Alphatec (NSDQ:ATEC) had a busy day yesterday. The spinal implant maker revealed that it paid $27 million in cash and stock to acquire SafeOp Surgical and its intraoperative neuromonitoring technology, raised $50 million to cover the tab and made a raft of personnel changes – including the installation of former NuVasive Inc. (NSDQ:NUVA) exec Pat Miles as CEO. Oh, and it reported fourth-quarter and full-year results that beat the consensus forecast on Wall Street.
Carlsbad, Calif.-based Alphatec paid $15 million up front plus 3.3 million ATEC shares, worth $11.5 million at yesterday’s $3.48-per-share closing price. The deal also involves a $3 million convertible note and warrants for 2.2 million shares at an exercise price of $3.50 apiece. Another 1.3 million ATEC shares are on table as performance milestones, Alphatec said.
“This strategic acquisition of SafeOp marks a transformational moment for the new ATEC,” Miles said in prepared remarks. “Our answer to the need for better neuromonitoring is investing in technology that automates information to enable objective clinical decision making and eradicate non-critical operating room personnel. The integration of this key technology into our spine procedures will address unmet clinical needs and improve surgical outcomes in spine. We expect the combination to accelerate our business by increasing procedural revenue and driving pull-through across our entire portfolio.”
Alphatec said it plans to cover the cash portion of the SafeOp deal with the $50 million it raised in a private placement deal, a warrants issue and a $4.8 million warrant exchange with an existing investor.
L-5 Healthcare Partners led the private placement, joined by some Alphatec executives and directors and new and existing institutional backers. The remaining $35 million is earmarked for general corporate purposes, the company said.
Personnel moves already the subject of lawsuits
As part of Miles’s move to the corner office, Alphatec shifted Rich down the hall the to president & COO office. The company also named a spine surgeon as its chief medical officer and tapped a trio of SafeOp and NuVasive veterans for executive roles.
The new CMO is Dr. Luiz Pimenta, a well-known spine surgeon with 30 years of clinical practice behind him. Former SafeOp CMO & development VP Dr. Richard O’Brien and Robert Snow, that company’s ex-marketing VP, are also taking executive roles at Alphatec. And Jim Gharib, another NuVasive veteran who was technical lead for its neurophysiology platform, hired on to lead the SafeOp development and integration, Alphatec said.
The hiring of Miles prompted a lawsuit from his former employer alleging that he schemed to secretly back Alphatec while discouraging NuVasive’s pursuit. Alphatec counter-sued in October 2017; NuVasive last month leveled poaching and patent infringement claims against Alphatec in California federal court.
Q4, 2017 results beat The Street
Alphatec swung to black for the fourth quarter despite a -3.0% top-line slide, posting profits of $9.1 million, or 53¢ per share, on sales of $26.3 million for the three months ended Dec. 31, 2017. That compares with losses of $-4.4 million during Q4 2016. Analysts were looking for losses of -25¢ on sales of $23.3 million for the quarter.
Full-year losses were down -92.3% to -$2.3 million, or -18¢ per share, on sales of $101.7 million. That’s a -15.4% decline compared with 2016, but still ahead of the $99.6 million consensus on The Street, where the bottom-line expectation was for losses of -$1.16 per share.
“We closed 2017 with solid momentum, and on excellent footing to continue to drive ATEC’s advancement into an innovative, growth organization,” Rich said in prepared remarks. “Throughout the year, we demonstrated great progress with the transition of our sales channel and aggressively managed expenses and cash. We have an exceptionally strong understanding of what it will take to achieve our vision and the strongest team in spine to accomplish it.”
Alphatec said it expects to report sales of roughly $95.0 million this year.
“As the transition of our distribution channel progresses, top-line visibility will continue to be somewhat limited as we discontinue non-strategic relationships and navigate the contracting process to execute each transition. However, I am proud to say that we are beginning to see our efforts reach fruition. As 2018 progresses, we expect that sales from the dedicated portion of our channel will continue to offset the negative revenue impacts associated with transitioning or discontinuing non-strategic distributor relationships,” Rich said.
ATEC shares closed up 2.4% at $3.48 apiece yesterday. The stock opened down -0.6% to $3.46 today.