DS Healthcare Group to Acquire Radiancy Inc.

DS Healthcare Group Inc. appears to be on a spending spree.

The company is acquiring Radiancy Inc., a developer of consumer medical devices, as well as the Neova dermatological products business from PhotoMedex Inc. in a transaction structured in two reverse triangular mergers, with a non-dilutive provision. The board of directors of both companies have unanimously approved the acquisitions.

The transaction is subject to customary closing conditions, including shareholder approval and regulatory approvals. Holders of approximately 24 percent of the common stock of DS Healthcare and approximately 17 percent of the common stock of PhotoMedex have agreed to vote their shares in favor of the merger, which is currently expected to close in the second quarter of 2016. These  assets, combined with DS Healthcare’s research and development platform, will form a global company with a comprehensive product portfolio of both medical devices and topical formulations which are anticipated to bring rapid revenue growth.

“I believe that this transformative acquisition creates one powerfully innovative company with unparalleled capabilities and industry leading technologies,” said Renee Barch-Niles, DS Healthcare’s CEO. “The combined scope and scale make us a more strategic business partner to our customers. We will leverage our global distribution channels with a product portfolio that is broader than any other market competitor in our space. And we are pleased that the deal structure aligns the incentives of everyone involved allowing for the greatest value creation for our collective shareholders.”

The purchases significantly expand and strengthen DS Healthcare’s technological platform, geographic reach, and go-to-market channels. The new infrastructure has an ideal fit with DS Healthcare’s disruptive product development expertise and adds another dimension with breakthrough proprietary and patented phototherapy expertise which includes LHE (Light and Heat Energy) and Thermicon technology, according to executives. Existing and new customers will have immediate access to this expansive, high-performance infrastructure.

The financing structure consists of DS Healthcare restricted shares paid out over a three-year period with leak-out and lock-up agreements with a $2 floor. The transaction includes a non-dilutive feature as the financing combination provides the ability for DS Healthcare to purchase the issued shares under a first right of refusal where DS Healthcare can limit dilution by purchasing shares through various financial instruments. The structure also allows for future financial flexibility and continued execution of DS Healthcare’s growth strategy.

Strategic benefits strongly position DS Healthcare for future growth and continued value creation:

R&D Pipeline Provides Attractive Long-Term Opportunity
Radiancy offers a solid pipeline consisting of numerous proprietary medical devices developed by a dedicated, in-house engineering team located in Israel. The products are potential first-to-market opportunities and the overall development portfolio serves multi-billion dollar industry segments such as lower back pain relief, acne treatment, hair removal, and other high consumer demand dermatological treatments. 

Valuable Know-How and Intellectual Property Portfolio
The acquired companies have unique expertise in device development, engineering, and testing as well as a U.S. Food and Drug Administration clearance mechanism. The acquired assets include numerous valuable patents, exclusive technologies and market ready devices. The company’s technology has a high barrier-to-entry for competitors allowing rapid growth through various distribution channels with little competition.   

Neova Professional Dermatology Portfolio
The Neova portfolio market presence with dermatologists and plastic surgeons significantly expands DS Healthcare’s specialty product line with various physician dispensed products. DS Healthcare’s strong brand awareness and acceptance by global physicians, dermatologist and plastic surgeons will be leveraged to introduce Neova’s products into our global pharmacy distribution platform in countries such as Mexico, Spain, Colombia, Italy, and Portugal. In addition, DS Healthcare’s hair stimulating products and topical aesthetic and therapeutic treatments are a good fit to be sold to the 2,400 domestic professionals that Neova’s products are distributed to in North America. The Neova business will contribute to the company becoming a fast growing competitor to Obagi Medical Products (acquired by Valeant Pharmaceuticals) and increases DS Healthcare’s capabilities, size and continued business evolution.

Significant Operational Synergies
Given the complementary nature of the companies’ product portfolios and operations, DS Healthcare estimates the transaction will generate more than $60 million in gross sales within the first 12 months following the completion of the transaction and realize several millions of dollars in anticipated operational cost savings primarily from duplicative public company expenses, warehousing, supply chain, and executive and director compensation, while strategically preserving investment in the R&D pipeline to help drive long-term growth.

The Board of Directors and new management of DS Healthcare jointly decided to pursue the Radiancy and Neova transactions due to their strategic timing and immediate value and benefits to shareholders. The current transaction will increase DS Healthcare’s assets, cash flow, and working capital. The much larger company structure should allow DS Healthcare to obtain more favorable terms on both the debt facility and other agreements. In addition, the company will have more time to conduct additional due diligence on WR Group and optimize transaction terms. DS Healthcare intends to continue to pursue the WR Group transaction in the near future.

Neova was the first clinical skin care brand to bring real innovation to the photo-aging category by introducing Copper Peptide Complex technology products. Making the association between DNA damage and premature skin aging, Neova now introduces DNA repair and Copper Peptide Complex technologies providing complete, continuous, optimized care.

DS Healthcare Group Inc. is engaged in the development of biotechnology for topical therapies. It markets through online channels, specialty retailers, distributors, pharmacies, and salons. Its research has led to a highly innovative portfolio of personal care products and additional innovations in pharmaceutical projects.