Essex Woodlands PIPE Helped Power Orthovita to $316M Stryker Deal

May 17 2011

MALVERN, Pennsylvania— Stryker Corp. is buying publicly held orthobiologics company Orthovita Inc. in a $316 million cash deal that will provide another exit for Essex Woodlands Health Ventures, which led a $32.5 million PIPE for the company in 2007.

Essex Woodlands has had two other exits in recent weeks. Early this month portfolio company Healthcare Brands International Ltd. sold its Swedish subsidiary, Antula Healthcare AB, to Meda AB for 1.8 billion Swedish Krona ($288 million). In late April portfolio company Prism Pharmaceuticals Inc. said it had agreed to be acquired by Baxter International Inc. for $338 million.

Orthovita, which closed at $2.73 on Friday, is being acquired for $3.85 per share. The company’s technologies include its Vitoss bone-graft substitute and its Cortoss bone-augmentation material. The company recorded 2010 product sales of $94.7 million, nearly double what it had when Essex Woodlands invested in 2007. It turned cash-flow positive in mid-2010, according to Chief Executive Antony Koblish.

Essex Woodlands had identified Orthovita as a promising growth-equity investment opportunity in the orthobiologics field and approached the company to discuss a possible investment. That led to a multidimensional deal disclosed in July 2007, which included the $32.5 million PIPE that the firm led.

In addition, Orthovita raised $45 million through a separate debt financing that enabled it to buy back revenue interests on future sales of certain products that it had previously sold to Paul Capital Healthcare.

Orthovita—which ended up calling down $35 million of the $45 million debt financing—also strengthened its board following this transaction. Essex Woodlands Partner R. Scott Barry joined the board, and the firm also helped recruit new members Bill Tidmore, former president of DePuy, and Paul Thomas, former CEO of LifeCell Corp., to join as well.

These moves put Orthovita on a path to becoming self-sustaining, according to Koblish. “It was a very good partnership for us,” he said.

Essex Woodlands owns just under 13% of Orthovita, Barry said. The firm’s strategy with PIPEs is to acquire a significant stake in the company and hold its position instead of trying to capitalize on near-term share-price appreciation, he said.

“We invest and hold and work with the company to build long-term value,” Barry said.

Essex Woodlands’ other recent growth-equity exits include ATS Medical Inc., acquired by Medtronic Inc. in April of last year, and BioForm Medical Inc., which was acquired by Merz Pharma Group in February 2010.

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