Tactile Medical Acquires AffloVest® Respiratory Therapy Business

Tactile Systems Technology, Inc. announced it has acquired the assets of the AffloVest respiratory therapy business from International Biophysics Corporation, a privately-held company which developed and manufactures AffloVest.

AffloVest is a portable, wearable vest that treats patients with chronic respiratory conditions such as COPD-associated breathing conditions like bronchiectasis, or conditions resulting from neuromuscular disorders and cystic fibrosis, by managing airway clearance. AffloVest is the first truly portable, battery-powered, High Frequency Chest Wall Oscillation (HFCWO) device. Its use has been shown to reduce antibiotic use, emergency room visits and hospitalizations.

The addition of AffloVest represents an ideal strategic fit for Tactile Medical as it aligns well with our focus of treating patients with underserved chronic conditions in the home. We expect to promote AffloVest’s patented, portable design, demonstrated clinical outcomes, and established reimbursement within the Durable Medical Equipment (DME) channel to drive AffloVest to contribute to our overall company goal of 20%+ revenue growth going forward. Like lymphedema, the chronic pulmonary disease market represents a large, and still underpenetrated opportunity. Importantly, multiple members of our management team have significant experience in this category, which gives us confidence in our ability to execute our commercial strategy for AffloVest. We look forward to welcoming the AffloVest sales team to Tactile Medical and intend to maintain their strategy of partnering with DME companies to promote the proven therapy. The sales representatives at these DME companies are uniquely positioned to provide valuable access to chronic respiratory providers and patients through their complementary product and service offerings such as oxygen, nebulizers and ventilators.

Longer term, we believe adding a mobile, wearable therapy to our portfolio invites synergy within our R&D roadmap as we advance our goals within ease-of-use and digital engagement. We believe this is a compelling transaction as it expands Tactile Medical’s annual addressable market opportunity in the U.S. to more than $10 billion, fits our long-term revenue and margin growth profile, enhances our long-term profitability, and is expected to generate an attractive return on investment.

Dan Reuvers, President and CEO of Tactile Medical

Tactile Medical has financed the transaction through a combination of cash on hand and $55 million of borrowings under its existing credit facility, which is being amended in connection with this transaction. The credit facility is being exclusively provided by Wells Fargo Bank, NA. Tactile Medical expects its net leverage ratio as of year-end 2021 to be approximately 1.4x and anticipates its net leverage ratio as of year-end 2022 to be less than 1.0x.

Strategic Rationale

  • Provides access to a differentiated and clinically validated, HFCWO technology: AffloVest was developed to treat patients with serious chronic respiratory disorders. AffloVest’s patient-friendly design provides freedom and mobility intended to increase patient adherence. It has been shown to reduce related healthcare costs including antibiotics, emergency room visits, and hospitalizations.
  • Adds $5 billion annual addressable market opportunity in the U.S.: Bronchiectasis is one of the most common respiratory diseases with 500,000 U.S. adults diagnosed, growing in the high single-digits annually. The U.S. market remains underpenetrated with more than 16 million living with COPD, over 4 million of whom may be affected by bronchiectasis.
  • Proven commercial strategy supports the opportunity for continued market share gains: AffloVest has demonstrated strong growth and market share gains by partnering with respiratory DME companies to commercialize the product. Significant opportunities for further growth exist with a universe of more than 4,000 respiratory DME sales representatives in the U.S.
  • AffloVest business features an attractive profitability profile: Expected AffloVest gross margins above 70% and adjusted EBITDA margins of more than 30%.
  • Transaction aligns with Tactile Medical’s growth and margin goals: Transaction aligns with the Company’s growth and margin goals, including 20%+ revenue growth, gross margins above 70% and expanding adjusted EBITDA margins. Calendar year 2021 revenues of AffloVest are expected to be approximately $17 million and the transaction is expected to contribute approximately $5.0 million to $5.5 million of revenue from the closing date of September 8, 2021 to December 31, 2021. Further, the acquisition is expected to be accretive to the Company’s adjusted EBITDA, excluding purchase accounting, non-cash amortization and transaction costs, by the end of year one post-closing. The Company intends to provide additional financial information related to the AffloVest acquisition during its third quarter 2021 earnings call in November.

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