Endocare (Austin, Texas) and Galil Medical (Yokneam, Israel) have agreed to merge in a stock-for-stock transaction resulting in Galil becoming a subsidiary of Endocare. The combined company will be focused on the promotion and development of cryoablation, a minimally invasive method to freeze and destroy cancerous tumors.

The deal is expected to close in 1Q09.

Endocare stockholders will own 52% and Galil stockholders will own 48% of the outstanding stock of the combined company. The combination of Galil and Endocare will form a company with pro forma combined revenues and gross profit in the 12 months ended Sept. 30 of about $55.6 million and $39.1 million (70.3% of revenues), respectively.

Endocare also reported that upon closing of the merger it will sell $16.25 million of newly issued shares of its common stock in a private placement, priced at $1 a share, to certain current institutional investors of the combined company.

As Terry Noonan, interim president/CEO of Endocare, told conference call listeners earlier this week, the new financing was provided "in order to eliminate cash constraints for the combined entity and to make sure that there is some gas in the tank as this new venture is launched."

The new management team will be composed of executives from both companies and will be led by Marty Emerson, Galil's president/CEO, and Michael Rodriguez, Endocare's CFO.

"As a combined company, Endocare and Galil will be better positioned to advance the acceptance and growth of cryoablation as an important treatment for cancerous and non-cancerous tumors including prostate cancer and kidney tumors," Emerson said. "Data now available, using the latest generation of technologies, demonstrate that cryoablation, a non-surgical treatment that often requires no hospital stay, can be just as effective as more invasive, more costly, and more time-consuming options such as radiation and surgery."

During this week's conference call, Emerson outlined several "strategic drivers" and cost-saving opportunities to support the economic rational behind the merger, such as combining technologies and eliminating duplicate costs. But as one listener pointed out during the question-and-answer session of the call, things don't always go as planned.

"I think theoretically this deal just makes so much sense and it's really a very positive development, but often we have seen between the theory and the practice of putting companies together that things don't always work out so well . . . what can you tell us about the kinds of things from lessons learned, from ideas you've had as you've negotiated this deal to make sure that we don't end up with what looked like to be a very promising deal in fact ending up being a big disappointment because integration just did not come together very well," Larry Haimovitch, president of Haimovitch Medical Consultants (Mill Valley, California) and a frequent Medical Device Daily contributor, asked Emerson during the Q&A session.

"The primary lesson goes around setting expectations," Emerson said. "The model we've put together is the baseline of those expectations around making sure we've given ourselves ample, ample time to achieve the activities we need to, both from a cost synergy perspective, but also as we've looked at putting these two companies together, it's not just about how much money we can save but what is it going to take to turn this company back into a growth company."

He added, "We're certainly confident in our plans to do that, but we're going to be very balanced in how we articulate those objectives from a revenue/growth perspective as we look forward. That's probably the biggest lesson, if you will, that I've brought into the equation . . . we're all really confident that this makes sense and we want to make sure that as we set expectations, as we set the activities in place to execute our plan, that it's a well-thought-out plan that balances being attractive to investors . . . but also gives people a high degree of confidence that it's achievable."

From the Endocare side of the deal, Rodriguez said the company also is experienced at trying to manage expectations that don't go as planned. The key, he said, is "to expect some of those unexpected things, to prepare for the things that happen without you planning for them to happen and to be prepared to address those. And I think that we are well-prepared to do that."

Rodriguez said the merger has the potential to eliminate millions of dollars in redundant costs and "we believe that annualized cost savings of over $10 million could be realized by mid-2010." He said the companies expect the transaction will result in positive adjusted EBITDA within 18 months after the deal closes.

Earlier this year Healthtronics (also Austin) offered $2.28 a share for Endocare (Medical Device Daily, Aug. 8, 2008), and then withdrew the offer, valued at $26.9 million, in September saying it had not heard anything from Endocare's board since the company rejected its original offer as "inadequate" in mid-August (MDD, Sept. 15, 2008).

In other dealmaking activity:

• Affymetrix (Santa Clara, California) said it has agreed to acquire Panomics (Fremont, California), a company that offers a suite of assay products for a wide variety of low to mid-plex genetic, protein and cellular analysis applications, for about $73 million in cash. The acquisition will strengthen Affymetrix' position in high-growth validation and routine-testing market segments, the company said. The combination will also enable a more complete customer workflow, beginning with whole-genome Affymetrix microarray studies and then focusing on genes and proteins of interest with the Panomics products, Affymetrix noted.

The deal is expected to close by the end of the year.

• Invitrogen (Carlsbad, California) and Applied Biosystems (Norwalk, Connecticut) reported receiving clearance from the European Commission for the companies' pending $6.7 billion merger. This represents the last regulatory approval needed for the completion of the merger, the companies said. The deal, which was first reported in June (MDD, June 13, 2008), is expected to close Nov. 21.

• Thermo Fisher Scientific (Waltham, Massachusetts) said it has acquired Raymond A. Lamb (Eastbourne, UK), a maker of histology and anatomical pathology products.

Raymond A. Lamb had revenues of about $9 million in 2007, and will be integrated into Thermo Fisher's Analytical Technologies Segment, the company said.

Thermo Fisher Scientific says it has annual revenues of $10 billion and that it serves customers within pharmaceutical and biotech companies, hospitals and clinical diagnostic labs, universities, research institutions and government agencies, as well as environmental and industrial process control settings.

• Medtronic (Minneapolis) said it has been successful in its bid to acquire CryoCath Technologies (Montreal) at C$8.75 a share in cash.

A total of 41,136,460 common shares of CryoCath were validly deposited at the expiry time of the offer, representing roughly 96.3% of CryoCath's issued and outstanding common shares on a fully-diluted basis.

Medtronic recently reported that it would make a takeover bid for all of the outstanding shares of CryoCath in a deal worth $380 million (C$400 million). The Canadian company uses freezing to treat heart arrhythmias (MDD, Sept. 26, 2008).

• Endologix (Irvine, California), the developer of the Powerlink System for the minimally invasive treatment of abdominal aortic aneurysms, said its board has unanimously decided not to pursue the unsolicited "indication of interest" from Elliott Associates. The company said its board "thoroughly reviewed and considered" the proposal and determined it is not in the best interests of its shareholders.

"We appreciate the proposal from Elliott Associates and its long-term support of Endologix. However, we believe that Elliott's proposed valuation does not reflect recent FDA product approvals, increasing gross margin and our expectation of achieving positive operating cash flow in the first half of 2009," said John McDermott, president/CEO of Endologix. "Additionally, we believe that volatility in the capital markets has negatively affected micro-cap companies like Endologix, and we expect the situation to improve in the future."

• HLTH Corp. (Elmwood Park, New Jersey) said it is waiving the minimum condition, which would have required that at least 40 million shares be properly tendered and not withdrawn prior to the expiration of its offer to buy up to 80 million shares of its common stock at $8.80 a share. HLTH said it would purchase up to 80,000,000 shares, subject to the remaining conditions of the offer.

HLTH owns about 84% of WebMD Health. It also owns Porex, a developer of porous plastic products and components used in healthcare, industrial and consumer applications.