A Medical Device Daily

Diomed Holdings (Andover, Massachusetts) said Friday that it has filed a voluntary petition under Chapter 11 in the U.S. Bankruptcy Court for the District of Massachusetts, Western Division. The petition contemplates that Diomed will sell certain assets to Biolitec (Jena, Germany), a manufacturer of medical lasers, optical fibers and other products, enabling Biolitec to continue to operate Diomed’s business in the U.S., for $6 million to $7 million.

James Wylie Jr, Diomed CEO, called the decision “difficult.” He said, “the impact of infringement of the company’s products in the marketplace and delays in the judicial process proved impossible” and so bankruptcy was the best means of protecting the company’s assets and facilitating a sale through “an orderly process.”

With court approval, Diomed will continue operating as a debtor-in-possession as it pursues the sale to Biolitec and sale of other assets to third parties. The company said it expects to complete the sale to Biolitec in 60 to 90 days and sale of the other assets “in due course.”

The other assets include judgments in Diomed’s favor of about $14.7 million resulting from a patent infringement litigation ruling in 2007 against defendants AngioDynamics (Queensbury, New York) and Vascular Solutions (Minneapolis). In the trial ended in March of 2007, the two defendants were found liable for inducing infringement and contributory infringement of Diomed’s EndoVenous Laser Treatment for varicose veins. A judge subsequently granted Diomed a permanent injunction against them, awarding the $14.7 million damage award (Medical Device Daily, Jan. 24, 2008).

Diomed said the litigation is currently on appeal, with a hearing set for April 10.

To fund operations during bankruptcy, Diomed said it would use its cash and receipts and will obtain debtor-in-possession financing from its senior creditor, Hercules Technology Growth Capital. If Hercules and Diomed can’t agree on terms, Biolitec has agreed to provide necessary financing of up to $2 million during the transition period.

Diomed develops minimal and micro-invasive medical procedures that use its laser technologies and disposable products. It also provides photodynamic therapy for cancer treatments, and dental and general surgical applications.

In other dealmaking activity:

• Allion Healthcare (Melville, New York) said it has agreed to acquire 100% of the outstanding stock of Biomed America in a $117.8 million deal. The purchase price consists of $48 million in cash and 9.35 million shares of Allion common and Series A preferred stock, valued at $51.4 million, plus the assumption of up to $18.6 million of debt. Allion may make an earn-out payment in 2009 if Biomed achieves certain financial milestones during the first 12-month period after closing.

The deal is expected to close within 60 days.

Allion said it has received a commitment for $55 million in senior credit facilities from CIT Capital Securities to fund the acquisition.

Allion said it intends to issue to Biomed shareholders new common stock up to 19.9% of current common shares outstanding with the remainder of the stock portion of the purchase price being issued in new Series A preferred stock.

Allion is a provider of infused and injected drugs to patients with other chronic conditions, Biomed operates six pharmaceutical distribution centers, providing services for intravenous immunoglobulin, Blood Clotting Factor and other chronic therapies.

• CTS (Elkhart, Indiana) reported acquiring Orion Manufacturing (San Jose, California) for about $10 million in cash, and potential earnouts of up to $1.75 million in cash, based on certain financial milestones in 2008/2009.

Orion provides electronics manufacturing services to the defense and aerospace, industrial and medical markets, with 2007 sales of about $27 million.

CTS is a provider of electronics manufacturing services to OEMs in a variety of medical markets. It said it plans to combine the Orion operation with its operation in Santa Clara, California.

• Medical Properties Trust (MPT; Birmingham, Alabama) said it has agreed to acquire a portfolio of up to 21 healthcare facilities across 15 states from HCP (Long Beach, California) for roughly $371 million. The includes: seven acute care hospitals in five states; five inpatient rehabilitation hospitals in five states; three long-term acute care hospitals in three states; and six wellness centers in three states.

MPT said it intends to fund the acquisition with proceeds from the sales of a combination of common stock and debt securities, the net proceeds the company receives from its recent deal with Vibra Healthcare (Mechanicsburg, Pennsylvania), and borrowings under its existing credit facilities. The company said it also has secured commitments from lenders for a senior secured interim loan facility, which is expected to provide up to $300 million of any unfunded balance of the purchase price.

MPT last week reported an agreement to sell the real estate assets of three inpatient rehabilitation facilities to Vibra for $90 million (MDD, March 14, 2008).

MPT also reported that its operating partnership has begun an offering of $125 million aggregate principal amount of exchangeable senior notes due 2013 through an offering to qualified institutional buyers. The operating partnership expects to grant the initial buyers an option to purchase up to an additional $18.75 million aggregate principal amount of notes to cover any over-allotments.