In a move designed to expand its reach in the cardiac surgery market, ATS Medical (Minneapolis) a maker of cardiac surgery products including heart valves, is acquiring the surgical cryoablation business of CryoCath Technologies (Montreal) for $22 million in cash.
The assets being acquired by ATS Medical include the SurgiFrost, FrostByte, and SurgiFrost XL family of products for which ATS currently serves as CryoCath's exclusive agent in the U.S. and distributor in certain international markets.
Calling the acquisition "transformational," was Michael Dale, president/CEO of ATS. "From day one, this transaction is accretive to the company," he said during a conference call on the buy. "Although we expect to have a net loss in the first half of 2008, we now expect to be EBITDA positive in the first half of 2008 and profitable during the second half of 2008, one year ahead of our previous forecast. For the remainder of 2007 this transaction will add about $3 million to $5 million in incremental revenue and in 2008 we expect to generate about $16 million to $19 million in total surgical cryoablation revenue."
ATS will pay CryoCath $22 million upon closing of the transaction, $2 million upon achievement of certain manufacturing transition milestones, $2 million two years after closing and up to $4 million in contingent payments based on future sales of Surgifrost XL, an FDA cleared and CE-marked product planned for commercial release in the second half of 2007. Surgifrost XL was developed to enable a minimally-invasive beating heart solution for the treatment of cardiac arrhythmias, including atrial fibrillation without concomitant cardiac surgery.
The total value of the deal could be closer to $30 million if all these milestones are achieved.
CryoCath said it was selling the surgical business to focus on its line of electrophysiology products for treating atrial fibrillation and other abnormal heartbeats.
"The sale of our surgical business marks a significant milestone in our strategy to transition CryoCath into a focused and fast growing electrophysiology cryoablation company," said Jan Keltjens, president/CEO of CryoCath. "It also advances CryoCath towards the accomplishment of two core goals. First, we now have a clear financial pathway to the U.S. approval and launch of Arctic Front, our flagship product targeting the $2 billion atrial fibrillation opportunity. Secondly, we can focus to achieve rapid, profitable growth in Europe for our EP-Afib business. Due to this increased focus as well as the non-dilutive nature of the financing, we believe this transaction creates great value for our shareholders."
In November 2004, CryoCath and ATS entered into agreements under which ATS served as the exclusive representative of CryoCath for sales of its surgical cryoablation products in the U.S. and exclusive distributor in specified European markets (Medical Device Daily, Nov. 11, 2004).
CryoCath has developed a portfolio of products marketed under the SurgiFrost and FrostByte trade names which are used by cardiac surgeons to treat cardiac arrhythmias which affect more than 2.5 million people in the U.S. alone. Treatment is accomplished through the creation of an intricate pattern of lesions on the surface of the heart to block electrical conduction circuits which cause the heart to be less effective when pumping blood and can lead to stroke, heart failure and death.
With the acquisition, ATS said it now has access to a rapidly growing cardiac arrhythmia market that has a current estimated market value of more than $100 million, that could grow to more than $1.5 billion if all concomitant and AF applications are fully realized.
"The advantages of cryothermy over heat-based energy sources with regard to safety and efficacy are numerous and offer what we believe will be the product platform best positioned to enable minimally invasive, stand-alone treatment of cardiac arrhythmias," said Dale.
The acquisition, expected to close within 10 days, will be financed by ATS with the proceeds of an $8.6 million senior secured term loan from SVB Silicon Valley Bank and the private placement of 9.8 million shares of ATS common stock at a purchase price of $1.65 per share to Alta Partners, a life sciences venture capital firm. Alta will also receive a form of warrant to purchase 1.96 million shares of ATS common stock at $1.65 per share.
Upon transaction close, ATS will have about 59.1 million common shares outstanding. Guy Nohra, co-founder and managing director of Alta Partners, will join the board of ATS in conjunction with the placement.
"With the completion of this transaction, ATS is arguably the most innovative cardiac surgery business in medical devices supported by exciting growth potential in both the short-and long-term," said Dale.
RBC Capital Markets acted as financial advisor to ATS, and Canaccord Adams acted as financial advisor to Alta Partners. HSBC Securities (USA) was financial advisor to CryoCath.
Another company that is developing devices employing extreme cold to treat cardiac arrhythmias is CryoCor (San Diego).
CryoCor has been conducting a lengthy campaign to win FDA approval for its cryoablation system for the treatment of atrial flutter (AFL), and it recently reported that an FDA advisory panel has been set for June 27 to consider the data in a pivotal trial of its technology for the approval of the AFL application.
CryoCor has already won the CE mark for its system for use in treating AF, AFL and other supraventricular tachycardias.