Despite the chequered past of the Augment Bone Graft, Wright Medical (NASDAQ:WMGI) has struck a deal to acquire it along with its maker, BioMimetic Therapeutics (NASDAQ:BMTI), and BioMimetic's portfolio of foot and ankle devices in a deal worth up to $390m, or roughly three times the target company's November 16 market cap.
In 2011, the graft squeaked through an FDA panel vote only to be turned down for approval this January (Close adcom vote casts shadow over BioMimetic bone graft product, May 13, 2011). Five months ago, BioMimetic submitted an amendment to its premarket approval (PMA) application containing data designed to allay the agency’s concerns. Whether the package placates the FDA or not, Wright seems to be convinced that the product has a good chance of success.
80% Of The Market?
Augment contains recombinant human platelet-derived growth factor and is intended as an alternative to autologous bone grafting in foot and ankle fusions, eliminating the need for the separate operation to source the bone. Its success at the FDA is pivotal to the takeover's value -- half the total deal price depends on U.S. approval and the achievement of sales targets.
And even then, Wright is hedging its bets: only $42m of the initial $190m up-front payment will be in cash. Each BioMimetic share will additionally translate into the right to receive 0.2482 shares of Wright stock, which at its current price, implies a value of around $150m.
Each BioMimetic share will also receive one tradable contingent value right (CVR), allowing its holder to receive additional payments: $3.50 on FDA approval of Augment, $1.50 if all of BioMimetic’s products sell a total of $40m in the 12 months after the acquisition, and another $1.50 if the products hit the $70m mark. If all milestones are hit, this translates into current BioMimetic investors receiving an additional $190m.
These sales-based milestone payments cannot be made sooner than 24 and 36 months, respectively, after the deal closes, expected in the first quarter of next year. EvaluatePharma’s consensus data forecast that these sales levels will not be reached until 2015 anyway, at least using just BioMimetic's selling muscle.
Taking Wright’s sales and distribution organisation into account, however, it is now possible that the $40m goal, at least, will be hit a year earlier.
Augment’s approval in the U.S. is expected in the second half of 2013. EvaluatePharma predicts that its U.S. sales will begin at $17m in 2014, rising to $245m in 2018. Wright says that the U.S. market for surgical bone repair in hindfoot and ankle fusion procedures is worth around $300m per year.
Whether Augment can carve out an 80% market share will ultimately be down to how it is marketed and whether it gains reimbursement – but first, it depends on the FDA.