ConforMIS Acquires Polishing Assets for Joint Replacements from Broad Peak

ConforMIS (NASDAQ:CFMS) acquired machining and polishing assets from Broad Peak Manufacturing in an attempt to reduce the costs of services it has used for its products since 2014.
The total transaction, completed on Wednesday (August 9), will cost ConforMIS 5.75 million in cash and $0.75 million in common stock. As part of the deal, the company will obtain employees, supplies, and equipment for the tech, as well as a manufacturing facility in Connecticut. According to the company, this acquisition will reduce the cost of polishing for its products by up to 50 percent, starting in 2018.
“Our goal is to continuously invest in specific areas of our business that will improve overall operational efficiencies while maintaining our commitment to quality product for our patients,” Mark Augusti president and CEO said in a press release.

As part of the transaction Ed Kilgallen, former managing director with Broad Peak, will now join ConforMIS as a vice president of operations.
Through their proprietary iFit Image-to-Implant tech, the company will develop joint replacements individually made for their patients.

The transaction includes personnel and a new VP of operations.

A note to investors from Canaccord Genuity’s analyst Kyle Rose and Brandon Vazquez indicated the move was a positive one for the company.
“We are positive on the acquisition as it provides a meaningful step towards improving gross margins – something critical to the long-term thesis on the company,” the note said.
Bruce Nudell, an analyst with SunTrust Robinson currently has the company with a Buy indication and has their price target set at $14.
So far this year ConforMIS has seen a substantial decrease in its stock, suffering a 56.42 percent decrease year-to-date. During after hours trading on August 9, CFMS was valued at $3.53. Over the past five trading days, the company has seen a decrease in its stock following the release of their financial report for the second quarter of the year.
Augusti said the company is in a transition year, therefore its results were “mixed.” ConforMIS reported $18.5 million of total revenue, a 4.4 percent decrease from the same time last year. CFMS reported a $0.28 loss per share totaling a net loss of $12.1 million. Since the release of the financial numbers, CFMS has seen a 23.26 percent decrease.
“The impact from changes in the field sales organization and in reimbursement adversely affected our overall revenue growth,” Augusti said.
Analysts at BTIG’s research group released a note to investors following the financial disclosure by ConforMIS, in which they maintained a neutral position on the stock.
Without significant growth in new surgeons and with the core physician base smaller than mgmt. would like, CFMS’s business continues to be challenged,” the note co-authored by Ryan Zimmerman and Doctor Sean Lavin indicated.
The note pointed to competition stepping into ConforMIS with the advantage of not needing a CT scan to build their implants–something currently unavailable or the company since “the product is built on the scan.”
“We believe mgmt. is taking steps to remedy the sales force turnover with a new head of sales and fight denials for the CT scans but the business will take time to get on track,” the note added.

Investor Takeaway

Despite the recent decrease for ConforMIS, the stock for the company still holds value to some analyst and currently holds a “Moderate Buy” designation from a group of analysts covering the company.
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Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.