Bioventus Boosts Orthobiologics Business with Acquisitions

By Carolyn LaWell

Bioventus spent most of 2015 building an infrastructure to expand its surgical business. The company entered the surgical side of the orthopaedic industry with the acquisition of OsteoAMP® from Advanced Biologics in 2014, and followed with the acquisition of BioStructures in November 2015. With these transactions, a sales and distribution plan in place and future plans for inorganic and organic growth, Bioventus executives now say that the company is positioning itself as an orthobiologics leader.
The Business Model
Until the OsteoAMP acquisition, Bioventus focused on the clinical side of orthopaedics with osteoarthritis pain relief products like SUPARTZ® and DUROLANE® and its ultrasound bone healing product, EXOGEN®—still the largest revenue generator for the company that posted $240 million in 2014 sales. A major part of the company’s strategy on the hospital side is providing differentiated business models that assist in the new healthcare climate, e.g., bundled payments.
“Risk sharing is one component,” says Henry Tung, M.D., Vice President & General Manager, Surgical Orthobiologics for Bioventus. “Hospitals will have to take on risk, so they’ll want their vendors to partner with them on that risk management. They don’t want to bear all the risk themselves. We believe that we can innovate in a way that our competitors can’t because the others have an established business model that will be difficult to adjust. Being a young, new business and having that change plan in our strategy, it’s easier for us to accomplish.”
Tung says that the company’s message has resonated with most hospitals that seek competitively-priced alternatives to INFUSE or stem cells. Success was demonstrated in 2015 with OsteoAMP sales up 20
percent year over year.
The BioStructures Acquisition 
The BioStructures acquisition allows Bioventus to differentiate its surgical orthobiologics portfolio while maintaining its focus in spine.
Russell Cook and Duraid Antone founded BioStructures in 2009 and grew it to eight products, including its signature Signafuse bioactive bone graft putty. In 2014, the company had 61 distributors selling its products nationwide.
Bioventus acquired BioStructures’ full products and R&D pipeline. Based on the pipeline, the first commercialization priority is a collagen sponge product, Tung says.
BioStructures was developing a proprietary process for the suspension of biphasic mineral granules in a collagen sponge. The product has been in development for four years and is expected to enter the market in the next 
two years.
“The addition of BioStructures’ world-class synthetic BGS along with other licensed products significantly broadens our portfolio and allows us to address large segments of the BGS market that we have not addressed before,” Tung says.
Orthobiologic Investments
The orthobiologic market is challenged by a lack of investments from companies and venture capital firms, Tung and Cook say. Increased regulatory requirements have led to increased cost and time to market, stifling the development of novel technologies.
Cook estimates that data collected through an animal study for regulatory clearance would cost as little as $50,000 in 2003. Today, the expanded clinical criteria needed for regulatory clearance could cost a company between $1 million and $2 million. 
M&A Advice from Russell Cook
The Bioventus deal was not the first such undertaking for Mr. Cook and his business partner, Mr. Antone. The two founded Radius Medical, also focused on bone graft products, and sold it to NuVasive in 2007. 
Mr. Cook offers three thoughts on how to position your company to sell:
Don’t force it. “You realize early in the process if there is a fit or not. There’s usually a fit with regard to the sales channel as well as a fit with regard to business philosophy.”
Keep the business tidy. “Be clean from a debt and revenue perspective. Also make sure that the QA, documentation and regulatory systems are in order and that your company is buttoned up from top to bottom. That puts you in a position to dictate what you would like to achieve.” 
Build for profitability. “Develop a company that is in business to make money and is offering products to the market that provide a solution. Develop a business to do that first. Don’t develop a business 
for acquisition.”
“It’s a crowded space of what I would consider to be a lot of me-too players,” Cook says of the synthetic bone graft market. “There is not a lot of differentiation, which is what we were eventually able to accomplish. That’s why I think the market is stuck in neutral. It’s very expensive to get a product on the market today, and then you’re competing against products that have the same indication but did not have to go through the same process.”
Bioventus is investing internally. Beyond developing products from BioStructures’ pipeline, the company is investing $10 million annually in its BMP program. That product is expected to be commercialized in the next 15 months.
Tung says that he sees the orthobiologics market growing in the next five years, but sees greater opportunities for the market extended beyond that.
“The role of orthobiologics in surgery like spine fusion is important,” he says. “The metal is a temporary stabilization, but the biologics help with the fusion. With better technologies, those fusions can happen faster, have greater efficacy, and that will shift the dynamics to have the biologics be recognized as the important player vs. the metal, which are fairly undifferentiated from one company to another.”
Building Bioventus: Acquisition History
2012 2013 2014 2015
Smith & Nephew forms joint venture with Essex Woodlands to create Bioventus, in order to further develop its biologics and clinical therapies division. Essex Woodlands owns 51% and Smith & Nephew 49% of the newly-formed company. Bioventus acquires exclusive rights to Pfizer’s BMP portfolio of development programs and associated intellectual property. The portfolio includes a next-generation BMP in development, rights to rhBMP-2 and an exclusive option to a BMP program for soft tissue indications.

Bioventus entered into an agreement with Galderma to acquire international assets for DUROLANE, a product that assists in relief of osteoarthritis pain in a variety of joints.

Bioventus acquires OsteoAMP, a tissue-based bone biologic product used in spine surgery, from Advanced Biologics.
Bioventus acquires BioStructures, a proprietary developer and marketer of resorbable bone graft products. The agreement includes BioStructures entire portfolio of products and research and development pipeline.
Carolyn LaWell is ORTHOWORLD’s Chief Content Officer. She can be reached by email.

Tags: M&A