Aspect Medical Systems (Norwood, Massachusetts) and Boston Scientific (Natick, Massachusetts) said late Monday they agreed to end a collaboration to develop brain-monitoring products aimed at assisting clinicians in the diagnosis and treatment of depression, Alzheimer’s disease and other neurological conditions. As a result, Aspect has started a buyback of its shares.

Mike Falvey, CFO of Aspect Medical, told Medical Device Daily that the decision to end the development alliance was initiated by Boston Scientific but that doing so will bring benefits to both companies.

Aspect will immediately acquire 2 million shares of Aspect stock now held by Boston Scientific at roughly $15.91 a share, the average closing price of its stock over the past 20 trading days. Shares closed Monday at $16.02 a share.

Boston Scientific held about 6 million Aspect shares, or 27% of shares outstanding.

For the next six months, Aspect has the right to buy back the rest of the shares held by Boston Scientific for $15 a share, or the average closing price of Aspect stock over the 10 trading days prior to Aspect exercising its right to repurchase, whichever is higher. Boston Scientific has also agreed not to sell any of its Aspect stock, except to Aspect, during the six-month period.

Boston Scientific is relieved from all obligations to the alliance. The neuroscience alliance was established in May 2005 and involved a commitment by Boston Scientific of $25 million over five years to support research by Aspect in the depression and Alzheimer’s markets (Medical Device Daily, May 25, 2005). To date, Boston Scientific has provided $10 million of the $25 million originally committed.

Aspect regains all commercial rights to products developed under the alliance that were previously shared with Boston Scientific.

Falvey said that Aspect has had a couple of collaborations with Boston Scientific since 2002 and that the two companies have had a “very close working relationship and really a great partnership over the last five years.” He added that it’s almost been a model partnership between a big company and small company, each understanding the other’s strengths.

Though Aspect Medical will not be getting the remaining $15 million from Boston Scientific to support product development, the timing of this agreement couldn’t be better. Falvey said that two years ago when the companies entered the collaboration Aspect Medical had just become profitable and there were still a lot of technological risks associated with the neuroscience program. Since then the product has shown a lot of potential, he said, and the company has a lot more financial resources now.

“We’re in a much better financial position than when we started this two years ago,” Falvey said.

During a Tuesday morning conference call, Nassib Chamoun, president/CEO of Aspect, emphasized the good timing of the agreement.

“Two years ago, when the alliance was created, Aspect was faced with making a major investment in a program which presented significant long-term opportunity, but still faced significant technology risk,” Chamoun said. “The alliance with [Boston Scientific] provided us the resources to expand and accelerate the program without a financial burden to our shareholders, generally. Today, the situation has changed. The interim results from the BRITE trial indicate that the technology has continued to develop and Aspect’s financial position has improved to the point where we believe we can continue to fund the program, on our own, if we so chose.”

Aspect and Boston Scientific agreed that all rights and obligations in connection with an OEM product development agreement signed in 2002 will cease effective upon closing of the share repurchase. As part of the 2002 agreement, Boston Scientific held an option to distribute products developed by Aspect in the procedural sedation space. With Boston Scientific declining this option, all rights to products developed in conjunction with this agreement will revert to Aspect. As a result of this, Aspect will recognize about $3.8 million of previously deferred alliance revenue this quarter.

Aspect and Boston Scientific have agreed that all obligations and rights granted by either company in connection with the 2005 neuroscience strategic alliance and the 2002 OEM product development agreement will end. In connection with the 2002 agreement, Boston Scientific established a revolving credit facility available to Aspect, which was also terminated. Aspect said it has never drawn down on this line of credit.

Aspect and Boston Scientific are also entering into a registration rights agreement under which Boston Scientific will have the right to request under certain circumstances that Aspect register under the Securities Act of 1933, as amended, shares of Aspect common stock held by Boston Scientific and not repurchased by Aspect.

For the second quarter ending June 30, Aspect is raising its guidance for total revenue to be within a range of $26.1 million to $27.1 million, reaffirming product revenue guidance of $22.3 million to $23.3 million.

Aspect develops brain-monitoring technology. To date, the company’s Bispectral Index (BIS) technology has been used to assess about 20 million patients and has been the subject of more than 2,800 published articles and abstracts.