The Accelmed fund, controlled by Dr. Uri Geiger and Mori Arkin, is reconnecting renowned medical devices investor Lewis Pell to the Israeli market: Accelmed and Pell will jointly acquire US urological company Cogentix, a leader in the treatment of overactive bladder syndrome. Accelmed will invest $25 million in the company, while Pell will convert $29 million of the company's debt to him into shares. After the deal, Accelmed will own 27% of Cogentix, and Pell will own 33%.
Before the announcement, Cogentix had a market value of $31 million. Accelmed's investment reflected a 29% premium on the share price before the deal. Following the announcement, the share price rose 33.33% on Nasdaq.
The acquisition is another example of Accelmed's model: acquiring US companies with substantial revenue, but with no new products, and therefore with no growth, and adding to their basket of products technologies from Israeli companies. In this way, the fund plans to overcome the almost insurmountable obstacle for Israeli companies - building a distribution system in the US based on a single product. Using Accelmed's method, the Israeli products join an existing distribution system.
Cogentix has $50 million in annual revenue. Its products are marketed to 40% of US urologists, and it therefore constitutes an interesting distribution channel in this field. Its leading product for treatment of overactive bladder syndrome, however, is currently threatened by new products. In the first half of 2016, the company had a $2.8 million operating loss and a $3.6 million net loss, with $2.8 million in cash. The company posted a positive $1 million cash flow in the first half of the year.
Geiger said, "The story began with Vision Sciences, in which Pell invested through debt. The company was unable to cope with the burden of its debt to him, and was sold to Cogentix. That company met the terms of the debt, but was still haunted by it, and was unable to invest in efforts at expansion and R&D. Cogentix has not launched any new products for a decade. It isn't growing, and its share price before the deal was therefore low, in comparison with its revenue. Following the deal, the company will be free of debt, with $25 million to invest in the technological opportunities we have already lined up for it." Pell currently controls the company board, following a power struggle that was decided several months ago.
The company will be managed by its current CEO, Darin Hammers, who took up his position several months ago as part of the preparations for the deal. Hammers is a former executive in urological company Bard and the urological division of Boston Scientific. Cogentix's shareholders are expected to vote on approval for the deal by this November.
In a previous deal by Accelmed using the same model of acquiring a distribution channel and integrating a new product in it, the endoscopy technology of Peer Medical was merged into US company EndoChoice Holdings Inc.(NYSE:GI), which offered a basket of products in the medical digestive field. That merger was led by Sequoia Capital, with Accelmed joining in. In the current deal, on the other hand, the leader and initiator was Accelmed. The current deal is also slated to include more than one Israeli product, and Cogentix is already a listed company, while EndoChoice held its IPO following the deal. EndoChoice's current market cap is $103 million, compared with $366 million at its IPO, mainly due to slower-than-expected sales of its Israeli product.
Published by Globes [online], Israel business news - www.globes-online.com - on September 7, 2016
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