December 10, 2021 - 4:54pm EST by
2021 2022
Price: 13.13 EPS 0 0
Shares Out. (in M): 78 P/E 0 0
Market Cap (in $M): 1,021 P/FCF 0 0
Net Debt (in $M): 279 EBIT 0 0
TEV (in $M): 1,300 TEV/EBIT 0 0

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Bioventus Inc.

NasdaqGS: BVS | $13.13/shr | $1,021m MV* | $1,300m EV* | HQ: Durham, NC

*Includes shares and cash issued in the Misonix acquisition



Summary Thesis

Bioventus is a recently IPOed medical device company that we think can double its revenues, double its EBITDA margins, and quadruple its share price over the next five years. The company is not well-known to the investment community, and is currently undergoing turnover in its shareholder base after paying for a large acquisition with stock. In our opinion the current scenario offers an extremely attractive entry point for what we think will evolve into a defensible, high-margin business with a strong organic growth profile.


Bioventus IPOed in February of 2021. At IPO, the company had three primary product lines: knee injections for osteoarthritis (sold to orthopedists, #2 market share with the lead position in its sights), a bone healing device (sold to podiatrists and foot & ankle specialists, with dominant share of its market), and bone graft substitutes (sold to spine and neuro surgeons, with the fastest growth rate in the market).


Since coming public, Bioventus has made two important acquisitions: Misonix, which added surgical and wound care products, and Bioness, which brings exciting peripheral nerve stimulation (“PNS”) technology for the treatment of chronic pain. These deals have set up Bioventus for sustained long-term success by expanding the product portfolio and deepening the sales coverage. The company now has a diverse line of market-leading products, as well as a big salesforce with expansive reach across the entire lower extremity care space. We think Bioventus has laid the foundation upon which to build the next Globus Medical, if not a mini-Stryker.


Bioventus also has an exciting development pipeline. Next year the company is likely to release the world’s first implantable PNS device for post-surgical pain, which will help spur growth in the medium term. Bioventus also owns the rights to Agili-C, an innovative implant for damaged knee cartilage, an injury that currently has no good treatment options. Agili-C has shown early evidence of being a breakthrough therapy that would be clearly superior to the existing standard of care. FDA approval and commercialization of Agili-C are still a few years away, but if the product is successful it could end up dominating a $1B+ TAM and being worth more than $1B by itself.


The Bioventus team consists of a number of very talented people who share the long-term vision of what this company can become. The Chairman, Bill Hawkins, was formerly the Chairman and CEO of Medtronic. The Bioventus CEO, Ken Reali, was previously the CEO of Clinical Innovations, a PE-owned medtech company that he helped turn around and sell for $525 million in 2019, earning the company’s owners an IRR above 50%. The head of Business Development, Chris Yamamoto, is also very impressive, with a background in Biz Dev at Becton Dickinson, and M&A at Blackstone before that. 


In addition, Stavros Virzigianakis, the Chairman and CEO of Misonix (one of the two companies Bioventus acquired since the IPO) is joining the Bioventus board and taking his entire deal consideration in stock, which will make him one of the largest Bioventus shareholders. We have been long-time owners of Misonix and we know Stavros very well. He is one of the most talented executives we have ever worked with. At Misonix he quintupled the share price in five years despite a global pandemic that literally shut the company’s end markets overnight. His continuing involvement with Bioventus is a huge positive.


With a number of growth drivers set to kick in over the coming years, Bioventus has a clear path to $1 billion of revenue by 2026 via 10%+ organic growth and tuck-in M&A. And with ample opportunities for improved efficiency, we would expect $250-300 million of EBITDA by that time. A peer multiple (SYK and GMED are the only diversified medtech companies generating above-GDP organic growth, and they trade at ~20x LTM EBITDA) would equate to a $50 stock without any contribution from Agili-C. The stock closed yesterday at just $13.


Corporate History

Bioventus was created in 2012 when Smith & Nephew spun out its Biologics and Clinical Therapies division into a newly created joint venture with PE firm Essex Woodland, which took 51% ownership while Smith & Nephew retained the other 49%. Essex Woodlands placed one of its partners, Bill Hawkins, in the Chairman’s seat, where he remains today. From 2007 to 2011 Mr. Hawkins was Chairman and CEO of Medtronic.


At the formation of the JV, the business consisted of two product lines: hyaluronic acid (“HA)” knee injections, and a non-invasive bone healing device (trade name Exogen). Essex Woodlands later added a third leg to the stool by acquiring a suite of bone graft substitutes used in surgeries. It also brought on additional PE investors, although it remains the single largest shareholder of Bioventus.


Bioventus IPOed in February of 2021. The IPO was solely to raise funds for Bioventus; none of the private owners sold in the offering. The proceeds were quickly used to fund the Bioness and Misonix acquisitions.


Business Overview

Before we get into the products themselves, we want to talk about one of Bioventus’ most valuable assets, its sales force. For such a small company, Bioventus has a huge sales force: more than 500 people. And behind this big team of reps there is also a strong commercial organization, with 150 people in Memphis working solely on billing, and 140 contracts with integrated delivery networks (“IDNs” -- regional networks of hospitals and clinics that team up to form buying groups). 



The giants of medtech aren’t built on single revolutionary products, they’re built on broad product portfolios that are then leveraged effectively via big sales forces. Bioventus is perfectly positioned to become one of those companies. It has huge commercial muscle that is ready to be flexed. Any product it acquires or develops in the orthopedic space can immediately be plugged into the massive sales force.


With that out of the way, let’s turn to the business lines, which we’ll discuss one by one. This is how the divisions looked before the Misonix acquisition…



And after…