How MELA Plans to Buy XTRAC and VTRAC From PhotoMedex

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Early Tuesday morning, PhotoMedex Inc. (NASDAQ: PHMD) announced that it will be selling its XTRAC and VTRAC psoriasis and vitiligo treatment businesses to MELA Sciences Inc. (NASDAQ: MELA). The price set on the transaction is $42.5 million all in cash.

It is worth noting that the price of the transaction is just above PhotoMedex’s $40.6 million market cap at the close of Monday’s trading session. MELA has an even smaller market cap of $14 million.

MELA plans to finance the deal through a relatively large debt offering. In its filing the company detailed:

The Company entered into a Securities Purchase Agreement and related financing documents with entities affiliated with existing institutional investors in the Company providing for the issuance of $42.5 million aggregate principal amount of senior secured notes senior secured convertible debentures and warrants to purchase 3.0 million shares of common stock at an exercise price of $0.75 per share. The Company sold $10.0 million aggregate principal amount of Notes bearing interest at 9% per year with a maturity date of the earlier of 30 days after the Company obtains stockholder approval of stock issuances under the Debentures and the Warrants or November 30, 2015. The Company also issued $32.5 million aggregate principal amount of Debentures that, subject to certain ownership limitations and stockholder approval conditions, will be convertible into approximately 43.3 million shares of Company common stock at an initial conversion price of $0.75 per share. The Debentures bear interest at the rate of 2.25% per year, and, unless previously converted, will mature on the five-year anniversary of the date of issuance. Under the terms of the Debentures and the Warrants, the issuances of shares of the common stock upon conversion of the Debentures and upon exercise of the Warrants are subject to stockholder approval of such issuances and an amendment to the Company’s certificate of incorporation to increase the Company’s authorized shares of common stock. Upon receipt of stockholder approval, the Company has also agreed to reprice outstanding warrants held by certain investors to reduce the exercise price to $0.75 per share.

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PhotoMedex is a global skin health company providing aesthetic solutions to dermatologists, professional aestheticians and consumers. The company provides proprietary products and services that address skin diseases and conditions, including acne and photo damage.

The company has offices in New York, the United Kingdom and Israel. Additionally, it has a 15-person Neova sales team that puts its primary focus on providing product launches, training and customer service to physicians in the U.S. market.

Dr. Dolev Rafaeli, CEO of PhotoMedex, commented on the deal:

PhotoMedex is now able to focus solely on our core consumer and skincare businesses, including the no!no!, Kyrobak and Neova brands, without the burden of debt payments and the restrictions of forbearance agreements. These highly-regarded and established brands are sold worldwide via direct-to-consumer, retail and distribution channels, and through more than 2,400 U.S. dermatology and plastic surgery offices.

Shares of PhotoMedex were up 15% at $2.12 early Tuesday, in a 52-week trading range of $1.01 to $12.75. The stock has a consensus analyst price target of $18.00. On average this stock trades about 147,000 shares daily.

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