World Heart's (Oakland, California) troubles continue. In the latest of what has amounted to a string of financial difficulties, the developer of mechanical circulatory support systems has learned that its potential primary investor from a recent equity financing may not be able to meet its commitments.
As a result, World Heart may not be able to pay back a secured convertible promissory note in the amount of $5 million issued on Dec. 11, 2007, to Abiomed (Danvers, Massachusetts).
The company's stock took a tumble from 55 cents a share last Thursday to close at 11 cents on Monday. The stock has traded as high as $4 per share over the last 52 weeks. However, heaviest trading was noted on Friday: some 4,657,300 shares compared to average daily trading of 86,396 shares, despite the fact that news of the potential default was released after the market closed.
Neither company returned calls placed by Medical Device Daily for a comment on the current situation.
Since January, World Heart has reported that it is aggressively pursuing various financing alternatives to raise additional capital, including the most recent equity financing transaction with Abiomed in order to continue operations.
As of April 30, the company had cash and cash equivalents of about $500,000 and liabilities of about $2.6 million.
Last week, World Heart received a notice from the listing qualifications department of the Nasdaq Stock Market stating that for the past 30 consecutive business days, the bid price of the company's shares had closed below the minimum $1 per share requirement for continued inclusion under Marketplace Rule 4310(c)(4) (MDD, May 8, 2008).
Last spring, World Heart reported that the company's independent auditors issued a "going concern" statement in its annual report (MDD, April 11, 2007), which means the accounting firm expressed doubt that World Heart could continue to meet financial obligations.
The current default event results in the outstanding principal balance of the note, together with accrued but unpaid interest and any other amounts owed under the Abiomed note, becoming immediately due and payable to Abiomed. The note is secured by security agreements entered into by World Heart in favor of Abiomed that grant a security interest in all of their respective assets.
Abiomed could exercise its remedies under law and under the security agreements, including foreclosing on the assets of World Heart. An event of default also permits Abiomed to terminate the clinical and marketing support services agreement.
World Heart must raise additional capital in order to continue operations. Executives there report that they are continuing to aggressively pursue various financing alternatives, but they estimate that World Heart has cash available to continue operations only through the latter part of this month. If it is unable to secure additional funding, the company will be forced to file for bankruptcy, cease operations and liquidate assets.
Last month, World Heart held its annual meeting of shareholders, during which shareholders' votes were sought to approve conversion of the secured promissory note of up to $5 million, previously issued to Abiomed and convertible at Abiomed's option into the company's common shares at $1.748948 per share, subject to adjustments, including any conversion of interest owed, and approval of the exercise of a five-year warrant to purchase up to 3.4 million common shares of the company, exercisable at 1 cent per share, issued to Abiomed in connection with the secured promissory note.
Last December, World Heart entered into an alliance with Abiomed (MDD, Dec. 13, 2007), in which Abiomed:
• provided a $5 million loan to World Heart, funded in two tranches, accruing interest at 8% per annum, and convertible into World Heart common shares at Abiomed's option;
• provided certain marketing and clinical support services to World Heart, and was to receive a warrant for an aggregate of 3,400,000 common shares of World Heart as partial consideration for these clinical support and marketing services;
• had the right of first refusal to act as an exclusive worldwide distributor for any future World Heart product; and
• had the right to designate one nominee or observer to the World Heart board of directors.
At the time, Abiomed said it did not intend to acquire ownership or control of additional securities of World Heart.
World Heart and Abiomed say they serve complementary segments of the circulatory support market, and the deal was expected to benefit heart failure patients and treatment providers, promoting synergies between the two organizations in a number of areas.
On the clinical front, World Heart most recently reported the success of an animal implant of a miniaturized, ventricular assist device (VAD) for pediatric patients. The PediaFlow VAD is being developed to provide medium-term implantable circulatory support to patients from birth to 2 years of age with congenital or acquired heart disease.
The company says that the PediaFlow design also is the platform for a future minimally invasive adult VAD, intended to meet a clinical need for earlier-stage heart failure patients (MDD, July 17, 2007).