OrthoPediatrics Acquires Vilex

Warsaw, Indiana-based OrthoPediatrics Corp., a pediatric orthopedics company, has announced its acquisition of Vilex in Tennessee, Inc. and Orthex, LLC, together known as Vilex. The acquisition includes the Orthex Hexapod circular fixation technology and proprietary CORA-based X-ray planning software.

OrthoPediatrics paid $60 million, consisting of $50 million in cash and $10 million in stock. The transaction will be partially financed by $30 million of new debt provided by Squadron Capital LLC.

Vilex Products and Sales

Vilex, founded in 1996, is a private company and Tennessee-based manufacturer of precision engineered extremity solutions, specializing in internal and external fixation devices for foot and ankle, pediatrics, deformity correction, and reconstructive surgery. Vilex is primarily a foot and ankle surgery company with a product portfolio targeting pediatric patients and adults that generated $11.8 million in total sales in 2018. Its sales are derived primarily from the United States. It netted approximately $2.9 million of net income in full year 2018.

Sales of Vilex’s Orthex Hexapod Circular Fixation Technology were $3.1 million in 2018. It is Vilex’s fastest growing system, increasing more than 50% year-over-year since FDA clearance in March 2016. This Orthex hexapod technology is used to treat pediatric congenital deformities and limb length discrepancies such as fibula and tibia hemimelia, radial clubhand, ankle equinus, Blount’s disease, genu recurvatum, and multiapical deformities.

The Orthex Hexapod system is unique. It offers easily calibrated struts and an infection-reducing hydroxy-apatite coated pins. Its key advantage is the patented point and click software, which dramatically simplifies deformity correction planning.

The Orthex Hexapod software was developed by Abraham Lavi, Ph.D., founder of Vilex, and Dror Paley, M.D., F.R.C.S.C., founder of the Paley Institute of West Palm Beach, Florida. Dr. Paley helped pioneer the use of the Ilizarov method in the United States and has performed more than 17,000 limb-lengthening and reconstruction procedures. He also developed more than 100 new surgical procedures. He is also the author of Principles of Deformity Correction.

Vilex sells 13 families of surgical products for such pediatric conditions as flatfoot reconstruction, subtalar arthroereisis, and arthrodesis procedures of small bones.

Vilex sells its products throughout the United States and internationally in Colombia, Mexico, Brazil, Canada, and Israel. Vilex products are sold to orthopedic and podiatric surgeons, although the new Orthex technologies are primarily used by pediatric orthopedic specialists.

The OrthoPediatrics Portfolio

Founded in 2006, OrthoPediatrics is focused exclusively on providing a comprehensive product offering to the pediatric orthopedic market to improve the lives of children with orthopedic conditions.

OrthoPediatrics currently markets 26 surgical systems that serve three of the largest categories within the pediatric orthopedic market. These systems span trauma and deformity correction, scoliosis, and sports medicine/other procedures. OrthoPediatrics’ global sales organization is focused exclusively on pediatric orthopedics and the company distributes its products in the United States and 41 international countries.

OrthoPediatrics’ Acquisition of Vilex

OTW spoke with Mark Throdahl, president and CEO of OrthoPediatrics. We asked him how OrthoPediatrics decided to acquire Vilex. Throdahl said, “We learned of Vilex through our relationship with Dr. Dror Paley, who is one of the leading limb deformity correction surgeons in the world. He has been a customer of long standing with OrthoPediatrics. We knew from Dr. Paley that he was working on this advancement in external fixation hardware and software and that led us to Vilex.”

Throdahl explained that OrthoPediatrics was primarily interested in Orthex and its Hexapod circular fixation technology. “It was the establishment of a little subsidiary called Orthex. Orthex has been wholly owned by Vilex. It was Orthex that was of particular interest to us. However, because many of the individuals are Vilex employees who worked on it, Orthex and Vilex are sort of like Siamese twins and they are in a single corporate entity at the moment that we are going to have to tease apart. Because Vilex’s primary business is adult foot and ankle products, they have some 13 systems there, and we are not interested in the adult foot and ankle market.”

OrthoPediatrics to Sell Vilex Adult Orthopedic Business

Throdahl told OTW that OrthoPediatrics plans to sell off the adult foot and ankle portion of Vilex. He said, “We will find a company that is focused on this adult orthopedic space and would ensure there is a good fit for Vilex’s personnel and its sales forces and its facility in Tennessee and sell that. We would also entertain selling a license to the adult applications of the Orthex technology for adult foot and ankle use.”

Throdahl noted that there may be companies that are already interested in acquiring the adult orthopedic portion of Vilex. He told us, “We were not the only party after Vilex and Orthex. There are others out there that we know of that were also bidding on this. Presumably, they still have some interest because my guess is none of them were particularly interested in the pediatric market.”

Throdahl said, “We are a company focused exclusively on pediatric orthopedic surgery and we are real believers in the power of that focus. That is why we are taking this extraordinary step of buying this entire entity and then turning right around and signaling that we are going to be selling the adult portions of it.”

Throdahl explained, “As far as we are concerned, this will expand our company into a new 200 million dollar worldwide segment, it will close the biggest gap in our current product offering, and I think there is a potential for a handful of these Vilex products to be private-labelled for OrthoPediatrics long-term and to be foundational products in pediatric foot and ankle work. That anticipates our launch imminently of the first pediatric-specific foot system which we are going to call ‘PediFoot’ which will address the primary deformities of pediatric orthopedic foot surgery. So, there is a synergy in terms of that as well.”

Throdahl noted that, “This transaction closes the biggest gap in our Trauma & Deformity product offering. It increases our coverage of the Trauma & Deformity market from 60% to 80%.”

Throdahl continued, “But basically this will simply add more products to the bag that our current 138 sales representatives have here in the United States and the 42 entities abroad that sell our products outside the U.S. and so it really is simply adding products to our current infrastructure.”

Vilex Reaction to Acquisition

Abe Lavi, chairman of Vilex, commented, “Vilex is pleased to complete this transaction with an established company like OrthoPediatrics, which has worldwide distribution reach and extraordinary brand equity with pediatric orthopedic surgeons. The potential impact of the Orthex technology, combined with OrthoPediatrics’ product offering and developing pipeline, is enormous, and we look forward to OrthoPediatrics’ ability to capitalize specifically on the pediatric applications of our products. Going forward, I am confident that Vilex will receive the support of a company with the ability to maintain and grow Vilex’s leadership in the extremities market.”

Stifel Nicolaus & Company, Incorporated acted as financial advisor to OrthoPediatrics’ Board of Directors. Bingham Greenebaum Doll LLP served as legal counsel to OrthoPediatrics on the transaction. Warner Norcross & Judd LLP served as legal counsel to Vilex.