A Medical Device Daily

Boston Scientific (Natick, Massachusetts) reported that it has liquidated its 13.3% stake in troubled implantable device maker Cyberonics (Houston) for $48.6 million.

The company sold 3.57 million Cyberonics shares for $13.60 each, according to a filing with the Securities and Exchange Commission. The move is part of a plan unveiled by Boston Sci earlier this year to divest elements of its investment portfolio, among other moves, to streamline operations and deal with a large debt burden.

The sell-off appears not to be good news for Cyberonics.

Stephen Brozak, analyst at WBB Securities, wrote in a report: “Boston Scientific was the ‘housekeeping seal of approval’ on Cyberonics. This is not a positive event.”

Cyberonics is the developer of vagus nerve stimulation (VNS) technology, a pacemaker-like device used to treat two conditions, epilepsy and depression, that the company says are difficult to treat with drugs. FDA approval of VNS therapy for treatment-resistant depression (TRD) generated controversy amid concerns about thin supporting evidence, and insurers have balked at providing coverage. Implanting the device is a roughly $25,000 procedure.

The Centers for Medicare and Medicaid Services denied reimbursement for the TRD indication. The company first received a preliminary ruling from the agency rejecting the coverage for VNS therapy for TRD in February (Medical Device Daily, Feb. 7, 2007), and it then confirmed that decision in May (MDD, May 9, 2007).

The company has already undergone two staff reductions of about 155 employees as it has moved to refocus its resources from the VNS TRD market to the epilepsy market (MDD, Aug. 24/May 2, 2007).

Cyberonics has been faced with a host of other problems over the past two years, including the resignation of its CEO Skip Cummins and its CFO Pam Westbrook in November 2006, in the wake of a stock options investigation (MDD, Nov. 21, 2006).

(In June Cummins filed a defamation lawsuit against SunTrust Banks [Atlanta] and two SunTrust analysts claiming that the analysts defamed him by suggesting a 2004 grant of 150,000 stock options to him may have been illegal [MDD, June 5, 2007]).

Other issues have included needing to respond to governmental investigations related to its stock option grants, several shareholder lawsuits and a forced change in its board membership by dissident shareholders backed by billionaire investor Carl Icahn (MDD, Jan. 30, 2007), who has a 7.5% stake in the company.

Also, in January, the company admitted that its financial statements for FY06, included in its annual report, contained a “going concern” modification to the audit opinion from its independent accounting firm KPMG (MDD, Jan. 17, 2007).

Boston Sci has itself been struggling to get out from under the weighty $9 billion in debt it assumed with its $27.2 billion acquisition of Guidant (Indianapolis) last year.

In the past four months, the company has reported plans to sell its cardiac, vascular surgery and fluid management business units. It also said it was selling the auditory assets of Advanced Bionics (Valencia, California) while retaining the pain management assets of that company after a protracted legal struggle with that company’s management.

In other dealmaking news:

• Inverness Medical Innovations (IMI; Waltham, Massachusetts) continues to scoop up diagnostics companies, reporting this week that it will acquire all the shares of Panbio (Brisbane, Australia) for 65 cents a share in cash.

The proposal, which values the issued share capital of Panbio at about A$41 million ($37 million), is subject to approval by Panbio shareholders.

Panbio develops diagnostic tests, including those used in the diagnosis of flaviviruses and other arthropod-borne viruses, selling worldwide. IMI said Panbio’s position in the dengue fever diagnostic market will help it achieve its goal of responding to the recent spread of the disease throughout South America and elsewhere.

Panbio is traded on the Australian Securities Exchange.

• Biophan Technologies (Pittsford, New York), a developer of biomedical technology, reported two transactions that it said “uniquely positions” it to address unmet needs in the treatment of acute heart failure.

The first transaction was completed with its note holders, providing approvals necessary to close the company’s deal with Medtronic (Minneapolis) for an $11 million cash sale of a portion of the company’s patents. The note holders consent allowed the company to invest further in Myotech (Pittsford, New York), which the note holders “view as an exciting opportunity,” Biophasn said.

Additionally, the company reported that its co-founder, Michael Weiner, has resigned from his position as an officer and director of Biophan. Weiner co-founded Biophan in December 2000 with pacemaker inventor, Wilson Greatbatch.

Biophan said that Weiner will be taking a position at Technology Innovations (Pittsford, New York), a holding company.

Biophan said it has agreed to invest $1.2 million in Myotech to increase its holdings to 68% from 44% prior to the deal. Biophan thus will control Myotech, a private company developing a circulatory support device designed to restore cardiac output from an arrested heart.

With Myotech achieving certain milestones, Biophan has agreed to invest an additional $2 million to further increase ownership in the company.

“The transactions announced today are key milestones in Biophan’s development,” said John Lanzafame, interim CEO of Biophan. “The Myotech CSS provides a significant opportunity for us to help a substantial, poorly served patient population. This device has the potential to save thousands of lives, and provides the company with an exciting entry point into a multi-billion dollar market opportunity.”

Lanzafame added: “The proceeds from the sale of our MRI safety-related patents provide us with the resources to move this technology forward in a meaningful way.”

• Genicon (Winter Park, Florida) and SIAD Healthcare (Milan, Italy) reported the formation of a new partnership under which SIAD has made an investment in Genincon.

With its minority ownership, SIAD will have a position on Genincon’s board, filled by Professor Joseph LaPalombara of Yale University (New Haven, Connecticut).

In August 2006, the companies entered into an agreement in Italy, under which SIAD began marketing Genincon’s minimally invasive surgery products in that country.

Genincon is focused on the minimally invasive surgical market. SIAD markets medical devices for surgical specialties, instruments and equipment for cryobiology and cell factories.