About a month ago, we reported here that the deal to sell the Israeli cartilage rehabilitation company Carthill to the American company Bioventus is in jeopardy. Biventos was to acquire Cartihill for $ 350 million and another $ 150 million on a conditional sales sale. To fund the deal, it sought to raise bonds, however market conditions did not allow the raising. Biventos announced that it would look for other sources of funding, and both sides announced they were entering into negotiations to try and save the deal.
Today, the listed company Elron, which owns 25% of Cartihill, announced that new terms have been reached for the transaction and it is now expected to be implemented, while postponing part of the payment. $ 33 million will be paid immediately, another $ 50 million in about a year, and the rest gradually over the next two and a half years. Biventos has increased its lines of credit to meet the first payments of the agreement.
Payments that are not paid immediately will bear interest of 8%. Another benefit that Cartyhill shareholders will receive in exchange for their consent to withdraw the payment is a change in the conditions for receiving the contingent consideration. Originally, an additional $ 150 million was to be transferred to Cartyhill owners upon reaching Cartyhill products sales of at least $ 100 million over 12 months. Under the new agreement, $ 75 million will be sufficient to receive the contingent consideration. Carthill’s product has only recently received marketing approval in the US, which was the trigger for the deal, and therefore has not yet recorded significant sales.
The third condition that enabled the deal, is the collateral: if Biventos falls behind in payment, Cartihill shareholders will be able to return Cartihill to their possession almost immediately. Biventos has also pledged to invest at least $ 20 million in building Carthill’s sales force and to continue to hold it as a separate legal and operational entity, including staff retention.
Thus, according to the least optimal scenario, but still bearable for shareholders, they will get the property back, albeit after a waste of patent time and possibly even after a problematic launch attempt, but after investing money and management resources of a commercial company. Biventos has also pledged compensation, in case the deal is not completed.
The shareholders in Carthill are: Elron and the Axelmed, Peregrine, aMoon, Access Medical funds, the Partek Fund, Johnson & Johnson and private investors.
Elron announced with the signing of the deal that if it materializes, it will receive $ 92-90 million at the time of purchase, and $ 37-36 million to be paid depending on the realization of the milestones. Even in the spread version, the return is 5-7 times the return on investment. Since the announcement of the cancellation of the transaction, Elron’s share has fallen by 26% (also due to market conditions).
According to Zvika Sabolin, a partner at Elron: “From the first day after the announcement of the cancellation of the recruitment, we entered into negotiations with Biventos on the basis of full trust. They kept telling us ‘we want to complete the deal’, and even opened up to us all their books to show us how they would take care of the financing and also the future of Cardinil. Such a move has also raised our confidence that they really, really want Carthill and are willing to invest in it. Both vis-à-vis Biventos and among Cartyhill shareholders, there has always been an excellent relationship of cooperation. “Everyone is very happy now.”
The natural partner
Cartyhill, initiated and directed by Dr. Nir Altshuler, developed a coral-based cartilage restoration solution, which is inserted into the bone and cartilage where these are missing (e.g. in the knee). The coral is dismantled.The coral is taken right from the sea, with the approval of all relevant authorities, after which the company undergoes various processes to make them suitable for cartilage restoration.In the experiment conducted by the company, 77.8% of patients in Cartilhill product felt improvement, compared to 33.6% of those who received the standard of care Existing.
The deal was first announced last April, a week after approval was given by the FDA, the U.S. Food and Drug Administration, to market Carthill product in the United States.
Biventos is a unique company in the field of orthopedics. It deals with organ renewal in addition to classical orthopedics, and is therefore very suitable for marketing Cartilhil cartilage restoration product.
Biventos currently has only $ 27.4 million in cash and a debt of $ 368.3 million. Its cash flow for the first quarter of 2022 was negative. It estimates revenue of $ 545-565 million in 2022, and EBITDA (earnings before interest, taxes, depreciation and amortization) of $ 94-107 million. The company’s market capitalization is $ 704 million.
Shares of Biventos have actually started to rise since the bond raising was canceled, so it will be interesting to see how investors react when the trade opens that the company has nevertheless decided to promote the expensive deal.