Spectranetics (Colorado Springs, Colorado) has agreed to acquire the endovascular business of Kensey Nash (Exton, Pennsylvania) in a deal that could be worth up to $24 million in cash.
"We view this as a significant achievement for Kensey Nash," Joseph Kaufmann, president/CEO of Kensey Nash said during a conference call. "This transaction will allow us to capitalize on the core strengths of Kensey Nash and also to capitalize on a much broader deeper sales and marketing organization. In this business you need a broader sales force to achieve success."
As a result, Kensey Nash will immediately eliminate its sales and marketing force for those products.
The deal consists of a $10 million initial payment, $8 million in future product development milestone payments, and a $6 million milestone associated with cumulative sales.
"All sales and marketing expenses will be eliminated in FY2009," he said.
"Now that we're selling the products through another party, the transfer price will be much lower than the price we had with direct customers. The margins on these products will come down significantly."
Kensey Nash's sales and marketing expenses are $12 million for FY08.
"We look at this event as a transaction that will have an immediate impact on Kensey Nash in FY2009," Kaufmann said. "We think this will lead to a great success in our endovascular business and will allow Kensey Nash to grow significantly, particularly on the bottom line over the next several years."
The extra payments associated with the deal are subject to achievement of certain sales, product development and FDA approval objectives. The transaction is subject to customary closing conditions and is expected to close by June 30, 2008.
The endovascular unit, which made up about 11% of Kensey's third-quarter sales, includes the ThromCat, QuickCat and SafeCross products, all of which are used to treat blood clots and blockages in arteries. These products generated sales of $5.1 million in 2007. Kensey Nash will continue to manufacture the ThromCat and SafeCross products for an initial term of three years, which may be extended.
Spectranetics expects to assume manufacturing responsibilities for the QuickCat product after a six-month transition period. Additionally, after manufacturing of the ThromCat and SafeCross products is transferred to Spectranetics, the company will be obligated to pay Kensey Nash a share of revenues received from sales of such products.
Executives from both Spectranetics and Kensey Nash said they plan to work together to continue to develop improvements to these products and initial efforts will be targeted at the next generation ThromCat and SafeCross products.
"The acquisition of the endovascular business represents a very nice strategic fit for both companies," said Spectranetics' president/CEO John Schulte, during a conference call held by his company. "It will both strengthen and broaden our existing presence in the treatment of thrombus and chronic total occlusions."
He went on to explain that the QuickCat aspiration catheter and the ThromCat mechanical thrombectomy catheter provide a continuum of options for treating thrombus and certainly complement laser ablation for complex disease.
"The SafeCross wire, which uses radio frequency energy, fits nicely with our QuickCross catheters for crossing total occlusions when standard guidewires fail," Schulte said. "Adding these products to our recently specialized vascular intervention sales organization will leverage our presence with the same physician customers already served prior to this transaction. We believe our distribution capabilities combined with the product development expertise of Kensey Nash represent a compelling opportunity to expand the use of these products."
Schulte said his company intends to immediately expand ThromCat's indications to include peripheral vascular and coronary artery diseases.
In 2006, Kensey Nash received FDA 510(k) clearance for the ThromCat Thrombectomy Catheter System to remove blood clots from a patient, with an initial indication for use in arteriovenous grafts and fistulas.
The net, after-tax improvement in annual earnings per share for fiscal 2009 for Kensey is estimated to be in the range of 40 cents to 50 cents compared to fiscal year 2008 earnings per share. The fiscal year 2008 comparison does not include an anticipated one-time charge which will consist primarily of severance and related costs, in an amount which will be determined after the closing.
The improvement reflects the anticipated savings in sales and marketing expenses, partially offset by reduced margins, compared to fiscal 2008, on Endovascular product sales as a result of lower transfer pricing to Spectranetics.
In other dealmaking news:
• AngioDynamics (Queensbury, New York) reported that it has completed the acquisition of Oncobionic (San Francisco) pursuant to the terms of the definitive agreement entered on Oct. 12, 2006 (Medical Device Daily, Oct. 19, 2006).
The closing of the acquisition comes as a result of successful initial use of Oncobionic's irreversible electroporation technology in the first human clinical trial for the treatment of soft tissue, conducted during the first week of April.
"The closing of the Oncobionic acquisition is a significant landmark for our company as we build upon on our reputation of providing breakthrough innovative technology, while diversifying our business lines and strengthening our strong IP portfolio," said Eamonn Hobbs, president/CEO of AngioDynamics. "While the U.S. trial for soft tissue is continuing, a second clinical trial in Italy has received Institutional Review Board approval and is expected to begin in June. Our next milestone includes providing 20 IRE systems to thought leaders in the soft tissue ablation field, who will begin using the systems to treat patients and develop additional clinical data on the technology. We expect to place all 20 systems by the end of August 2008."
Under the agreement, AngioDynamics has acquired Oncobionic for a total purchase price of $25.4 million, including about $400,000 of assumed liabilities. A deposit of $5 million was paid in October 2006 and $10 million was paid at the closing on May 9. An additional $5 million is due in November and the final installment of $5 million will be paid in November 2009.