Bioventus reworks $450M CartiHeal acquisition after scrapping original debt financing plan

It’s been a rocky road, but Bioventus is finally back on track to acquire CartiHeal in the coming weeks.

Nearly three months after first announcing its intent to buy out the Israeli surgical implant maker—and about one month after that original plan had to be scrapped—Bioventus on Tuesday outlined a new financing structure that it said will allow it to move ahead with the transaction.

The acquisition option was embedded into a mid-2020 agreement between Bioventus and CartiHeal, when Bioventus made a $15 million investment in the startup. The buyout was to become available once CartiHeal’s Agili-C cartilage repair implant earned FDA approval—a milestone that arrived at the end of March.

Under the terms of the new deal, Bioventus will pay only $100 million up front, a far cry from the $315 million originally promised. That includes $50 million deposited into escrow last year and another $50 million that’ll be due when the transaction closes. Bioventus has also agreed to dole out another $8 million to cover CartiHeal’s fees and expenses.

The remaining $215 million from the initial pledge will be paid out either according to a preset schedule of installment payments or as CartiHeal hits certain milestones, whichever comes first. Those deferred payments have been split into five tranches that will be completed between 2023 and 2027, and each tranche will accrue interest at an 8% annual rate until payment is complete.

The original acquisition deal also offered up another $135 million to be paid out to CartiHeal’s stockholders once the company achieved $100 million in trailing 12-month sales. Bioventus has moved up that payment, making it available once CartiHeal’s annual sales hit just $75 million.

Bioventus is in the process of expanding its existing term loan and credit facility to finance the more than $450 million deal, which will also draw on the North Carolina-based company’s free cash flow to help cover the deferred payments.

“CartiHeal represents an important breakthrough for the treatment of osteoarthritis and osteochondral defects of the knee with significant long-term potential, and we are excited to have reached an amendment that we believe will be favorable to our stakeholders and enable us to complete the acquisition,” said Bioventus CEO Ken Reali. “The ability to defer a significant portion of the upfront cash consideration allows us to continue investing in our near-term strategy for growth while maintaining financial flexibility.”

The transaction is expected to close by the end of July, only about a month behind its original second-quarter close date.

Bioventus first announced the deal in early April, just a few days after CartiHeal announced FDA approval of the Agili-C implant. But weeks later, at the beginning of May, the company withdrew its $415 million offering of senior notes that was meant to help cover the $315 million in upfront payments.

Amid the shake-up, Reali explained to investors that while the acquisition remained “very compelling,” Bioventus was exploring a variety of options—some of which may have seen it completely walk away from the deal.

“We think it’s a game-changer, but it’s not a ‘finance at all costs’ situation,” he said during an earnings call at the time.