MEDTECH M&A
Going More Than
Skin Deep Into Merz’s
Ulthera Acquisition
New Enterprise Associates registered one of its biggest returns
ever when Merz agreed to pay up to $600 million for the aesthetics
company. The CEO and lead investor discuss specifics about the
blockbuster deal.
■ Venture capitalists and medtech
entrepreneurs have long viewed the
aesthetics industry as an attractive
place to invest due to lower regulatory
barriers and private-pay structure.
■ However, success in aesthetics has
been elusive as start-ups have had
difficulty capitalizing on the potential.
■ Ulthera, maker of an ultrasound
system that both images and shrinks
tissue, scored one of the the biggest
successes in aesthetics when it was
acquired this June by privately held
Merz.
■ Two principals in the company’s
achievement reveal how Ulthera collected the clinical data and erected
the business that commanded such
a lofty price tag.
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A
BY TOM SALEMI
s the hurdles for regulatory approval and reimbursement have risen higher, medtech investors often
have pursued investments in aesthetics companies. In
contrast to more traditional medtech, aesthetics companies typically aren’t required to conduct stringent
clinical testing as they can bring a product to market with a 510(k)
notification from the Food and Drug Administration. Also, patients
eager to maintain the appearance of youth and good health are willing
to pay for procedures out of their own pockets. This enables aesthetics
companies to avoid the byzantine reimbursement process.
However, for venture investors, the lowest hanging fruit isn’t always
the most nutritious. Venture capital investment exits from aesthetics
companies have been relatively anemic with a scattering of IPOs and
acquisitions. But venture capital leader New Enterprise Associates is
enjoying a vigorous return on investments from the decision of Merz
North America Inc., part of Merz GMBH & Co. KGAA’s Merz Pharma
Group, to pay up to $600 million for privately held Ulthera Inc.
Justin Klein, MD, partner at New Enterprise Associates, says Ulthera
represents “the next generation” of aesthetics companies. Built around
the technology of physicist Michael Slayton, PhD, Ulthera uses ultrasound energy not only to image tissue but also to tighten it. A round of
clinical trials conducted by the company proved that Ultherapy tightens
and lifts the skin by administering micro-focused ultrasound energy
to deep layers of tissue. The energy stimulates natural tissue repair
and prompt new collagen formation. The company’s first commercial
product is approved in over 50 markets including the US and Europe.
“High intensity focused ultrasound is probably the most interesting
type of energy that medical device companies are pursuing,” Klein
says. “It’s not just in aesthetics, but in other areas, like fibroid ablation
and renal denervation using noninvasive ultrasound-based devices,
or in catheter-based technologies like ablation for atrial fibrillation.”
Device companies utilizing ultrasound in the past include InSightec
Ltd., Kona Medical Inc., and VytronUS Inc. Meanwhile, other energybased systems using RF, lasers, and other modalities haven’t successfully achieved the same level of precision.
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MEDTECH M&A
Ulthera reported $82.2 million in revenues in 2013, netting nearly
$12 million in income. The strong financials encouraged Ulthera to file
for an IPO in April 2014. The firm’s dalliance with the public markets
ended quickly though when Merz acquired the company this past
June to be a keystone component of its growing aesthetics business.
In 2013, Merz lost a bidding war for Obagi Medical Products Inc.
to Valeant Pharmaceuticals International Inc. Merz countered by
acquiring the Swiss company Anteis SA, maker of dermal fillers, and
Neocutis SA, which has a line of cosmetics and anti-aging products.
Merz made its biggest move when it stepped up to acquire Ulthera,
which anticipates topping $100 million in revenue this year.
Ulthera CEO Matthew E. Likens and Klein took part in an interview
discussing the company’s successful path.
IN VIVO: Ulthera was founded in 2004. Matt, you joined in 2006.
Can you give us a rundown of the origins of the company?
Matthew Likens: The first patents were filed in 1996. The founder of
the company, Dr. Michael Slayton, has a background in ultrasound.
His earlier patents combined ultrasound’s ability to image, which
is how most people think of the technology, with the ability to also
focus the energy at various depths to create precise points of thermal
coagulation, without affecting the surface of the skin. In the late 1990s,
Ethicon [Ethicon Endo-Surgery Inc., a division of Johnson & Johnson]
was looking for a less invasive approach to treat liver cancer. This is
such a difficult surgery because the liver has so many blood vessels,
so there’s just a lot of blood loss. They were trying to figure out a way
to spare healthy tissue by really focusing on the cancer. Well, they saw
all these patents coming out of Mesa, AZ, where Ulthera is currently
located. One thing led to another and they began a four-year joint
development agreement with Michael Slayton’s company, Guided
Therapy Systems. They actually spent over $20 million and developed
the technology to a prototype stage.
What was the concept behind the initial product?
ML: The idea was to put an ultrasound element on the end of a
probe. Then you can insert the probe near the liver, allowing you to
capture images of the cancerous tissue, and then emit the focused
energy so that it could ablate that cancerous tissue very precisely
while leaving the healthy tissue alone. Together they developed a
prototype and were about to enter into human clinical trials when J&J
hired McKinsey to do a study on the prevalence of liver cancer. They
assessed the costs of clinical trials, the regulatory timetable, and the
market size. As a result, J&J decided to exit the program in late 2003.
But McKinsey identified about 40 other potential applications, both
aesthetic and therapeutic, for this combination of imaging and therapy.
Two of the principals from Ethicon Endo-Surgery left the corporation,
moved out to Arizona to become co-founders of Ulthera, which incorporated in early 2004. They decided, along with Michael Slayton,
to establish Ulthera to pursue its aesthetic potential.
They spent over two years on preclinical work for aesthetic applications, and then in mid-2006, Michael hired a regulatory specialist as
the first employee. Then they filed a 510(k) to the FDA. Around that
time I had talked with them, and ultimately joined in July of 2006.
What were your anticipations going in?
ML: Well, the second day on the job I actually read the 510(k) and
I noticed there was no clinical data. I was assured that we wouldn’t
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MATTHEW LIKENS
ULTHERA
need data because it is an aesthetic technology. But about 30 days
later the FDA responded with a note to us suggesting that we set up
an appointment with them, because they couldn’t find any data in
our submission either. That was my first indication that maybe this is
going to take a little longer.
That’s a great point. From the outside it does look like aesthetics companies are easy money. The procedures are private pay.
It’s supposedly lightly regulated. Yet a lot of companies haven’t
done well, or haven’t done as well as investors had hoped. Is
that assessment correct? Is it as easy as it looks?
Justin Klein: There are some clear strengths that differentiate investing
in aesthetics from other medical device categories. It’s an appealing
way to diversify the kinds of risk investors take. Aesthetics is a privatepay market, so insurance and reimbursement challenges, coding
and related issues, are not as significant. And broadly speaking, the
regulatory barriers are lower, I think, than some other clinical areas.
At the same time, it’s not easy to build a real business in this space as
we have seen in examples of companies who use other technologies
like RF or fractionated laser. They got those technologies approved and
they could ramp revenue, but they never built a profitable or scalable
business beyond a certain level.
There were a bunch of reasons that we thought Ulthera had the
potential to do that, and then they did execute on that. We recognized
Ulthera had a strong gross margin opportunity with their ultrasoundbased technology, and they paid a lot of attention to maximizing margins as the business grew. The team did a fantastic job in that regard.
And similarly, we took a fundamentally different approach to developing this technology as a platform opportunity, where plastic surgeons and dermatologists could use focused ultrasound for multiple
applications. Energy-based devices like lasers, even RF, really only had
one specific application. Maybe they addressed wrinkles or fine lines,
or maybe it was tattoo removal of a certain color of ink with a given
wavelength of laser energy.
We thought that ultrasound, with its precision and ability to target
very specific structures in the skin, would enable us to not only pursue skin tightening indications, but also a series of other indications
that would allow this to become a platform technology and give our
users, the physicians and surgeons, an opportunity to incorporate
Ulthera into multiple aspects of their practice and make it a platform
for them as well.
So where did you make mistakes? And what did you do right?
ML: Well, I think 2006 was about the time that the FDA was really shor-
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MEDTECH M&A
If there was no predicate why didn’t Ulthera need a PMA?
JUSTIN KLEIN, MD
NEA
ing up any of the easy pathways to clearance. So clearly, we needed
data. We had already started a clinical study at Northwestern, which
ended up providing the foundational data that ultimately got us the
510(k). But the other thing was that this technology was so novel
that the FDA ruled that there really wasn’t an appropriate predicate
device to compare us to. So we were offered the chance to file a de
novo application. That was 18 months after I joined the company,
and after we already filed a standard 510(k) because others at the
FDA said that radiofrequency devices that were currently in use
would be an appropriate predicate. Then they changed their minds
halfway through. And you can’t really fight with the government, so
within 30 days we resubmitted a de novo application. The difference
between de novo and standard 510(k) is that in a standard 510(k) you
will hear something back from the government within 90 days. Even
if it’s not a clearance, it’s questions or suggestions on how to move
forward. So with the de novo, there is no time frame, so there’s no
obligation for the government to get back to you within a certain
period of time. So it took three and a half years from the time I started
with the company. We received clearance in September of 2009.
What did we do right? Well, we did the clinical studies. They came
out beautifully. And we did get clearance in the EU, so we got a CE
mark in early 2008, and actually began to commercialize the technology in the fourth quarter of 2008 in Europe and a couple markets
in Asia that recognize the CE mark. I think that was wise, that we
started outside the US and began not only generating revenue for the
company, but also learned so much about how the technology was
going to be utilized and how to improve it while we continued commercialization. So it really prepared us for the US launch, which is the
only market where we have a direct sales and marketing presence.
That strategy of running an international commercial launch
before a US launch can be difficult to do.
ML: I was at Baxter for 23 years. For roughly 13 of those years I was
either located in Europe, managing a business over there, or had
global marketing responsibilities. So I had a global mentality going into
Ulthera; even when there was just Dr. Randall Miller, vice president of
medical and technical initiatives, and myself, we knew we had to have
a global mentality. Even if we’re just two people in Mesa, AZ, we have
to have the right mind-set. So I think that really paid off for us. This
technology is practiced the same way everywhere, and we did rely on
distributors outside the US. We really had to find the right people to
represent the technology and then they would have the infrastructure
to sell the systems and then provide support following sale.
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JK: The FDA really tries to make an assessment around the risk/benefit
profile of every device, and they categorize devices as a Class I, II, or
III based upon their perceived safety and their intended use. In our
case, the FDA really became more conservative about the predicate’s
analysis, and where previously other energy-based devices of different types of energy, be it microwave or RF, cited one another for their
510(k) approvals, FDA decided that they weren’t willing to do that with
ultrasound and linking it to RF or other energies.
Since 2008, after a lot of companies got very frustrated with the lack
of guidelines for the de novo path, FDA has paid some attention to
that. They’re trying to craft more clarity around that pathway, which
is a positive for industry.
Going back to strategy, how did Ulthera differentiate itself from
its predecessors in aesthetics?
JK: We chose a different strategy of making a real investment in clinical
development. I think that the industry had been characterized by a
number of technologies that showed lots of “before” and “after” photos,
and then made a claim that, A, this is a hot new technology that’s highly
marketable to patients; and B, look at all the great results we have.
What really caught our attention was data from the study that Matt
cited at Northwestern. They really took a rigorous approach to measuring quantitative change in the face with skin tightening. They were
measuring specific landmarks around the eye and the brow that, with
a much greater degree of certainty or less subjectivity, indicated that
this was having a clinically meaningful effect.
We took that theme and we tried to apply it to multiple clinical
indications, including other areas of the body, like the lower face and
neck or the décolleté, as well as developing this as a technology that
could be used for more medically oriented dermatology indications.
And we have a long pipeline of clinical development.
What we’ve done is try to create really robust clinical data sets that
a sales force and a company can use to build a reputation around
with clinicians and grow the business over time. We don’t face the
challenge of having to throw a gazillion sales reps and discounts
and promotional specials to drive placement of a piece of capital
and/or use of our disposables. That clinical data are a leverage-able
asset that we’ve really monetized over a long period of time. That
investment up front was really what helped differentiate the company over the long term.
ML: The aesthetics industry had been characterized by one technology after another that came out with great hype and tremendous
promotion. And inevitably those technologies proved to be very disappointing as far as a lack of consistent clinical results and improvement.
The nature of our technology lent itself to the fact that we could
stand out by proving consistent clinical efficacy. So, our first Big, Hairy,
Audacious Goal (BHAG) as a company was to get to 100% treatment
efficacy, meaning that every patient that got an Ulthera treatment
would get the desired clinical improvement they were looking for.
People scoffed at the time and said that’s impossible. No one is
the same. You have heavy people and older people and people with
tremendous laxity. But we thought that if that wasn’t our goal, then
what should it be? We at least have to strive for that. So that’s still one
of the BHAGs that we have. We are actually growing faster this year
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MEDTECH M&A
than we have over the last three years, because treatment efficacy
continues to improve as we refine the technology. And we performed
additional clinical studies that have yielded FDA clearances. So our
BHAG has really paid off for us.
What went into establishing the clinical endpoints that were
necessary for trial?
ML: Our first indication was for a brow lift because another company
already had obtained clearance for that just showing modest improvement. We used a very rigorous process to quantify the type of lift we
were getting on the upper face or the brow. The results were almost
double what had already been cleared. We then saw tremendous
improvements in the lower face and neck, where we actually had to
formulate and validate a brand-new scale for the FDA in order to get
our second clearance, which was for a lower face and neck lift.
We are the only noninvasive technology and the only energy-based
technology that has a lift indication; first brow and then lower face and
neck lift. And we recently had another indication for treatment of fine
lines and wrinkles in the chest or the décolletage as a third clinical indication. We also have an indication for our ultrasound imaging capability.
We also have other studies in the works. We’ll file those as we get good
results to continue to expand the utility of our platform technology.
How were the trials structured?
ML: The trial relies on very precise photography. The patients themselves serve as their own control. We are able to quantify cosmetic
improvement and provide validated scales and metrics associated
with that improvement. We took this practice to a higher level than
had been done before.
JK: We tried to utilize validated scales for assessing improvements for
each indication we pursued. We also employed different mechanisms
– such as blinded raters – whereby both a physician and a patient are
blinded to what was the before and after photos. We look for correlations between their assessments and across multiple raters. We follow
these patients out at least 30-, 60-, 90-, 180-days post-procedure, and
then quantified those changes and those improvements over time.
3i was the sole investor in the Series A round. How did NEA become involved, and was it clear from the start that this was the
kind of company that NEA wanted or needed to hold a significant stake in?
JK: We were approached by 3i when Ulthera was raising their Series
B. We led that financing with 3i’s providing a follow-on investment. [3i
ultimately exited health care and sold its shares to Apposite Capital.] At
the time of the Series B we saw a lot of things that we liked including
the nature of the technology itself. We were interested in the evolution
of energy-based aesthetics. We found ultrasound to be what could
be the final frontier in using energy to achieve a very specific desired
result and to deliver noninvasive improvements to the skin.
Given the precision of the technology, we could target very specific
structures in the skin – specifically the same structures that plastic surgeons pursue and manipulate when they’re performing a facelift. And
we can do so without the downtime associated with every other type
of energy that requires passing energy directly through the superficial
layers into the deep tissues of the skin.
As a business, we thought that Ulthera’s gross margin profile was
very promising over the long term. But probably most important was
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a fundamental approach to developing this into a platform technology. We also saw the opportunity to build the company’s reputation
around clinically meaningful results. We saw a management team that
was equally committed to that, and that actually had backgrounds
from companies like Baxter and J&J and St. Jude, where they had
developed and marketed medical technologies for what we call “ethical” indications, as opposed to aesthetic or elective procedures. They
had developed a culture of believing that that’s the right way to do
medical device development and innovation.
We thought that it was time for the dermatology and aesthetics
field to see a medical device company embrace that set of values.
The company today has an outstanding reputation thanks to the hard
work of the team, and their consistent pursuit of proving that Ulthera
really is highly effective.
How different a sales strategy is selling in aesthetics as opposed
to selling in ethical or more medical device realms, Matt?
ML: Selling aesthetics is more straightforward. You have thousands of
independent physicians who run their aesthetic practices as businesses. We deal predominantly with dermatologists and plastic surgeons,
but we’re seeing more and more new specialties and even general
practitioners interested in Ulthera. They are looking for new ways to
bring revenue into practice as their more traditional reimbursement
revenues continue to be cut.
The difficult part is getting in front of them. We really have a twopart selling process. First of all, we’re selling capital equipment, the
platform itself. Once we’ve sold the equipment, a separate sales force
goes out there to promote the utilization of our therapy within each
local physician community that has adopted the technology. So we
help drive patients into the practice with marketing support, with
promotions. We provide education about how effective the technology can be, how there’s no down time, how it’s very consistent results,
those types of things.
Most health care institutions and hospital chains or buying groups
require one evaluation committee after another. The simplest purchase requires 12 to 18 months of negotiating with various committees that assess the purchase along the way. So, selling to aesthetic
practices is much more straightforward, relatively speaking.
Where is the biggest or most troubling pitfall in this sort of sale?
What can go wrong, and what mistake presumably did you
avoid?
JK: Ulthera really invested in building durable relationships with each
customer. There are a lot of lasers that have been sold for big ticket
prices. They’re dropped off at the clinic, and that clinician never sees
the sales rep again. We don’t do that. We have a disposable that’s used
as a part of every treatment, and there’s a recurring revenue stream for
the business. We’re incentivized to see increased utilization, and the
number of treatments each clinician does on a monthly basis go up
over time. But really I think the core is that relationship and the value
that Ulthera brought to making their practices grow. And then, as a
result, Ulthera’s business grew.
ML: We have a platform, and the disposable needs to be used in Ultherapy. Therefore, it’s in our best interest to bring more value to that
core technology every year they own it. So that has been our mantra.
We will enhance it every year you own it.
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MEDTECH M&A
For example, right now we’re in the middle of our third free software upgrade worldwide on the system in its four and a half years on
the market. So about every 18 months we refresh the software. We
have enhanced the user interface screen. We’ve come out with new
transducers, the disposable piece of our technology, that allow the
practitioner to get to different depths.
We now offer a narrow transducer that is designed for hard-to-treat
areas. And there are also additional clinical applications, new patient
marketing programs, an entire new sales team out in the field to help
our customers optimize their revenue with Ultherapy and promote
it effectively.
We feel like we’re highly differentiated that way with the type of
support that we provide and that commitment to make it grow in
value every year in the practice.
Earlier this year you acquired Cabochon Aesthetics. What did
that deal say about your long-term plans for Ulthera at the
time? Was this going to be a company you saw becoming a
leading aesthetics company?
ML: I think a couple of things. With three rounds of funding and an
angel round we raised a total of just $40 million, and our first year of
profitability was 2012. We were profitable again in 2013 and we’re
doing very well this year also as we move forward.
We’re really proud of the fact that we managed the cash that was
raised in a very productive fashion, and we were very capital efficient
in the way we operated.
When the Cabochon cellulite technology became available, our
focus up to that point had been on the face and neck. We became
enamored with Cabochon’s technology as we learned more and more
about how effective its pivotal study was and the long-term improvement in the appearance of cellulite. We thought that it would be a
great additional technology for Ulthera, whether we were to remain
independent or as part of another company, as we are now.
We saw the opportunity with Cabochon to acquire a product that
addresses a huge unmet need, that is, the need for reducing the appearance of cellulite. A technology that had been FDA approved and
had a best-in-class label for its performance. They achieved that because they had a really well-conducted clinical trial that was consistent
with the same rigor that Ulthera applied to its own clinical studies.
We felt that from both a business model and a philosophical perspective it was a perfect match to Ultherapy. And as the company
rolls Cellfina out, it’s going to be able to leverage Ulthera’s existing
investment in the commercial organization globally to sell another
highly differentiated product that’s very high gross margin and really
doesn’t have a competitor in the field that can offer an office-based
treatment of cellulite.
ML: This is an example of venture capital firms truly acting as partners.
Justin really got some early information on the promise of Cabochon’s
technology. He really focused our attention more on it. As we worked
through it and understood what the capabilities were, it became evident
that this was something we should try to do. But I think without NEA
and Justin specifically really bringing our attention to it, the deal might
not have happened at all.
Going into the IPO, how did you decide the time was right to file,
and how did the process unfold? I assume you went through the
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kind of quiet road show period and received some level of interest from buyers. Can you tell the story of the IPO filing, starting
from why you filed now and what the process was like?
ML: The business was performing well. The IPO markets historically
turn on and turn off. We felt like there were some dynamics in the business that clearly indicated that we were in for a period of additional
growth. We just thought the timing was right to do that. We felt we
were ready. Our finance organization and our business processes had
been improved to the point where we thought we could withstand
the scrutiny of the public markets, and it just seemed like the time was
right. So that’s what led to the filing in April.
JK: Throughout 2012, the business was performing well and we were
starting to get attention from investment bankers encouraging us to
really start thinking about it, although not to rush to do it. When the
biotech IPO market opened up in 2013, there started being increasing
receptivity for some medical device companies.
Ulthera was never in a position where we felt like we had to go
public to raise money to fund the business, but rather it was something
that we would do when the business had the right profile and there
would be good uses for the capital to further invest in the business
and expand topline growth and bottom line profitability.
In 2012 and 2013, we were showing attractive levels of profitability and growth. This was the first time an energy-based aesthetics
company had shown the ability to grow in the way that Ulthera was
growing, but also to do it profitably.
We filed with the expectation that those trends were going to
continue if not improve, and we would have been well received by
the public markets. I think we had a lot of good feedback about our
potential to do so. But we also received attention from Merz and others that allowed us to have a discussion with those groups about the
potential of going a different route, to be acquired.
ML: One other aspect of the business at the time: in 2012, our disposable revenue as a percentage of total revenue had climbed to 42%.
And in 2013, it actually went over 50%. We finished the year with
53% of our total revenue being from the transducers. And our capital
equipment sales continue to rise.
So we also felt like not only were we a capital equipment company
and continuing to grow the installed base around the world, but also
the utilization was such that we had a lot of confidence in our continuing revenue growth because of disposables.
Is there a benchmark, an industry accepted benchmark that
disposables should be X percent of total sales to be a successful company?
ML: I don’t think so. It’s really the trends that are important and the
growth. Because you may launch a new technology at some point
and have your capital become a greater percentage. I think it really
all comes down to utilization.
JK: I agree with Matt. I don’t think there’s a specific watermark, but
the higher that number the more predictable the future revenue of
the business is. I think there was a question raised about whether
energy-based aesthetics companies could perform predictably and
maintain attractive growth rates. So we wanted to make sure that
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MEDTECH M&A
if we were going to go public, we were at a stage where we were
supremely confident in our ability to so do.
How, ultimately, did the acquisition come together with Merz?
Had you talked to them prior to filing or did they approach you
after the filing? And was that a surprise?
ML: We had made it a point, as a management team, to make sure
that all of the potential acquirers knew who we were and how we
were doing. We worked to build relationships with the senior management of those companies, and certainly with business development
organizations within the companies. We would reach out to them or
they would contact us on a quarterly basis just to see how things were
going. You know, the types of things that you do as a private company,
knowing that a dual path of being acquired or going public is probably
the best way to optimize the value of the company.
So we had kept the lines of communication open. We didn’t expect
to end up with a reviewer at the SEC who just never ran out of questions for us. We filed a first amendment to the initial filing in response
to an inordinate number of questions. And we filed a second amendment to a few more questions, and a third amendment.
Over that period of time, with the various exchanges with the SEC,
in early May, our S-1 document became public and the companies
we had been talking to had a chance to really look at virtually all the
information about the company. And certainly the progress that we
made commercially and the profitability and the gross margins and
all the things that made us not only what we thought would be an
attractive IPO, but maybe an attractive acquisition candidate as well.
Justin, did NEA have a preference one way or the other, of payment up front or the opportunity for a payout later on with a
public offering?
JK: Obviously, we were fortunate to have both as an option. I think
in the end, we went the route of acquisition because, as investors, we
found the outcome to be attractive, certainly financially. But it was
really important to us, too, that an acquirer of Ulthera have a vision
for the business that dovetailed with that of the management team.
Matt should speak to exactly how Merz may work with the company
in the future. But we saw Merz as extremely thoughtful and deliberate
in how they approached their evaluation of Ulthera. We were comfortable that they were going to make Ulthera a cornerstone of their US
aesthetics franchise.
Their commitment to growing Ultherapy, as well as to really
maximizing the value of CellFina, and to really put a lot of trust and
responsibility in Ulthera’s management team to do that successfully
made us feel like they were a great partner for our company.
How will Ulthera fit into Merz?
ML: Ulthera gives Merz a highly differentiated technology to add to the
high-quality line of aesthetic products they already possess. As their
folks talk about Ulthera as part of the portfolio and Ulthera brings our
relationships to Merz, the overall portfolio will be stronger.
What is your role within Merz?
ML: I remain president and CEO of Ulthera, and Ulthera will operate as
the medical device division of Merz globally. We will remain in Mesa,
AZ, with all of our key functions remaining there. Also, I have become
a member of the Merz Pharma Board, which consists of the heads of
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each of their four geographic regions along with other senior executives. I feel really positive about being able to have a seat at the table
as we are making strategic decisions about the future. And then really
striving to make sure that the Ulthera business is integrated in the
most effective way possible. We’re committed to becoming the most
valuable acquisition and the best investment that the Merz organization has ever made. Not just the largest, but with the highest return.
So that’s our mission moving forward.
Justin, how would you describe the payout? The $600 million figure is out there. I know there are a lot of earn-outs or
milestones involved in that. How would you characterize the
amount that you have been paid and that you anticipate being
paid going forward?
“We’re committed to becoming the most
valuable acquisition and the best
investment that the Merz organization has
ever made. Not just the largest, but with
the highest return.” - Matthew Likens
JK: The earn-out is a relatively small portion of the deal, and that itself
is quite attractive. Just as a point of reference, there was one milestone
payment to be made upon a regulatory approval post-closing that
Ulthera actually received before closing, ahead of schedule. That was
not inconsistent with the company’s history of under-promising and
over-delivering.
I think the outcome is certainly a great one for NEA. I believe Ulthera
ranks as the fifth largest acquisition of a venture-backed medical device
company of all time. Based on a multiple-on-capital basis, it’s NEA’s best
return in the history of our firm’s medical device practice. I think it will
be somewhere north of 11 times our $20 million of invested capital.
How does that influence your investment strategy going forward? Are you looking for another in aesthetics?
JK: Well, everything else just has to be better than Ulthera now!
Kidding aside, we certainly had a great experience with Ulthera. The
opportunity to generate that kind of investment return for our limited
partners is terrific. And we think it’s a great one for the entire medical
device sector.
But personally, it was a pleasure to have the opportunity to invest in
a company at a development stage with three employees and watch
it grow to more than 150 people, to scale to well over $100 million
in revenue and profitability, and to support a company in building
a reputation in the market that we think is going to be durable and
truly differentiated.
IV
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November 2014 | IN VIVO: THE BUSINESS & MEDICINE REPORT | www.PharmaMedtechBI.com