A Medical Device Daily

NxStage Medical (Lawrence, Massachusetts), the manufacturer of the NxStage System One portable kidney dialysis machine, reported that it has agreed to acquire Medisystems (Seattle) and certain of its affiliated units for 6.5 million shares of NxStage common stock. The transaction is valued at about $78.7 million, based on Monday’s closing stock price of $12.11.

Medisystems is a private developer of medical devices for use in dialysis and blood-related treatments. It is a U.S. market leader in hemodialysis blood tubing sets, A.V. fistula needles, and other ancillary hemodialysis disposables.

The companies have been business partners for seven years, and Medisystems manufactures the cartridge used in the NxStage System One. Medisystems has manufacturing facilities in Mexico and Italy, as well as a customer service facility in Denver, all of which are being acquired by NxStage.

“This strategic acquisition is expected to transform NxStage into a leader in the dialysis industry. Through this transaction, we will gain scale, critical production control and an experienced leadership team that we believe will enhance our execution capabilities,” said Jeffrey Burbank, president/CEO of NxStage.

For 2006, Medisystems recorded $65.5 million in revenues, about $4.5 million of which was from Medisystems’ sales to NxStage. Medisystems’ sales are nearly all in the U.S., and predominantly made through distributors.

David Utterberg, Medisystems’ president/CEO, owns directly or indirectly all of the outstanding shares of Medisystems and is a member of NxStage’s board of directors. Utterberg currently owns about 7% of NxStage common stock and his total ownership would be about 23% of NxStage common stock as a result of this transaction. He will serve in a consulting capacity to the company for a two year period and will remain a NxStage director.

The transaction is subject to the approval of NxStage’s shareholders, as well as customary closing conditions and anti-trust approvals. It is expected to close in 4Q07.

Merrill Lynch acted as financial advisor to NxStage and rendered a fairness opinion to its board of directors.

At least one significant investor in orthopedic device maker Biomet (Warsaw, Indiana), an artificial joint maker, reported that it plans to vote against the proposed $10.9 billion private buyout of the company by affiliates of the Blackstone Group, Goldman Sachs Capital Partners, Kohlberg Kravis Roberts & Co. and TPG.

The opposition by the investor, P. Schoenfeld Asset Management of New York, which holds about a 0.5% stake, followed a report by the proxy advisory firm Institutional Shareholder Services (ISS; Rockville, Maryland), last week which urged investors to reject the offer, saying the price was too low (Medical Device Daily, May 31, 2007).

Stockholders are not being given a premium relative to comparable companies, Peter Schoenfeld, the investment firm’s head, said.

ISS said that since the buyout was disclosed this past December (MDD, Dec. 20, 2006), fundamentals of the hip and knee reconstruction market recently have improved, and shares in Biomet’s peers have seen their shares rally.

Biomet chose the $44-a-share offer over a slightly higher bid by a British bid by Smith & Nephew (S&N; London). The company said that S&N’s offer bore too many conditions that could scuttle a deal.

At the time, the price seemed fair, ISS said in its report. Biomet’s top management had been shuffled several times, and the company was mired in a scandal over the backdating of stock options.

But the share prices of Biomet and its rivals have since risen sharply as they improved their operations. Last week, the company said it had settled a shareholder suit over the backdated stock options just ahead of the scheduled June 8 shareholder vote.

As an Indiana-incorporated company, Biomet’s buyers must meet a high standard to get final approval for the deal: by winning support from at least 75% of all shares outstanding. That could make the buyout groups particularly susceptible to pushback by a small number of dissident shareholders who might want to extract better terms from the private-equity groups.

In other dealmaking news:

• Quest Diagnostics (Lyndhurst, New Jersey), one of the nation’s largest providers of diagnostics testing, information and services, reported the determination of pricing in connection with its cash tender offer and consent solicitation for any and all of the outstanding $350 million principal amount 10-1/2% senior subordinated notes due 2013 of AmeriPath (Palm Beach Gardens, Florida), which Quest is acquiring for $2 billion (MDD, April 17, 2007).

The total consideration for each $1,000 principal amount of notes validly tendered and not withdrawn at or prior to the consent deadline is $1,088.58. This includes a consent payment of $30 per $1,000 principal amount of the notes, which will be payable only in respect of the Notes purchased that were validly tendered and not withdrawn on or prior to the consent deadline, which was June 4.

In addition, Quest reported that about $348 million of outstanding notes, or about 99.4% of the aggregate principal amount of notes outstanding, had been validly tendered and not withdrawn at or prior to the consent deadline.

Morgan Stanley & Co. is acting as dealer manager for the tender offer and consent solicitation.

• Pioneer Surgical Technology (PST; Marquette, Michigan) reported that it has acquired Encelle (Raleigh, North Carolina), a developer of products for tissue regeneration including E-Matrix, a sterile, injectable biopolymer designed to repair or regenerate diseased or damaged tissue. Terms of the acquisition were not disclosed.

Encelle will become a wholly owned subsidiary of Pioneer and be renamed Pioneer Surgical Orthobiologics.

Encelle has product development programs are under way in tendon and bone repair, dermal wound repair, cosmetic surgery, and dental applications. The company has research and pilot production facilities in Greenville, North Carolina.

In March 2006, PST entered into an R&D collaboration with Encelle for the development of orthopedic products other than craniofacial applications. PST and Encelle began development of a family of products to assist in the repair and regeneration of bone and soft tissue. The initial focus of this collaboration was on products for enhanced spinal fusion. PST received an exclusive worldwide license to distribute products developed under the agreement.

PST develops spinal and orthopedic implants.