OrthoPediatrics is making its stock market debut today in a $52 million IPO that will support the company’s lineup of medical devices developed specifically for children.
Warsaw, IN-based OrthoPediatrics priced its offering of 4 million shares at $13 each, the midpoint of its projected $12 to $14 range. Underwriters of the offering have the option to purchase an additional 600,000 shares at the IPO price. OrthoPediatrics is also reserving 200,000 shares, which employees, directors, and others associated with the company may buy at the IPO price. OrthoPediatrics’ shares are set to begin trading on the Nasdaq exchange under the stock symbol “KIDS.”
A number of multinational medical device companies supply the orthopedics market, but OrthoPediatrics says it stands out with implants and instruments designed for a child’s skeletal anatomy. The company says in its filing that its devices fit a wide range of bone curvatures that change with age; enable earlier surgical interventions; and allow for less invasive surgeries.
OrthoPediatrics sells 21 surgical systems spanning three categories: trauma and deformity; complex spine; and ACL reconstruction. Trauma and deformity is the company’s largest segment, accounting for 73 percent of the $37.3 million in revenue it reported for 2016. That figure is a 20 percent increase compared to 2015. The company says nearly all of the revenue growth in each of its segments was due to an increase in sales, not price hikes. OrthoPediatrics reported a $6.6 million net loss in 2016, a figure that included a one-time $2 million charge related to the IPO that it initially filed last year.
In the first six months of the 2017, OrthoPediatrics reported $21.5 million in revenue, up 21.5 percent compared to the same period last year. The company reported a $2.5 million loss in the first half of this year. Most of OrthoPediatrics’ sales come from the U.S., though the company also sells in 35 other countries through distributors. Because OrthoPediatrics focuses on medical devices for children, the rise and fall of revenue tracks with the school year, the company says in its prospectus. Revenue spikes—driven by trauma and deformity devices and complex spine products—are typically higher in summer, when the school break allows children a longer recovery time.
OrthoPediatrics plans to use the IPO proceeds to build its inventory of medical instruments in the hospitals that use its products. Instruments and implants aren’t recorded as revenue until hospitals purchase them for a surgery. But U.S. hospitals typically expect to have full sets of these devices on site and ready to use, the company says. OrthoPediatrics will spend $19.5 million to build up this inventory, and $4.1 million to expand its sales and marketing.
An additional $6.7 million is earmarked for research and development, including “smart implants,” which are sometimes referred to as active growing implants. These mechanized devices, used to treat early onset scoliosis and limb length discrepancies, can be adjusted as a patient heals and ages. OrthoPediatrics says it will also spend $5.9 million to pay unpaid dividends on its Series B stock. The company says its cash reserves, combined with the proceeds from the stock offering, should be enough to meet the company’s expected cash needs for the next year.
OrthoPediatrics launched in 2006, founded by medical device veterans from companies such as DePuy Synthes, Smith & Nephew (NYSE: SNN), and Zimmer. The company is led by president and CEO Mark Throdahl, a former Zimmer executive. Throdahl has also served as CEO of London-based Consort Medical, and spent 13 years at Becton Dickinson (NYSE: BD) in various senior management roles. OrthoPediatrics’ largest shareholder is Squadron Capital, a private equity firm that owned 66.8 percent of the company prior to the stock offering, according to filings. Following the IPO, Squadron’s stake is 44.6 percent.
Photo of PediPlates by OrthoPediatrics.