Over the past 18 months healthcare has become a hot topic of discussion, whether it be related to the Delta variant of COVID, vaccination debates, or the innovation and advancement in technologies to bring us more automation.
Bioventus (BVS 0.31%) is a company that specializes in developing innovations in biologics and clinical therapies for active healing. It IPO'd this year, and has plans to grow quickly, but will those plans make the company stock a buy for investors?
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In February of this year Bioventus opened its doors of ownership to the public by way of an IPO of 8 million shares. Originally anticipated to price in the range of $16 to $18, the company settled on $13, bringing in $104 million. But the company should not be looked at as a start-up going on its own. It was previously the biologics and clinical therapies unit of Smith & Nephew, a long-standing medical company based in the United Kingdom focusing on advanced surgical devices, wound management, and biologics and clinical therapies. Smith & Nephew spun off Bioventus in 2012.
A history of growth
Leading up to the spin-off, Smith & Nephew was experiencing strong growth from the biologics and clinical therapies unit, growing from $52 million in annual revenue in 2004 to $223 million in 2010 for that unit alone.
By 2019, full-year revenue for Bioventus had grown to $340 million, representing a 6.5% increase over 2018. But then as COVID-19 struck pretty much the entire healthcare industry, as elective surgeries were canceled or postponed and office visits experienced the same, the company experienced a setback in revenue; it resulted in an 8.2% decrease through the first nine months of 2020 on a year-over-year basis compared to the same nine-month time period in 2019.
New growth
Since the IPO, Bioventus has displayed a plan of growth through acquisition, looking to take advantage of what is a post-acquisition $15 billion total addressable market in hospitals, ambulatory surgical centers, and office care. In July, the company announced the acquisition of Misonix (MSON), a public company that focuses on ultrasonic medical devices used in the removal of hard and soft tissue; that acquisition will bring additional ultrasonic technologies as well as regenerative medicines to the portfolio of products for Bioventus.
The combined company portfolios will allow for expansion of capabilities by utilizing Bioventus' existing footprint for adoption of Misonix's product offerings, expanding a salesforce across a larger customer base, and opening international doors for Misonix products by way of direct channels that Bioventus holds in Canada, Germany, the United Kingdom, and the Netherlands.
At a cost of $518 million in a cash-and-stock purchase, the company expects to see immediate rewards in the way of $80 million of additional revenue for 2021, while also benefiting from a long-term average annual growth rate by 100 basis points.
It also expects to see additional savings. From an expense perspective, the company anticipates that by the end of the second full year as a combined entity it will see $20 million in pre-tax cost savings due to overlapping synergies in the areas of public expense, support and systems, and infrastructure.
The larger acquisition of Misonix follows up a previous smaller acquisition of privately-held Bioness. The Bioness acquisition was made just a month after Bioventus went public, and it gives the company a wholly owned subsidiary developer of devices and programs in the orthopedic space.
The company shelled out $45 million up front for Bioness, with the remaining $65 million tied to milestone achievements by Bioness, which include Food and Drug Administration (FDA) approval of a new implantable pulse generator and receiver, called TalisMann. It also calls for Medicare coverage, reimbursement, and a $55 million revenue target over the first three years of the product launch.
The purchase is considered a win-win by Bioventus' CEO Ken Reali because it will bring immediate revenue to the company through an expanded product offering, while allowing for an extended reach of Bioness offerings through Bioventus' existing resources.
Looking ahead
Though it's a bit early to know how much the Misonix acquisition will contribute to 2021 sales because the acquisition has not fully closed yet, the company has provided totals from the Bioness acquisition. Announced during its second-quarter (Q2) earnings call, Q2 2021 total net sales were up 89% year over year, to $109 million -- an increase of $51 million. Sales from the Bioness acquisition accounted for $11.9 million of that total. Earnings per share also came in stronger than expected by analysts, at $0.16, beating Wall Street's estimate by $0.01.
The company also provided a raised full-year guidance for 2021, from an average of $402 million in total net sales to $410 million, pushing toward an increase of 27.5% year over year; that's made up of roughly $377 million from legacy Bioventus sales plus $33 million from Bioness. That $33 million is 73% of the initial $45 million shelled out for Bioness, not tied to milestone achievements, in only the first nine months since the acquisition.
After reaching a high of just below $20 in June, Bioventus stock shares are currently priced at around $15, slightly above the IPO price set in February. The Bioness acquisition is expected to close some time in the fourth quarter, which will shine a better light on whether that acquisition will pan out with immediate positive results.
In the meantime, analysts who follow the company have an average price target of $21 on Bioventus stock, providing investors with a possible 40% gain if that target price is hit. I wouldn't be surprised to see it come close to that number as the year goes on and the date gets closer to the closing of the Misonix acquisition.
