The MAE clause in the Merger Agreement followed a typical framework. In response to rate deductions in January and April, Hillrom refused to close the transaction, arguing that the over 60% price reduction in Bardy’s only product constituted an MAE under the Merger Agreement. The contractor did so in April, raising them to a maximum of $133.47, but still representing an over 60% decrease from previous levels (the “April Rates”). Industry participants, shocked by the news, petitioned the contractor to increase the rates. Two weeks later, the CMS contractor set temporary rates for AECGs to a maximum of $49.70 – an 86% decrease.
The parties signed the deal on January 15, 2021. After CMS’s decision, but prior to the CMS contractor updating its temporary pricing for the upcoming year, Hillrom decided to forge ahead with the acquisition, and it renegotiated the Merger Agreement to include variable earnouts depending on Bardy’s post-closing revenue. But, unexpectedly, in December 2020, CMS elected to defer the pricing again to a contractor for at least another fiscal year. At the time of the negotiation of the deal to acquire Bardy, the Centers for Medicare & Medicaid Services (“CMS”) had not yet established a permanent price for devices in the AECG market, but a CMS contractor had consistently set a temporary price at approximately $365 per patch.īoth Hillrom and Bardy originally anticipated that CMS would set a permanent price before the transaction was finalized. Bardy’s primary revenue stream for its product is Medicare.
#Bardy diagnostics Patch#
Bardy’s AECG is a single-use, bandage-sized patch that can detect heart arrhythmias for up to 14 days. Bardy is essentially a single-product company that sells a type of ambulatory electrocardiogram (“AECG”).
(“Bardy”), a medical device startup (the “Merger Agreement”). and a subsidiary (“Hillrom”) to acquire Bardy Diagnostics, Inc. The contract at issue was an agreement by Hill-Rom, Inc. Ultimately, the Court found that a 60% reduction in the temporary Medicare rates for the target’s only product was not proven to be long-lasting enough to qualify as an MAE, and even if it did, the parties’ negotiated exclusion for changes in “Health Care Law” excepted this price reduction as a ground for an MAE. The decision has important implications for merger agreements more broadly, and for any acquisition where the target company faces a severe shock during the interim period between signing of the agreement and closing. 2021-0175-JRS, concluding that the requirements of a “material adverse effect” (“MAE”) clause in a corporate merger contract had not been met, and ordering specific performance by the corporate buyer to close the transaction. On July 9, 2021, the Delaware Court of Chancery (Slights, V.C.) issued an opinion in Bardy Diagnostics, Inc.
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