A Medical Device Daily

NxStage Medical (Lawrence, Massachusetts), a manufacturer of dialysis products, reported its plans to form a business alliance with Asahi Kasei Kuraray Medical (Japan), a medical supply company. According to NxStage, the signed agreements are multi-faceted, but most importantly leverage NxStage's production expertise in its existing dialyzer manufacturing facility in Germany and Asahi's expanded high performance polysulfone hollow-fiber membranes. In addition, Asahi will provide NxStage with $40 million of debt financing to pay off its entire debt obligation owed under its GE credit facility.

The alliance combines the complementary strengths of the two partners in innovative and competitive technology, product development, and market presence. This transaction is expected to enable both companies to accelerate their global growth strategy through mutual synergy, they said.

NxStage will assemble and label its dialyzers for Asahi under the Asahi name brand at NxStage's facilities in Germany. Asahi will sell the dialyzers exclusively in Asia and non-exclusively in rest of world; however, NxStage is retaining all its rights in North America. When Asahi desires additional capacity from NxStage, Asahi will fund the construction of a new facility to provide both parties with additional dialyzer production capacity. The new facility would be owned by Asahi and operated by NxStage. By collaborating in dialyzer assembly, both parties expect to realize cost savings.

NxStage will grant Asahi a royalty-free license to its production technology to make and sell NxStage's current dialyzer design exclusively in Asia and non-exclusively in rest of world; however, NxStage is retaining all its rights in North America. NxStage will also license certain rights for Streamline blood tubing set technology to Asahi under similar conditions. Any improvements obtained through the combination of the dialyzer manufacturing or bloodline technologies of the two companies are to be mutually cross-licensed on similar terms.

Asahi will supply its high performance polysulfone hollow-fiber membrane to NxStage for NxStage branded products in North America. NxStage will continue to purchase fiber from its current supplier for NxStage System One filters.

Asahi will provide NxStage with $40 million of debt financing on competitive terms, including an 8% interest rate (NxStage's current rate under the GE facility is 11%), with 50% of the interest deferred to maturity, the company noted. The four-year loan includes no financial covenants and the debt may be prepaid by NxStage without penalty at anytime. However, if the loan goes to maturity, Asahi will have the option, subject to certain limitations, to be repaid in shares of NxStage common stock. The debt includes a balloon principal repayment and will be secured by NxStage assets other than cash, accounts receivables, inventory or field equipment. The debt agreement also provides NxStage the ability to borrow up to $40 million from other lenders. Part of the proceeds will be used to pay off NxStage's $28 million owed under its GE credit facility plus prepayment and other transaction fees. Remaining proceeds will be used for operating purposes.

According to NxStage and Asahi, joint business development will be pursued in areas as mutually agreed upon between the two companies. Possible areas include the development of therapeutic apheresis systems using NxStage's technology, collaboration on raw materials sourcing, and possible joint hemodialysis systems development programs. NxStage also granted Asahi a right of first negotiation for exclusive distribution rights of the NxStage System One in Asia.

In other dealmaking activity, Arcadia Resources, (Indianapolis) reported the sale of two non-strategic businesses. Arcadia sold its Home Health Equipment (HHE) business and industrial staffing business in three separate transactions, and is now focused on two divisions: Arcadia Home Care/Medical Staffing and DailyMed pharmacy services.

The HHE transactions have been closed, and a definitive agreement has been signed for the sale of the industrial staffing business, which will close on May 29, 2009.

Arcadia said total cash proceeds from the HHE and industrial staffing sales are expected to be nearly $11.2 million, including about $2 million in retained accounts receivable. Of this total, $1.5 million will be paid to the company over the next 12 months. The company can receive an additional $1.6 million based upon the future performance of the industrial staffing business.

The company said it expects to generate $8.8 million in cash net of certain obligations and will use $5.9 million to reduce its debt by nearly 15%. Arcadia said it will use the remaining $3.3 million from the sales, along with $3 million in new debt raised in March 2009, to support its rapidly growing DailyMed business.

Arcadia also said it expects to report the results of the sold HHE and industrial staffing businesses as discontinued operations in its fourth quarter and year-end results.