioD acquisition.
“The Derma Sciences Board of Directors is very pleased that BioD investors intend to participate in this financing at Derma’s current valuation. We believe this is a tremendous show of support and confidence in their view of this transaction and pro forma entity, and also reflects well on our business strategy, execution and future prospects,” said Wills. “This financing, along with proceeds from the sale of our FAD business and the sale of part of our investment in Comvita, strengthens our balance sheet and allows us greater flexibility to take advantage of accretive business opportunities.”
Derma Sciences will continue to be well-capitalized following the close of the BioD acquisition, the sale of its FAD, the sale of Comvita equity and the equity investment by BioD shareholders, and will have pro forma cash and short-term investments of approximately $42 million excluding transaction fees, plus approximately $16 million of marketable securities related to its remaining equity stake in Comvita Limited.
Greenhill & Co., LLC served as financial advisor and Thompson Hine LLP served as legal advisor to Derma Sciences for the BioD acquisition. Canaccord Genuity Inc. served as financial advisor and Baker, Donelson, Bearman, Caldwell & Berkowitz P.C. served as legal advisor to BioD.
Based in Memphis, Tenn., BioD was incorporated in 2005 to focus on developing allografts from placental tissue to aid in wound healing. It has more than 25 U.S. patents issued and pending covering its products, proprietary processing techniques and the clinical use of its products. Its products are used in a broad range of clinical applications including the treatment of complex chronic wounds, acute wounds and localized areas of injury on inflammation. Its products are also used for filling soft tissue defects or voids. The BioD products are manufactured using its proprietary CryoPrime and DryFlex processing technology. BioD also has an active research and development program and has seven clinical trials underway and one study published in a peer-reviewed journal.
Derma Sciences is a tissue regeneration company focused on advanced wound and burn care. It offers a line of products with patented technologies to help better manage chronic and hard-to-heal wounds, many of which result from diabetes and poor vascular functioning. The Company sells AMNIOEXCEL amniotic allograft membrane and AMNIOMATRIX amniotic allograft suspension into the $500 million market for skin substitute products. TCC-EZ is a gold-standard total contact casting system for diabetic foot ulcers. Derma Sciences’ MEDIHONEY product line is a brand of honey-based dressings for the management of wounds and burns. The product has been shown in clinical studies to be effective in a variety of indications. Other products introduced into the $14 billion global wound care market include XTRASORB for better management of wound exudate, and BIOGUARD for barrier protection against microbes and other contaminants. The company also offers a full product line of traditional dressings.