A novel Conceptus

MOUNTAIN VIEW, Calif.—Bayer HealthCare LLC, a subsidiary ofBayer AG, has inked a definitive merger agreement with Conceptus Inc., underwhich it will acquire the California-based company for $31 per share in cash,for an approximate transaction value of $1.1 billion. Bayer commenced its cashtender offer for all of Conceptus' outstanding shares on May 7.

Conceptus specializes in the development andcommercialization of device-based solutions in permanent birth control, withits lead product consisting of the Essure procedure, a surgery- andhormone-free permanent birth control method. The procedure can be performed ina physician's office in less than 10 minutes, and has a 99.8-percenteffectiveness rate based on five years of follow-up, with no pregnanciesreported in clinical trials. The procedure was CE Mark approved in 2001, andgained U.S. Food and Drug Administration approval in 2002.

"Both Bayer and Conceptus are focusing on innovativesolutions to advance women's healthcare. Essure completes Bayer's portfolio oflong-acting intrauterine systems and short-acting oral contraceptives. Ourexperience in the field of gynecology combined with our sales and distributionexpertise will help to further develop Conceptus' business," Andreas Fibig,president of Bayer HealthCare Pharmaceuticals and member of the BayerHealthCare Executive Committee, said in a press release.

Conceptus brings with it a global presence, withsubsidiaries and market presence in France, the United Kingdom and theNetherlands, and currently employs approximately 300 people. No details werereleased as to Bayer's plans for Conceptus' facilities or employees.

The same day Conceptus announced the signing of the mergeragreement with Bayer, it also released its first quarter financial results. Thecompany posted revenues of $34.1 million for the quarter, up 17.5 percent fromQ1 2012, with U.S. sales of $26.5 million and international sales of $7.6million. Conceptus' net income for the quarter was $1.9 million. For the fiscalyear 2012, Conceptus saw net sales of $141 million, with adjusted EBITDA of$28.2 million.

"Essure has been well accepted in the market for more than10 years and demonstrated robust growth over this time," D. Keith Grossman,president and CEO of Conceptus, commented in a statement. "We believe thatunder Bayer's ownership, the Essure product will more rapidly become thestandard of care in our established markets, and will benefit in new marketsfrom Bayer's global presence. Our customers and patients will benefit from thisincreased access to the benefits of Essure."

The acquisition expands Bayer's existing portfolio ofcontraceptive products, which includes the Yaz, Yasmin and Natazia pills, andMirena, an intrauterine device. It could also help to offset losses caused bygeneric competition for Yaz. Parsippany, N.J.-based Actavis Inc. relaunchedVestura, its generic version of Yaz, mid-April after the United States Court ofAppeals for the Federal Circuit ruled in its favor that Bayer's patent wasinvalid.

Zacks Equity Research commented on the transaction, notingas prices on Conceptus' shares rose in the wake of the announcement that"Conceptus' shareholders might not benefit a great deal from the buyout." As ofthe end of April, Zacks rated Conceptus with a Zacks Rank #3 (Hold). In a morerecent May commentary, Zacks noted that "successful completion of the acquisitionwould ensure the presence of short-term, long-term and permanent contraceptivechoices from Bayer's portfolio for women."

Conceptus' board of directors unanimously recommended thatthe company's shareholders accept the offer, which is set to expire at midnighton June 5. Completion of the offer is subject to a minimum tender of at least amajority of Conceptus' outstanding shares and antitrust clearance in the UnitedStates, as well as other customary closing conditions. The transaction is expectedto close mid-2013.

Bank of America Merrill Lynch served as Bayer's advisor forthe transaction, while Conceptus brought on Goldman Sachs Group Inc. as itsadvisor.