Bioventus nixes $415M funding plan for CartiHeal acquisition, citing 'current market conditions'

Barely a month after the plan was unveiled, Bioventus’ acquisition of fellow orthopedic devicemaker CartiHeal appears to be on much shakier ground.

Bioventus has walked away from an offering of senior notes that was meant to provide $415 million in debt financing to help fund the deal. In a statement, the North Carolina-based company said it “believes that current market conditions are not conducive for an offering on terms that would be in the best interests of its stakeholders.”

The debt financing plan was first laid out at the end of April: It would’ve seen Bioventus offer up $415 million in senior notes due in 2027, with the proceeds helping fund the CartiHeal buy and repay some of its existing debt.

But with that potential funding no longer in play, Bioventus CEO Ken Reali said it would look into “alternative financing options” for the purchase. He added that the axed funding wasn’t a reflection of the company’s own financial outlook, which is currently slated to ride out the coming months with “sustained double-digit growth.”

In a quarterly earnings call with investors this week, Reali expanded on Bioventus’ current approach to the acquisition of CartiHeal, which he said remains “very compelling.”

“We think it’s a game changer, but it’s not a ‘finance at all costs’ situation. We’re going to look at alternatives that we think are going to be best for all of our stakeholders in the short, medium and long term,” he said, according to a transcript. “Those are options that we're evaluating now in discussions with our banks, as well as with CartiHeal. As we progress, we’ll make the right decision here that we think is the right decision for Bioventus and for all of our stakeholders.”

Reali said that because the potential acquisition is requiring Bioventus to increase its current debt load, it’ll refrain from exploring other M&A opportunities while the CartiHeal deal is still on the table and until it’s able to ramp up its ratio of earnings to net debt.

That may take a while even if the deal is completely thrown out. In a legal notice tacked onto its first-quarter earnings report this week, Bioventus warned, “We may be unable to raise the capital necessary to complete the CartiHeal acquisition, and our ability to raise additional funds in the future may be limited.”

The company continued, “If we are unable to consummate the CartiHeal transaction, we will incur substantial costs and may be subject to forfeiture of the $50 million advance paid into escrow or other legal action.”

Though not announced until the beginning of April, the acquisition is nearly two years in the making. It stems from an option embedded into a partnership Bioventus and CartiHeal struck in July 2020 that hinged on CartiHeal’s ability to secure FDA clearance of its cartilage repair implant Agili-C.

With the agency’s blessing secured at the end of March, Bioventus immediately set out to make good on the purchase option. Under the terms of the deal, it offered $315 million up front and another $135 million to be paid out based on CartiHeal’s sales performance in the first year after the acquisition is complete.

That was initially expected to happen in the second quarter of this year, but the timeline is now much more uncertain.