Merit Medical Systems, Inc. (NASDAQ: MMSI), a leading manufacturer
and marketer of proprietary disposable devices used in
interventional, diagnostic and therapeutic procedures, particularly
in cardiology, radiology, oncology, critical care and endoscopy,
announced today that it has acquired Brightwater Medical, Inc.,
based in Temecula, California. The transaction consists of a
$35 million upfront payment and potential earn-out payments of up
to $15 million based on receipt of CE mark approval and achievement
of future sales targets.
Brightwater Medical was founded by Dr. Robert
Smouse, Professor of Radiology and Surgery, University of Illinois
College of Medicine. Its primary product, the ConvertX®, is a
single device used to replace a series of devices and procedures
used to treat severe obstructions of the ureter. The system
is designed to be implanted once and converted from a
nephroureteral catheter to a nephroureteral stent without requiring
sedation or local anesthesia. Brightwater Medical recently
received FDA clearance for the ConvertX® biliary stent system.
“The ConvertX® system is designed to reduce
multiple visits to the hospital, saving patients the risk and
discomfort of a second interventional procedure while allowing
additional utilization of facilities,” said Fred P. Lampropoulos,
Chairman and CEO of Merit Medical. “The ConvertX® system
complements Merit’s Resolve™ drainage catheter portfolio and
potentially drives pull-through of other Merit products such as
InQwire™ guide wires, Advocate™ PTA balloons and other vascular
products.”
Over the next several months, Merit Medical
intends to maintain Brightwater Medical’s production capabilities
in Temecula while duplicating those capabilities in its catheter
facility in Pearland, Texas, prior to transferring the ConvertX®
manufacturing operations to its Pearland facility. Merit
Medical’s management estimates that the transaction will be
approximately $(0.05) decretive to earnings per share for the year
ending December 31, 2019 on a GAAP basis and approximately $(0.03)
decretive to earnings per share for the year ending December 31,
2019 on a non-GAAP basis due to deal-related expenses, severance,
transfer and integration costs, and international regulatory
expenses. Management’s current revenue expectations for the
ConvertX® product for calendar year 2019 are approximately $1
million with expectations of growth to approximately $25 million in
the fifth full year of sales. Upon transfer of the ConvertX®
manufacturing operations to Merit’s Pearland facility, management
believes non-GAAP gross margins in the 70-75% range are
attainable.
Brightwater Medical currently has approximately
40 U.S. accounts serviced by two direct sales representatives and a
small number of distributors.
“We believe our ability to align this product
with our existing sales force calling on interventional
radiologists, as well as growth in markets outside the United
States will allow for future growth,” Lampropoulos said.
ABOUT MERITFounded in 1987,
Merit Medical Systems, Inc. is engaged in the development,
manufacture and distribution of proprietary disposable medical
devices used in interventional, diagnostic and therapeutic
procedures, particularly in cardiology, radiology, oncology,
critical care and endoscopy. Merit serves client hospitals
worldwide with a domestic and international sales force and
clinical support team totaling in excess of 300
individuals. Merit employs approximately 6,300 people
worldwide with facilities in South Jordan, Utah; Pearland, Texas;
Richmond, Virginia; Malvern, Pennsylvania; Rockland, Massachusetts;
San Jose and Aliso Viejo, California; Maastricht and Venlo, The
Netherlands; Paris, France; Galway, Ireland; Beijing, China;
Tijuana, Mexico; Joinville, Brazil; Markham, Ontario, Canada;
Melbourne, Australia; Tokyo, Japan; Reading, United Kingdom;
Johannesburg, South Africa; and Singapore.
FORWARD-LOOKING
STATEMENTSStatements contained in this release which are
not purely historical, including, without limitation, statements
regarding Merit's forecasted plans, revenues, earnings per share,
gross margins or other financial results (on a GAAP or non-GAAP
basis) or anticipated or completed acquisitions, are
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 and are subject to risks
and uncertainties such as those described in Merit's Annual Report
on Form 10-K for the year ended December 31, 2018 and subsequent
filings with the Securities and Exchange Commission. Such
risks and uncertainties include the following: Merit's potential
inability to successfully manage the integration of Brightwater
Medical and achieve anticipated financial results, product
development, manufacturing efficiencies or other anticipated
benefits; uncertainties as to whether Merit will achieve sales,
gross margin, earnings and other results from the Brightwater
Medical acquisition which are comparable to the experience or
projections of Brightwater Medical; unknown costs and risks
associated with the business and operations of Brightwater Medical;
Merit’s internal models or the projections referenced in this
release; governmental scrutiny and regulation of the medical device
industry, including governmental inquiries, investigations and
proceedings involving Merit or the business and operations
conducted by Brightwater Medical; how the occurrence of any
unanticipated event or cost in connection with the acquisition or
integration of Brightwater Medical may affect Merit’s compliance
with its debt agreements; infringement of Merit's technology or the
assertion that Merit's or Bridgewater Medical’s technology
infringes the rights of other parties; product recalls and product
liability claims; changes in customer purchasing patterns or the
mix of products Merit sells; risks and uncertainties associated
with Merit’s information technology systems, including the
potential for breaches of security and evolving regulations
regarding privacy and data protection; the potential of fines,
penalties or other adverse consequences if Merit's employees or
agents violate the U.S. Foreign Corrupt Practices Act or other laws
or regulations; the pending exit of the United Kingdom from the
European Union and uncertainties about when, how or if such exit
will occur; laws and regulations targeting fraud and abuse in the
healthcare industry; potential for significant adverse changes in
governing regulations, including reforms to the procedures for
approval or clearance of Merit’s or Brightwater Medical’s products
by the U.S. Food & Drug Administration or comparable regulatory
authorities in other jurisdictions; changes in tax laws and
regulations in the United States or other countries; increases in
the prices of commodity components; negative changes in economic
and industry conditions in the United States or other countries;
termination or interruption of relationships with Merit's or
Brightwater Medical’s suppliers, or failure of such suppliers to
perform; fluctuations in exchange rates; uncertainties relating to
the LIBOR calculation method and the potential phasing out of
LIBOR; concentration of a substantial portion of Merit's revenues
among a few products and procedures; development of new products
and technology that could render Merit's or Brightwater Medical’s
products obsolete; market acceptance of new or acquired products;
volatility in the market price of Merit's common stock;
modification or limitation of governmental or private insurance
reimbursement policies; changes in healthcare policies or markets
related to healthcare reform initiatives; failure to comply with
applicable environmental laws; changes in key personnel; work
stoppage or transportation risks; introduction of products in a
timely fashion; price and product competition; availability of
labor and materials; fluctuations in and obsolescence of inventory;
and other factors referred to in Merit's Annual Report on Form 10-K
for the year ended December 31, 2018 and other materials filed with
the Securities and Exchange Commission. All subsequent
forward-looking statements attributable to Merit or persons acting
on its behalf are expressly qualified in their entirety by these
cautionary statements. Actual results will likely differ, and may
differ materially, from anticipated results. Financial estimates
are subject to change and are not intended to be relied upon as
predictions of future operating results, and Merit assumes no
obligation to update or disclose revisions to those estimates.
NON-GAAP FINANCIAL MEASURESAlthough Merit’s
financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America
(“GAAP”), Merit’s management believes that certain non-GAAP
financial measures referred to in this release provide investors
with useful information regarding the underlying business trends
and performance of Merit’s ongoing operations and can be useful for
period-over-period comparisons of such operations. Non-GAAP
financial measures used in this release include:
• non-GAAP earnings per share; and
• non-GAAP gross margin.
Merit’s management team uses these non-GAAP
financial measures to evaluate Merit’s profitability and
efficiency, to compare operating results to prior periods, to
evaluate changes in the operating results of its operating
segments, and to measure and allocate financial resources
internally. However, Merit’s management does not consider such
non-GAAP measures in isolation or as an alternative to such
measures determined in accordance with GAAP.
Readers should consider non-GAAP measures used
in this release in addition to, not as a substitute for, financial
reporting measures prepared in accordance with GAAP. These non-GAAP
financial measures generally exclude some, but not all, items that
may affect Merit's net income. In addition, they are subject to
inherent limitations as they reflect the exercise of judgment by
management about which items are excluded. Merit believes it is
useful to exclude such items in the calculation of non-GAAP
earnings per share and non-GAAP gross margin because such amounts
in any specific period may not directly correlate to the underlying
performance of Merit’s business operations and can vary
significantly between periods as a result of factors such as new
acquisitions, non-cash expenses related to amortization of
previously acquired tangible and intangible assets, unusual
compensation expenses or expenses resulting from non-ordinary
course litigation, governmental proceedings or changes in tax
regulations. Merit may incur similar types of expenses in the
future, and the non-GAAP financial information included in this
release should not be viewed as a statement or indication that
these types of expenses will not recur. Additionally, the non-GAAP
financial measures used in this release may not be comparable with
similarly titled measures of other companies. Merit urges
investors and potential investors to review the explanations below
addressing how its non-GAAP financial measures relate to their most
directly comparable GAAP financial measures, and not to rely on any
single financial measure to evaluate Merit’s business or results of
operations.
Non-GAAP Net IncomeNon-GAAP net income is
calculated by adjusting GAAP net income for certain items which are
deemed by Merit’s management to be outside of core operations and
vary in amount and frequency among periods, such as expenses
related to new acquisitions, non-cash expenses related to
amortization of acquired tangible and intangible assets, unusual
compensation expenses or expenses resulting from non-ordinary
course litigation, governmental proceedings or changes in tax
regulations, as well as other items.
Non-GAAP Earnings Per ShareNon-GAAP earnings per
share is defined as non-GAAP net income divided by the diluted
shares outstanding for the corresponding period.
Non-GAAP Gross MarginNon-GAAP gross margin is
calculated by reducing GAAP cost of sales by amounts recorded for
amortization of intangible assets and inventory mark-up related to
acquisitions.
Contact:
Anne-Marie Wright, Vice President, Corporate
CommunicationsPhone:
(801) 208-4167 e-mail: awright@merit.com Fax: (801)
253-1688
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