At a difficult time for Israeli companies and for young medical device companies, CartiHeal has succeeded in finding an alternative exit to the deal it signed in 2021 with US company Bioventus that did not go through. CartiHeal, developer of a medical device, Agili-C, for treating cartilage and joint surface lesions in the knee, will be sold to international medical device company Smith+Nephew plc (LON:SN, NYSE:SNN) for up to $330 million. Smith+Nephew has a market cap of £8.9 billion on the London Stock Exchange.
$180 million will be payed immediately, and a further $150 million in accordance with milestones, if CartiHeal’s products generate revenue of $100 million or more in the first year. Assuming that the full consideration is paid, CartiHeal’s shareholders, among them listed company Elron (TASE: ELRN) and venture capital funds Peregrine, Accelmed, aMoon, Access Medical, Pertec, and JJDC (Johnson & Johnson Innovation), will make six times their investments. This calculation takes into account that CartiHeal received $100 million as an advance payment in the deal with Bioventus that was cancelled.
The current deal is somewhat smaller than the Bioventus deal, which was signed in a completely different period in the medical device sector. Bioventus, which has a current market cap of just $303 million, was due to make an immediate payment of $350 million and a further $150 million based on sales milestones. The deal was signed as an option, and Bioventus announced that it would exercise the option after CartiHeal obtained US Food and Drug Administration approval for its product in 2022. Bioventus, however, failed to raise the capital required to finance the acquisition.
A source close to the deal told "Globes", "Smith+Nephew is a better and more suitable buyer than Bioventus for a company like CartiHeal. When the deal with Bioventus wa signed, including the acquisition option, the product was at a much earlier stage and could not be of interest to interest major companies like Smith+Nephew or Medtronic. Of course, as far as the identity of the buyer is concerned, an established, leading sports medicine company, this deal is preferable. And since the additional $100 million was received, from the point of view of the return, it’s practically the same deal."
CartiHeal began initial, limited marketing of its product while it was still negotiating the current deal, which was mostly compete before the events of October 7.
"When those events happened, there was a moment of uncertainty, which worsened every time there were huge demonstrations against Israel in London, where S+N is headquartered. But they were really fine, very businesslike, and only sought to add a precondition to the deal whereby they would be supplied at the closing with a large enough quantity of units to begin marketing, and the company will meet that condition without difficulty. Neither in the press release nor in the notification to the stock exchange did they in any way restrict identification of the company as Israeli," the source said.
CartiHeal was founded in 2009 by Nir Altschuler and Ben Gurion University of the Negev. It employs 25 people, including Altschuler, who returned to manage the company after the Bioventus deal fell through. The employees are expected to be absorbed by the acquiring company. The deal is expected to be closed in the first quarter of 2024.
Published by Globes, Israel business news - en.globes.co.il - on November 22, 2023.