Alphatec (NSDQ:ATEC) said it agreed to pay $49 million over 7 years to settle a legal dispute with OrthoTec and beat Wall Street’s forecast for its 4th-quarter earnings.
Last month a California state jury found that 1 of Alphatec’s subsidiaries undervalued assets during an acquisition in Europe, leveling a $48 million judgment against the Carlsbad, Calif.-based medical device company.
Yesterday Alphatec said it struck a deal to pay OrthoTec $17.5 million up front and another $1.1 million per quarter, plus 7% interest, over the next 7 years until the $31.5 million balance is paid off. Alphatec also said it took out a $50 million loan facility with Deerfield Management, some of which it can use to satisfy the OrthoTec obligation.
"While we continue to believe strongly in our position with respect to this litigation, this settlement removes a future uncertainty in our business and eliminates further distraction and extensive investment of human and financial resources associated with continuing with a lengthy legal process," chairman & CEO Les Cross said in prepared remarks. "We are confident in our ability to meet this obligation given the structure of the settlement and our future cash flow projections, supplemented with additional funding from Deerfield. With this behind us we are able to focus our full attention on strengthening and growing our business based on the strong foundation and momentum we have established."
Alphatec’s losses soared 1,028% during the 4th quarter. The company posted losses of $60.4 million, or -62¢ per share, on sales of $53.1 million for the 3 months ended Dec. 31, 2013, for a 0.6% sales gain compared with Q4 2012.
But adjusted to exclude 1-time items, losses per share were -2¢, dead even with expectations on The Street. Coupled with news of the settlement, the financial results sent ATEC shares up 8.1% to $1.73 apiece today as of about 1:50 p.m.
Full-year losses also rose, climbing nearly 432% to -$82.2 million, or -85¢ per share, on sales of $204.7 million – representing top-line growth of 4.3% compared with 2012.
Alphatec said it expects to log adjusted earnings before interest, taxes, depreciation & amortization of $30 million to $33 million this year, on sales of $208 million to $215 million.
OrthoTec sued bankrupt Eurosurgical in 2008, accusing it of fraudulently transferring assets to Surgiview to avoid paying $39 million in contract and copyright damages OrthoTec won in previous breach-of-contract and copyright infringement lawsuits. OrthoTec in 1998 bought the exclusive U.S. rights to Eurosurgical’s devices for 18 months, according to court documents. The arrangement was so successful that Eurosurgical sought to spike the deal and entered the U.S. market on its own, OrthoTec alleged.
But Eurosurgical allegedly sought to escape the $39 million by 1st leasing its entire business to Surgiview in 2004 and then transferring all but it damages liability to Surgiview 2 years later, OrthoTec alleged. Alphatec was added to the case in 2012, 2 years after it bought Surgiview.
Alphatec said it expects the decision to result in a $47.9 million charge to its 4th-quarter books, plus $3.7 million in legal costs.
"While Alphatec is disappointed with the outcome, we continue to believe that the facts and the law do not support the jury’s findings and Alphatec will vigorously defend itself in any future litigation related to this matter," chairman & CEO Les Cross said in prepared remarks. "Moving forward, Surgiview will file appropriate legal motions."
Last September Alphatec announced plans to cut 76 positions from Surgiview and Scient’x in a move aimed at saving between $2 million and $6 million a year.