Bioventus Inc. (BVS) Q2 2021 Earnings Call Transcript

Bioventus Inc. (BVS -3.19%)
Q2 2021 Earnings Call
Aug 10, 2021, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen, and welcome to the second-quarter 2021 earnings conference call for Bioventus Inc. [Operator instructions] Please note that this conference call is being recorded and that the recording will be available on the company's website for replay shortly after the end of the call. Before we begin, I would like to remind everyone that our remarks today may contain forward-looking statements that are based on the current expectations of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated, including the risks and uncertainties described in the company's filings with the Securities and Exchange Commission including Item 1A of the company's Form 10-K for the year ended December 31, 2020, as well as our most recent 10-Q filing to be filed with the Securities and Exchange Commission. You are cautioned not to place undue reliance upon any forward-looking statements, which speaks only as of the date made, although it may voluntarily do so from time to time.

The company undertakes no commitment to update or revise the forward-looking statements whether as a result of a new information, future events or otherwise, except as required by applicable securities laws. This call will also include references to certain financial measures that are not calculated in accordance with generally accepted accounting principles, or GAAP. We generally refer to this as non-GAAP financial measures. Definitions and reconciliation of these non-GAAP financial measures to their most comparable measures calculated and presented in accordance with GAAP are available in the earnings press release on the investor relations portion of our website at www.bioventus.com.

I would now like to turn the call over to Mr. Ken Reali, Bioventus' chief executive officer. Sir, please go ahead.

Ken Reali -- Chief Executive Officer

Well, thank you, Catherine, and welcome, everyone, to Bioventus second-quarter 2021 earnings conference call. I'm joined on the call today by Greg Anglum, our chief financial officer. Let me provide you with a brief outline of what we intend to cover. I'll start by discussing our second quarter revenue performance and business trends, followed by an update on our operating progress and key highlights in the quarter and in recent months.

After my opening remarks, Greg will review our financial results for the second quarter 2021 and our financial guidance for full year 2021, which we updated in our press release this afternoon. And then we will open the call to take your questions. Turning to a brief review of our second-quarter results. We are pleased to report second quarter net sales of $109.8 million, up 89% year over year exceeding the expectations we provided on our Q1 call, which assumed growth in the range of 67% to 74% year over year.

Our second-quarter revenue exceeded the midpoint of this guidance range by roughly $11 million or 19 percentage points of growth year over year. Needless to say, we are extremely proud of the Bioventus team and the strong growth performance we delivered in the second quarter. We believe our second-quarter results were driven by our team's ability to build upon the momentum we saw coming out of the first quarter and importantly, reflects strong organic growth overall and improving growth trends quarter over quarter. Specifically, our second quarter revenue results reflect organic growth of 15% as compared to the second quarter of 2019 driven by strong organic growth versus 2019 in the U.S.

of 18%. While we are very pleased with this growth performance, we are even more encouraged by the fact that our growth trends over 2019 accelerated quarter to quarter, which reflects improvement in the overall operating environment in the period. I would be remiss if I did not mention the other key contributor to the better-than-expected revenue results we reported in Q2, and that is the strong growth performance from our recent acquisition of Bioness. We are very pleased with the progress we have made in the first 100 days post-closing, and we believe the strong execution of our integration plan helped us deliver above-plan revenue contribution from Bioness in Q2.

I'll share a little more color on our integration efforts later on the call. But for now, let me just say that we are proud of the early evidence that our inorganic business development strategy and execution-driven plans in integrating new companies quickly and efficiently is working. Diving a little deeper into the drivers of our growth performance in Q2. For the avoidance of doubt, all growth rates referred are relative to the second quarter of 2019 in the interest of stripping out any benefit to our growth performance from an easy comparison.

Our organic growth of 15% in Q2 was driven by 18% growth in the U.S., which more than offset mid-single-digit declines in our international sales. By global vertical, our organic sales growth versus Q2 2019 was driven primarily by 19% growth in sales of pain treatments and joint preservation products led by 81% growth in global sales of our flagship single-injection HA product, DUROLANE, and 59% growth in global sales of our bone graft substitute products, offset partially by a 13% decline in global sales of our restorative therapies products. As mentioned earlier, we are encouraged by the continued evidence of recovery from the pandemic that we are seeing in our global verticals, particularly in our pain treatment and joint preservation products, which posted high single-digit growth over 2019 in the first quarter and 19% in Q2 and in our restorative therapies vertical, where sales trends showed modest improvement compared to Q1. The overall environment continues to improve, and we are confident in the 26% to 29% net sales growth we now expect, as outlined in our updated guidance for full year 2021.

We continue to expect measured improvements in the operating environment as we move through 2021, fueled primarily by the increase in availability of vaccines and an increasing percentage of vaccinated Americans, as well as Canadians and Europeans, and we continue to expect a return to normalized year-over-year growth trends in the third quarter of 2021. Turning to a review of our operating progress and recent highlights. First, our integration of Bioness is progressing nicely, and we are on target to have the integration largely completed by year-end. By all indications, we believe the acquisition of Bioness checks many boxes as it relates to what we believe to be an ideal inorganic business development opportunity.

It is a substantial commercial business serving large global and growing market opportunities with attractive growth that is accretive to our long-term growth profile. Bioness offers product solutions that align perfectly with Bioventus' existing product portfolio. We believe this acquisition will allow us to leverage our significant competitive advantage of our expansive direct sales and distribution channel, which provides us with broad and differentiated customer reach, and allows us to serve physicians spanning the orthopedic continuum, including sports medicine, total joint reconstruction, hand and upper extremities, foot and ankle, podiatric surgery, trauma, spine, neurosurgery, podiatrists and pain physicians. We also see opportunities to leverage our significant experience commercializing high-value durable medical products and expect our reimbursement team to drive improving reimbursement and order to cash performance for the Bioness business in the years to come.

As we continue to execute our integration strategy in the coming months, we will be working closely with the existing Bioness peripheral nerve stimulation, or PNS, sales force to expand the market penetration of StimRouter through our large sales team and market access team. And also prepare the market for the less invasive, fully implantable TalisMann PNS device expected to be coming next year based on potential clearance in 2022. We have also started a pilot with our sales team in the restorative therapies business to introduce StimRouter to lower extremity clinicians that are currently prescribing Exogen. Bioness neuromodulation technology is highly differentiated, patent-protected and ideally suited to treat pain in the periphery.

With established reimbursement coding, the StimRouter is the only PNS device today with an RCT and is well positioned as it is a less invasive alternative to other modalities while also providing or avoiding the negative effects of opioid use. We look forward to sharing more updates on our integration progress in the coming months. Two other operating highlights of note, we launched a new product in our bone graft substitutes business, and we welcomed a new member to our board of directors. Building on a successful launch in Q1, limited launch, we entered full commercial launch of our OSTEOAMP Flowable in July.

OSTEOAMP Flowable is an injectable allograft bone graft substitute solution developed for a variety of patient procedures, including lumbar spine fusion, cervical spine fusion and foot and ankle fusion. We have been extremely pleased with the early market response to this differentiated product and look forward to its increasing contribution to our bone graft substitutes vertical in the years to come. Most importantly, OSTEOAMP Flowable due to its injectable format can be used in minimally invasive spinal fusions, the fastest-growing area in spine. Also in July, we announced the appointment of Mary Kay Ladone to the company's board of directors.

Mary Kay is an accomplished executive, serving large global healthcare companies over her more than 30-year career. We are very pleased to welcome Mary Kay to our board as she will provide valuable experience and insights as we execute our strategy of growth acceleration through new product development and M&A. Her global financial, strategic planning and business development experience as well as her strong track record of leading best-in-class investor relations programs will be invaluable to Bioventus. Before turning the call over to Greg for a review of our financial results and updated guidance, I want to share some thoughts on two items of note in recent weeks.

On July 29, we announced that Bioventus and Misonix entered into a definitive agreement under which Bioventus agreed to acquire Misonix in a cash and stock transaction. Misonix stockholders will receive aggregate consideration that values Misonix at approximately $518 million on a fully diluted basis based on Bioventus seven-day volume-weighted average stock price or VWAP of $16.6284 per share as of July 27, 2021. As outlined on our call on the 29th, we see this acquisition as a strong strategic fit, given that at Bioventus, we are a company focused on building a portfolio of clinically differentiated, minimally invasive treatments to help patients heal faster and relieve pain. Across a $13 billion addressable market opportunity, we are the No.

2 player in HA therapy with the fastest-growing single-injection therapy. We are the No. 1 player in minimally invasive fracture treatment and advanced rehabilitation. We are the fastest-growing participant in bone graft substitutes, and we are the technology leader in peripheral nerve stimulation.

We believe the acquisition of Misonix represents a compelling opportunity to extend our leadership and expand the breadth and depth of our offerings by adding $2 billion to our addressable market. We believe the complementary nature of the two businesses will give the combined company significant diversity and scale across a range of care settings, geographies and therapeutic areas. The combined product portfolio following the closing will serve large market segments across orthopedics, spine and lower extremity as well as neurosurgery. Together, we believe these factors will place Bioventus in a unique market position with leading technologies and specialized sales forces numbering over 500 sales reps serving a $15 billion total addressable market across the hospital, ambulatory surgical center and office care settings.

We believe the combination of our two businesses will create a differentiated growth medical technology company. And importantly, we believe it will enhance our long-term growth profile to the tune of approximately 100 basis points of additional revenue growth to the combined company on a pro forma basis. We strongly believe the enhanced growth profile, combined with Bioventus expected $20 million of cost synergies will create strong financial returns for Bioventus shareholders. We are clearly excited by the opportunities in store for the combined companies and look forward to the close, which we continue to expect in the fourth quarter and officially welcoming the Misonix employees to Bioventus.

In terms of our near term milestones for the investment community to monitor in the coming months, Misonix is planning to file their 10-K for the 12 months ended June 30, 2021, in early September and are targeting the filing of an S-4 a couple weeks later. We have designated a team to lead the integration and planning is already underway. We expect to be prepared to hit the ground running as soon as the transaction closes in the fourth quarter. Finally, I want to provide a brief update on a recent clinical milestone for Agili-C, a pipeline product for Bioventus via an equity investment in a privately held company named CartiHeal.

Agili-C is an off-the-shelf scaffold implant that is designed to regenerate hyaline cartilage and subchondral bone simultaneously. The Agili-C implant has been implanted in more than 190 patients outside the United States with follow-up of more than 4 years and is CE marked. The product was granted breakthrough device designation by the FDA last year and recently announced high-level results from a two-year randomized and controlled pivotal IDE study. The study's objective was to demonstrate the superiority of the Agili-C implant over the surgical standard of care, microfracture and debridement for the treatment of cartilage or osteochondral defects in both osteoarthritic knees and knees without degenerative changes.

We estimate this to be a $1.3 billion market opportunity. This is a noteworthy clinical milestone given our equity purchase agreement with CartiHeal. As disclosed in our SEC filings, the agreement provides us with an exclusive option to acquire 100% of CartiHeal's shares upon pivotal clinical trial success, including achievement of certain secondary endpoints and FDA approval of the Agili-C device, with a label consistent in all respects with pivotal clinical trial success. Consideration for the acquisition of all the shares of CartiHeal would be $315 million with an additional $150 million payable upon achievement of certain sales milestones related to Agili-C.

On August 2, 2021, CartiHeal provided us a statistical report containing the results of the pivotal clinical trial. We are currently reviewing the report to assess if it is consistent with the terms of the agreement. We have the right to terminate our option agreement at any time ending 30 days after receipt of the statistical report from CartiHeal upon payment of a breakup fee of $30 million. If we decide to move forward with CartiHeal, we will be required to put $50 million into escrow as a deposit toward the $315 million of consideration owed following the receipt of PMA approval.

We are not able to discuss the clinical study results or the statistical report at this time, but we intend to announce our decision regarding the equity agreement via a press release. So notes to bear in mind regarding our CartiHeal relationship: Number one, if we decide to move forward with CartiHeal, we have an option to acquire the company, but not until Agili-C receives PMA approval. Number two, CartiHeal submitted the PMA nonclinical module and the manufacturing module to the FDA earlier this year and continues to expect the submission of the final clinical module in Q4 of '21. Number three, our expectation regarding the potential timing of any acquisition of CartiHeal has not changed.

We continue to expect the earliest a post-PMA approval acquisition would come is mid-2022. And number four, we believe we have the requisite capital to execute our strategic growth initiatives for the existing Bioventus business, to finance our transaction with Misonix and to continue to invest in our product pipeline, including Agili-C. With that, let me turn the call over to Greg for a detailed review of our financial results in the second quarter of 2021, as well as a review of our updated 2021 financial guidance.

Greg Anglum -- Chief Financial Officer

Thank you, Ken. For the avoidance of doubt, and unless otherwise noted, my commentary will focus on the company's non-GAAP results for the second quarters of 2021 and 2020. We've included definitions and full reconciliations from our GAAP reported results to the related non-GAAP item in our press release this afternoon. Turning to a review of our second-quarter financial results.

GAAP net sales increased $51.8 million or 89% year over year on a reported basis and increased 88% on a constant currency basis. Gross profit increased $38 million or 84% year over year and represented 76.5% of sales compared to 78.7% of sales in the prior year period. The year-over-year change in gross margin was driven primarily by the mix of revenue by geography and by vertical as compared to the prior year period. Note, our gross profit excludes noncash amortization expense of $5.6 million for the second quarter of 2021 compared to $5.3 million last year.

Second quarter of 2021 gross profit also excludes $2.1 million of inventory step-up costs related to our acquisition of Bioness. Total operating expense increased $31.3 million or 79% year over year to $70.8 million. The change in total operating expense by line item was driven by a $29 million increase or 79% year over year in SG&A expense and, to a lesser extent, a $2.2 million or 86% year over year in R&D expenses. The increase in operating expense compared to the prior year period was primarily driven by investments in our selling and marketing organization, public company costs, which did not impact the prior year period results, and the resumption of discretionary spending, including travel and related expenses given the more normalized business environment as compared to the significant cost reduction efforts in the prior year period as a result of the COVID-19 pandemic, as well as operating expenses related to our acquisition of Bioness, which did not impact the prior-year period.

As detailed in the non-GAAP reconciliation tables in our press release this afternoon, we exclude noncash amortization, acquisition costs and expenses and other nonrecurring costs from our non-GAAP operating expense. Second quarter operating expense also excludes two noncash items that did not impact prior-year period reported results. Specifically a $0.6 million of noncash expense related to the change in fair value of contingent consideration and $5.7 million of noncash charges related to impairment of assets related to Harbor, of which $5.2 million was attributable to noncontrolling interest. Operating income was $13.3 million compared to operating income of $6.2 million for the second quarter of 2020, an increase of $7.1 million or 113% year over year.

Operating margin was 12.1% of net sales compared to 10.7% of net sales in the prior-year period. In summary, our performance across the P&L in Q2 resulted in non-GAAP net income of $9.6 million, up 168% year over year and adjusted EBITDA of $19.9 million, up 186% year over year. As detailed in the non-GAAP reconciliation table in our press release, adjusted EBITDA excludes the impact of stock compensation expense and other noncash or nonrecurring items. We believe this provides supplemental information about the underlying operating performance of our business.

Turning to the balance sheet. As of July 3, 2021, the company had $136.1 million in cash and cash equivalents and $181.1 million in debt obligations compared to $86.8 million in cash and cash equivalents and $188.4 million in debt obligations as of December 31, 2020. As of July 3, 2021, we had approximately $50 million of available borrowing capacity on our revolving credit facility. Turning to a review of our fiscal year 2021 financial guidance, which we updated in our press release this afternoon.

For the avoidance of doubt, our updated 2021 financial guidance includes the contributions from our acquisition of Bioness following the closing date of March 30, 2021, but does not include contributions from the proposed acquisition of Misonix, which was announced on July 29, as it is yet to close. The company expects to update its 2021 financial guidance to include contributions from Misonix following the closing, which is expected in the fourth quarter of 2021. For the 12 months ending December 31, 2021, the company is reaffirming the updated revenue guidance provided in our preliminary second-quarter revenue results press release on July 29, which called for net sales of $405 million to $415 million, up approximately 26% to 29% year over year. The increase in our net sales guidance range is driven by the stronger-than-expected sales results in the second quarter of 2021.

The updated net sales guidance range assumes net sales from legacy Bioventus Inc. of $372.5 million to $380.5 million, representing organic revenue growth in the range of approximately 16% to 18% year-over-year and net sales from the acquisition of Bioness Inc. of approximately $32.5 million to $34.5 million. With respect to our profitability guidance, we now expect GAAP net income of $13.0 million to $17.6 million, of which legacy Bioventus is expected to contribute GAAP net income of $29.2 million to $33.3 million, with Bioness contributing the remaining balance.

We now expect non-GAAP net income of $67.1 million to $69.5 million, of which legacy Bioventus is expected to contribute non-GAAP net income of $75.6 million to $76.6 million, with Bioness contributing the remaining balance. We now expect adjusted EBITDA of $77.8 million to $82.0 million, of which legacy Bioventus is expected to contribute adjusted EBITDA of $82.8 million to $86.1 million with Bioness contributing to the remaining balance. In addition to the formal financial guidance provided in this afternoon's release, we would like to provide some key assumptions to bear in mind when evaluating our growth expectations for 2021. First, our full-year 2021 net sales guidance range assumes the following for net sales by geography.

U.S. net sales growth in the range of 23% to 26% year over year and international net sales growth is expected to be in the range of 55% to 60% year over year. These ranges assume U.S. sales growth on an organic basis in the range of 15% to 18% year-over-year and contributions from our acquisition of Bioness, and international sales growth on an organic basis in the range of 22% to 24% year over year, as well as contributions from our acquisition of Bioness.

For net sales by vertical, our full-year 2021 guidance now assumes low to mid-20s percent growth in global sales of pain treatments and joint preservation products driven by low 20% organic growth and contributions from Bioness. Low to mid-30s percent growth in global restorative therapies growth driven by low single-digit organic growth and contributions from Bioness and high 20s to low 30s percent growth in global sales of BGS products. Second, we continue to expect to see measured improvements in the operating environment as we move through 2021, fueled by the increasing availability of vaccines and an increasing percentage of vaccinated Americans, Canadians and Europeans. Our full-year 2021 guidance continues to assume a return to normalized year-over-year growth trends in the third quarter of 2021.

Finally, with respect to our expectations for financial performance in 2021, we would like to provide some of our assumptions to help evaluate our full year 2021 guidance for GAAP and non-GAAP net income. For the full-year 2021 period, we expect non-GAAP gross margins of approximately 77.6% to 78.1%. GAAP operating expense growth of 23% to 26% year over year, driven primarily by the incremental operating expenses related to our acquisition of Bioness, low double-digit growth in legacy Bioventus operating expenses compared to 2020. Note the increase in GAAP operating expense growth range versus prior guidance is driven by the noncash impairment charges and noncash expenses from contingent consideration in the second quarter of 2021.

We also expect interest expense net of approximately $2.3 million, total noncash depreciation and amortization of approximately $31 million to $32 million, noncash stock comp income of approximately $2.7 million to $3.7 million and weighted average diluted Class A shares of approximately 42 million. With that, I'll turn the call back to you, Ken.

Ken Reali -- Chief Executive Officer

Thanks, Greg. Before opening the call for Q&A, I want to summarize the main points of the Bioventus investment story, which I believe will illustrate why we are so enthusiastic about the long-term outlook for the company. Number one, we are a company focused on building a portfolio of clinically differentiated minimally invasive treatments to help patients heal faster and relieve pain. We are confident in our multiyear organic growth profile, which is increasingly compelling and fueled by our market penetration strategy in both our pain treatment and joint preservation and bone graft substitutes verticals and expanding our reach in our restorative therapies vertical.

Number two, our product pipeline is robust and is expected to fuel accretive growth in the medium term with potential products like Agili-C by CartiHeal; MOTYS; PROcuff; and TalisMann, the implantable less invasive PNS device from Bioness. Number three, our M&A strategy is designed to bring in acquisitions that are expected to bring an accretive growth to our global business and leverage our strong commercial infrastructure to bring about consistent double-digit growth. As discussed, our acquisition of Bioness in March and our recently announced pending acquisition of Misonix represents ideal fits in terms of how our M&A strategy will enhance our long-term growth profile and create further value for our shareholders. Importantly, we will continue to be measured and prudent in our approach to M&A as we have with both Bioness and Misonix deals.

Number four, operationally, we are focused on continuous improvement to positively impact our margins, including cost savings initiatives from a manufacturing and supply chain perspective, while also enhancing our quality programs to meet ongoing changes in our regulatory environment. And number five, and most importantly, our strategy is backed by a highly engaged, results-driven culture that is fueled by an employee-driven mission to improve the lives of the thousands of patients that are treated each day by one of our medical devices, returning them to active lives. With that, we will open the call to take your questions. Catherine?

Questions & Answers:

Operator

[Operator instructions] And sir, our first question from Robbie Marcus of JPMorgan.

Robbie Marcus -- JPMorgan Chase & Co. -- Analyst

Great. Thanks for taking the question. Maybe we could start on the outlook. I think people are getting very concerned about the impact of COVID and the delta variant, particularly in the Southeast with some hospitals in Texas and Florida and other states starting to put off elective procedures.

It doesn't sound like the guidance necessarily assumes a worsening of the situation. So it'd be great to get your take of what you're seeing right now in the U.S., particularly in the Southeast. And are you seeing an impact so far in third quarter from the rising cases?

Ken Reali -- Chief Executive Officer

Yes. Thanks, Robbie. Good to hear your voice, and thanks for your question. It is a concern and one that we're watching carefully.

At this point in time, it is not impacting our business. Keeping in mind that Bioventus is broadly diversified geographically across the United States, where we sell in a given month to thousands of surgeons across our three verticals. That really helps us where we may have some regional spikes which is, I think, what we're seeing with the delta variant where there's some impact in elective procedures, but we're broad enough based at this point where we have not seen an impact. We'll obviously continue to watch that carefully, but our guidance assumes we return back to normalized growth in the second half of this year.

Robbie Marcus -- JPMorgan Chase & Co. -- Analyst

Got it. OK. So it doesn't seem like it's really impacting you from second-quarter trends at all in a material way yet?

Ken Reali -- Chief Executive Officer

No. It's not, Robbie. And hopefully, that will continue for us.

Robbie Marcus -- JPMorgan Chase & Co. -- Analyst

I hope so, too. Maybe a quick follow-up, more of a strategic question. With a couple of deals announced in CartiHeal. And that was the plan from the time of the S-1.

So it shouldn't be much of a surprise. But how are you thinking about further M&A from here and particularly your ability to finance further M&A? Would love to get your thoughts. Appreciate it.

Ken Reali -- Chief Executive Officer

Yes. Thanks, Robbie. Our M&A strategy, as we've talked about since we went public earlier this year, is not to drive growth for growth sake with M&A, but really look at it from a strategic perspective and make sure it marries and leverages our commercial channel. We've been fortunate to find two excellent acquisitions in 2021 in Bioness and the pending acquisition with Misonix.

We will continue to look at other M&A, and we'll take a prudent and measured approach that those potential deals, if we go that far, are ones that will return value to all shareholders, and that will be a key measurement device. We have assessed carefully where we stand relative to Misonix and completing that acquisition, which we expect to close in the fourth quarter. And then CartiHeal and as highlighted on the call, we don't expect CartiHeal if you do move forward to receive PMA approval until mid-2022, which puts quite a bit of daylight between the close of Misonix and the CartiHeal deal. So we are in a strong position with low debt, not leveraged, but very strong cash that drives down to our bottom line every month.

So we'll continue to certainly look at our M&A pipeline and look at opportunities that drive accretive growth. But as we've done in the past, it will be a measured and prudent approach. And we just have, in our case, some very good synergies that we've been able to take advantage of here in the near term with both Bioness and Misonix. And we're clearly excited about CartiHeal and we'll be assessing that technology.

And as mentioned, are in process of doing that right now.

Robbie Marcus -- JPMorgan Chase & Co. -- Analyst

Great. Maybe if I could sneak in one more. Now that you've had some time to digest the acquisition, at least since the announcement a couple of weeks ago. Any updated thoughts on accretion for the first year and the second year on adjusted EBITDA? And how that impacts net income? Thanks.

Greg Anglum -- Chief Financial Officer

Yes, Robbie, it's Greg. I'll take that one. With respect to Misonix, I don't think there's any updated thoughts at all. As we said at the time of that announcement, we expect that acquisition to be accretive to our adjusted EBITDA in the first full year after the completion of the transaction, and accretive to our adjusted EBITDA margins by the second full year after completion.

And really no change to that from what we said at that point. Thnaks.

Operator

And sir, our next question from Amit Hazan of Goldman Sachs. Please ask your question.

Phil Coover -- Goldman Sachs -- Analyst

This is Phil on for Amit. Can you guys hear me OK?

Ken Reali -- Chief Executive Officer

We can, Phil.

Phil Coover -- Goldman Sachs -- Analyst

Awesome. I wanted to circle back to delta in maybe a slightly different way than Robbie asked it, and ask about patient risk aversion kind of independently of constraints on facilities in the hospital. So I'm wondering what your learnings were on patient risk aversion over the last roughly year, 18 months? And how you're thinking about that moving forward? And any differences that you see in different divisions? Obviously, there's slightly different dynamics between the different segments that you guys operate on?

Ken Reali -- Chief Executive Officer

Yes. It's a great question, Phil, and let me try to answer it by the verticals and a lot of our data will be U.S.-based. But certainly, I'll reflect on some international points as well. First of all, on our HA therapy in our pain treatments area in that vertical, we saw last year reticence to go into physician offices keeping in mind that, that particular population with HA is elderly people or people over the age of 65 and sometimes quite a bit older.

We've seen a full return to our HA business as the vaccines have become available late last year and early this year. And as you can see from our results, we continue to see continued strong growth in that area and continue to gain market share in the HA space in general. Exogen is more of a broad-based technology in our restorative therapies area. And that particular area, it was impacted throughout 2020 because of the reduced activity level, reduced trauma, and then we've seen a consistent pickup across the back half of 2020 and into 2021.

I don't expect that to be impacted because that's more trauma related. And as long as people will continue to remain active, and we don't have shutdowns, the impact of a delta variant will not be extensive on the restorative therapies area or Exogen. And for that matter, on the advanced rehabilitation area with Bioness, I would say the same thing where it's more stroke and focused at this point and in areas like that, that affect gates, we don't expect a significant impact there, unless there would be some type of significant shutdown. And then going to our bone graft substitutes area, that also is more of a younger patient group in spinal fusion that can vary in age from 50 to 70 typically, and we have not seen a decline in elective procedures.

As I mentioned, Phil, there is some regional pressure on occasion depending on the area where there might be spikes, but we're broad enough based with that business that we have been fortunate, we have not seen any real impact to our growth profile. And on peripheral nerve stimulation with StimRouter, it's really the same thing. That's right now focused where our focus is on postsurgical pain and some chronic and lower extremity pain, and we have not seen any impact there. And again, we'd have to see a significant shutdown to see PMS impacted.

Now where we have seen an impact with the pandemic has been more internationally where we are direct in the U.K. and Canada and Germany, we have seen a much more of a significant impact as you can see from our numbers. They are rebounding though. And we expect in the second half of the year with continued vaccination growth that patients will return to normal treatments in those markets as well as our distributor markets outside of those three direct markets, and we continue to stay positive on that mentality.

Phil Coover -- Goldman Sachs -- Analyst

All right. Thanks for all the color. That was great. One more, if I may, the Exogen system.

I think growth, if you look on a kind of a compound basis slowed sequentially versus 1Q. I'm wondering what happened in the market there? Obviously, we had things going on in 1Q that I think could have actually slowed growth on that side. So what happened in 2Q? And what gives you confidence in the reacceleration that's implied in guidance for that business?

Ken Reali -- Chief Executive Officer

Yes. Thanks, Phil. Well, just to be clear, we did see sequential growth in Exogen from Q1 to Q2, and we're very pleased with that. So from our perspective, Exogen, we continue to expect low- to mid-single-digit growth with the product, and we continue to be strongly optimistic on Exogen to deliver from a profitability perspective.

So as far as we're concerned, we've continued to see really good numbers there and encouraging numbers. As I mentioned, Exogen was hit last year, particularly with the reduction in trauma, but we've seen that pick up, and we've seen good sequential growth from Q1 to Q2 now.

Operator

And our next question from Drew Ranieri of Morgan Stanley. Please ask your question.

Drew Ranieri -- Morgan Stanley -- Analyst

Hi everyone. Thanks for taking the question. Just going back to the third quarter for a moment, just your comments that you're expecting a return to normalized year-over-year growth trends in the third quarter. It looks like consensus has about $102 million for the third quarter.

But if I kind of look back at maybe what your normalized growth rates would have been. It seems like we might be coming out to like $95 million to $98 million. Just curious if you're comfortable where consensus currently stands just kind of given the trends that you're seeing in the business and variants?

Greg Anglum -- Chief Financial Officer

Yes, Drew, thanks, it's Greg. And short plain version is, we've said all year long, we expect to get back to normalized growth in the second half. We continue to say that. If you go back and you look at our business historically, Q2 to Q3, our business stays relatively constant.

Maybe dips just a hair, but our business certainly builds from the first quarter to the fourth quarter, but it's relatively constant from Q2 to Q3. So we remain very positive in terms of our outlook for the rest of the year.

Drew Ranieri -- Morgan Stanley -- Analyst

OK. And then I'll put these two questions together. But can you maybe talk a little bit more about the pilot program between -- for StimRouter and Exogen? And then second, just give us a pipeline update for BONES and MOTYS? Thank you.

Ken Reali -- Chief Executive Officer

Sure, Drew. Well, first of all, the pilot program was something we launched several months ago with our sales team that sells Exogen. And specifically calls on lower extremity surgeons, foot and ankle orthopedic surgeons and podiatric surgeons where there's a real need for a peripheral nerve stimulation depending on the procedure and the area that you're treating. As we brought the team in, it was 25 of our sales reps, so a small percent that's gone quite well as they've gone out in the field.

They've been trained, working closely with the Bioness peripheral nerve stimulation sales force. So we're very excited about that opportunity. It's an initial focus for us just to gain market experience and have our reps gain experience and confidence with the StimRouter product. From our perspective, we look forward to a full launch across our broader sales force in this area going into 2022.

And obviously, also the next-generation TalisMann product, which we also expect 510 k clearance on and availability with that in 2022 as well. As far as BONES, there's not a lot to update on at this point. As highlighted before, we have a deficiency letter from the FDA on the metatarsal study. And we are in discussions with FDA and expect to continue to work to resolve the deficiency letter.

And once again, this is a PMA supplement that does take some time as the team works through that. So we'll have updates as we get them that are material in that area. And then on MOTYS, we continue to work through our Phase I study. It's now two sites in the U.S.

and we're ready to commence our Phase III study on schedule in the third quarter or Phase II study rather on schedule in the third quarter. So very excited about what that product represents and the strong adjacency that we see in our HA portfolio with MOTYS as a placental tissue product that can have disease-modifying implications as well as reduce inflammation in the knee joint. So that continues to really progress nicely, and our team has done a terrific job moving that forward via the BLA application process.

Operator

[Operator instructions] And our next question from Kyle Rose of Canaccord. Please ask your question.

Kyle Rose -- Canaccord Genuity -- Analyst

Great. Thank you very much for taking the questions. So I wondered if we could just ask more of a bigger picture M&A question. I understand that your appetite for continued M&A remains strong.

When I look at the two deals that you've done or one pending and one closed one. I mean they're a bit more tangential than I think maybe we would have expected, broadening into the wound care market as well as more on the operative side of the spine market. And then when I look at Bioness, you've got multiple different market segments that you're broadening to do. Do you expect to continue to move into additional adjacent market segments or could more so than invest in the existing markets that you're in now?

Ken Reali -- Chief Executive Officer

It's a good question, Kyle. And really, when you look at the segments that we're in and the verticals, these were highly adjacent areas, which is why we did them and they leveraged our commercial channel and the infrastructure that the company has. I mean if you start with Bioness, we're using our current sales force. Obviously, it's just a pilot right now, but we will to continue to penetrate the peripheral nerve stimulation market, which is a significant one when you look at the opioid crisis and the use of opioids post-surgery.

These are all physicians and surgeons that we call on daily. So leveraging that has been critical. And then obviously, on the advanced rehabilitation business, there's an operational synergy as well as a commercial synergy operationally with the durable medical equipment and that process that we have well-honed with Exogen. And then commercially expanding their gate restoration products to use in osteoarthritis.

And our sales force also going in that direction where we see a lot of great synergy. And then with Misonix, it is essentially the same strategy going deeper with what we have. Starting with spine, the unique strategy that we have being agnostic to spine hardware and leveraging our bone graft substitutes across a broad portfolio of opportunities in hospitals and surgeons. Misonix has taken the same strategy with the BoneScalpel, and we view that as a definite two plus two equals five because that strategy and this relatively small market penetration we both have will allow acceleration of growth using our combined commercial channels.

And certainly, on the wound area, that's a direct synergy with our Exogen call point. There's about 4,000 physicians today that prescribe Exogen annually that treat wounds in the office. The wound market has shifted with the pandemic to more office-based treatments. Some of that's based on patient comfort, not wanting to go to the wound center, and that's our strong suit.

So we see direct synergy there in combination with the Misonix wound sales force, which largely focuses in the wound centers and the hospitals. So I like to call our business, Kyle, when we started out a mile wide and an inch deep. And all we're doing is taking that inch deep, and we're going two or three inches by going deeper with our customers. It might seem like it's not tangential, but when you really look at it, and hopefully, that makes sense the way I described it, we are going deeper with the same customers using our same commercial channels.

So we're very excited about that. We'll continue to take a measured and prudent approach and a careful approach in M&A. We've just been very fortunate that we found two really good ones here of late that are great fits for Bioventus and our ability to drive long-term accretive growth, which both acquisitions we feel will do for our shareholders.

Kyle Rose -- Canaccord Genuity -- Analyst

Great. And then just last question for me is it sounds like the CartiHeal data looks pretty good, at least from a top line perspective. I understand all the time lines. I'm just trying to understand, maybe from your side, what would prevent you from moving forward with the deal as it is already structured? Thank you.

Ken Reali -- Chief Executive Officer

Thanks, Kyle. Look, there's not a lot I can comment on. As I said, we're viewing the data now. We'll look at the data and the market opportunity carefully.

We are excited. It's a great technology. It's a great product. We just have to look at this holistically.

And that's what we're in the process of doing. We will announce our decision via a press release here. And from our perspective, that's about all we can say at this point in time. So we'll keep everyone posted on next steps there.

Operator

[Operator signoff]

Duration: 61 minutes

Call participants:

Ken Reali -- Chief Executive Officer

Greg Anglum -- Chief Financial Officer

Robbie Marcus -- JPMorgan Chase & Co. -- Analyst

Phil Coover -- Goldman Sachs -- Analyst

Drew Ranieri -- Morgan Stanley -- Analyst

Kyle Rose -- Canaccord Genuity -- Analyst

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