In an effort to access a broader customer base, Abiomed (Danvers, Massachusetts) said Wednesday it would loan $5 million in convertible secured debt to WorldHeart (Oakland, California), with a term of two years and bearing interest at 8% per annum, as part of a strategic investment in the company.
Abiomed makes devices intended to provide circulatory support to acute heart failure patients and WorldHeart develops implantable mechanical circulatory support systems for chronic heart failure patients.
The loan is convertible, at Abiomed’s option, into common shares of WorldHeart at a conversion price of about $1.75 a share, resulting in roughly a 19.9% ownership interest in WorldHeart upon conversion. The loan is secured by all of the assets of WorldHeart, including its intellectual property. Abiomed ended its most recent fiscal quarter with $59.5 million in cash and no debt.
The two companies also entered into a two-year marketing and clinical support services agreement to seek opportunities to leverage existing expertise and resources at Abiomed and potentially provide cost savings for WorldHeart.
Abiomed will be issued a warrant for the purchase of up to 3.4 million common shares of WorldHeart. It also has been granted a right of first refusal to distribute WorldHeart’s products, other than the Novacor LVAS product that is being sold by WorldHeart, the companies said.
Abiomed also has been granted the right to designate one nominee or observer to the WorldHeart board of directors.
Jal Jassawalla, president/CEO of WorldHeart, told conference call listeners Wednesday that the company is “particularly pleased by the validation of our technology represented by this alliance.”
WorldHeart is developing the Levacor Rotary Ventricular Assist Device (VAD), which is designed to provide support for chronic heart failure patients.
The Levacor is a bearingless, fully magnetically levitated implantable centrifugal rotary pump that suspends the spinning rotor, minimizing wear within the pump and allowing greater clearances around the rotor with more uniform flow patterns. The device is not FDA-approved.
Jassawalla said WorldHeart is not projecting timelines through to approval of Levacor but that it does expect to start a clinical trial in the first half of 2008. He said the company already has “a number of high-volume centers” lined up to participate in the study.
Abiomed and WorldHeart intend to explore technical synergies, such as the potential to use Abiomed’s information and transcutaneous energy transfer (iTET) system with WorldHeart’s Levacor product. Abiomed’s iTET system consists of internal and external coils that are used to transmit power and information across the skin. Because tubes or wires do not pierce the skin, like other implantable LVADs, the chances of developing an infection are significantly decreased and patients have the freedom to shower and bathe without the need for protective dressing, the company noted.
Michael Minogue, president/CEO and chairman of Abiomed, told conference call listeners that science, clinical data, engineering and culture fit were the reasons the company wanted to invest in WorldHeart.
“The No. 1 reason is we truly believe that this is the best long-term implantable pump that will help grow the destination therapy market and we wanted to find the most reliable and best pump to match to our iTET as well,” Minogue said.
WorldHeart said it continues to explore additional funding alternatives to support its longer-term operations and business.
Does this mean more funding down the road from Abiomed? Not necessarily, the company heads said, but Jassawalla noted that the agreement is “fairly open” at this stage.
Abiomed immediately funded $1 million of the loan and expects to fund the additional $4 million in early January.
If Abiomed chooses to convert the loan and exercise the warrant for 3.4 million shares, at 1 cent a share, this would total roughly 6.26 million common shares of WorldHeart. That would give Abiomed nearly 35% ownership interest in WorldHeart. Abiomed said its ability to exercise the warrant and convert the loan is limited to a maximum of about 2.29 million shares under the Nasdaq rules until WorldHeart shareholders have approved the transaction.
Abiomed said it does not intend to acquire ownership or control of additional securities of WorldHeart.
In other financing activity:
• North American Scientific (Chatsworth, California) reported a loan agreement with Three Arch Capital, TAC Associates, Three Arch Partners IV and Three Arch Associates IV.
The lenders are, collectively, the largest stockholder of the company, North American Scientific said. They loaned $1 million to the company and the company issued notes to the lenders, due and payable on Dec. 20. In connection with the loan agreement, North American Scientific said it has agreed to pay an aggregate of $20,000 as a loan fee to the lenders and has granted the lenders warrants to buy, in the aggregate, 1,025,641 shares of common stock at 39 cents a share.
North American Scientific develops radiation therapy products designed to provide doctors with tools for the treatment of various types of cancers.
• ProRhythm (Ronkonkoma, New York) said it filed for reorganization under Chapter 11 of the U.S. bankruptcy code.
The decision to file under Chapter 11 was a result of the “inability to reach an agreement with all involved parties on financing terms and participation,” the company said. ProRhythm said it intends to seek relief from certain contractual restrictions or blocking rights, which it says are an impediment to its financing efforts. The company expects to file, and to emerge from Chapter 11 within six months.
Subject to court approval, ProRhythm said it has bridge financing in place and expects to meet all of its financial obligations going forward and will continue to work toward completion of the focusAF clinical trial for the treatment of atrial fibrillation with its HIFU ablation system.