Shareholders of Orthovita Inc. (NSDQ: VITA), a Malvern, Pa.-based orthopedic biologics maker, are suing over a proposed $316 million merger by Stryker Corp. (NYSE:SYK ) that represents a hefty premium on VITA stock price.
The stockholders, led by Andrew Thorn, accused the two companies and Orthovita’s board of breaching its fiduciary duty in agreeing to the deal and charges Stryker with abetting that breach.
Earlier this month Stryker offered to pay $3.85 per share in cash for Orthovita, a 41 percent premium on VITA’s closing price of $2.73 per share the last trading day before the deal was announced. A tender offer for the shares kicked off last week, set to expire at midnight June 24.
Orthovita makes a suite of products for the fusion, regeneration and fracture fixation of human bone, including Vitoss, a bone graft substitute, and Cortoss, a bone augmentation material.
Filed in the Court of Common Pleas of Montgomery County, Pa., the complaint alleges that the defendants breached “fiduciary duties in their pursuit of a sale of the company at an unfair price through an unfair and self-serving process to Stryker,” according to the court documents, which seek to stop the merger.
“Orthovita believes that this action is without merit and intends to defend its position in this matter vigorously,” according to a regulatory filing.
Orthovita reported a $1.16 million loss on $23.7 million in sales during the three months ended March 31, compared with $1.18 million in losses on $24 million in sales during the same period last year. Orthovita had just over $59.7 million in assets at the end of the quarter, including $8.3 million in cash and equivalents.
Orthovita’s product line could potentially fill the hole left at Stryker by its offloaded its troubled OP-1 bone growth implants family to Japan-based Olympus Corp. for $60 million in December 2010.
The deal marked a a step towards Stryker freeing itself of the legal woes related to allegations it promoted the off-label combination of two of its bone growth products.
Federal investigators in Oct. 2009 indicted the company and four managers charging that they led a two-year campaign to promote the combined use of separate bone-healing products, each granted a narrow, provisional “humanitarian device exemption” by the FDA. Combining the treatments and devices — the OP-1 Implant, OP-1 Putty and the bone void filler Calstrux — caused adverse effects in patients ranging from minor irritations to infections requiring follow-up surgeries. The indictment also charged that Stryker and former Stryker Biotech president Mark Philip lied to the FDA about the number of patients treated each year with OP-1 Putty.
The legal proceedings are still ongoing and in November federal prosecutors blasted Stryker Biotech, its former president and three sales reps for seeking the dismissal of the bulk of the 16 criminal charges pending against them in a federal case alleging the illegal promotion of the bone putties.