M&As tend to come in two flavors — out of strength or out of weakness. Both kinds were featured in the med-tech sector last month, marked by dollar figures in the billions and also continuing, as noted in this space last month, consolidations in the diagnostics sector.

The biggest of the acquisitions came in the “weakness” category, with Warburg Pincus agreeing to acquire Bausch & Lomb (B&L; Rochester, New York) and take it public, acquiring the company for about $4.5 billion, though that includes $830 million in debt. Showing strength were Inverness Medical Innovations (IMI; Waltham, Massachusetts) in beating out Beckman Coulter (BC; Fullerton, California) to acquire Biosite (San Diego). And toward the end of the month Hologic (Bedford, Massachusetts) and Cytyc (Marlborough, Massachusetts) both got stronger in a merger likely to produce obvious synergies in the diagnostics sector of women’s health.

Confirming the rumors

The proposed purchase of B&L follows last year’s spate of contact lens solution recalls that seriously damaged both the profits and the reputation of B&L. Given those troubles, the acquisition had been rumored for some time. Warburg will acquire all of the outstanding shares of B&L common stock for $65 per share in cash, but the acceptance of $830 million in debt, the total value is more like $3.67 billion

B&L experienced multiple difficulties in 2006 when it issued a series of recalls of its ReNu with MoistureLoc lens cleaner, forced by the product’s association with Fusarium keratitis infections that potentially could cause blindness. And an FDA investigation concluded that the solution was the likely “root cause” of the infections. Of the 180 infection victims confirmed, 59 needed cornea transplants to try to restore their vision, the Centers for Disease Control and Prevention (Atlanta), said. The recalls resulted in charges of $25 million and $19 million as the result of returns and rebates.

The recalls also seemed to come in fits and starts, those delays probably resulting in fueling a large number of liability claims against the company. Those claims have not yet been settled but their potential for large damages obviously did not deter Warburg from the purchase. And in March the company had to recall about 1.5 million bottles of ReNu MultiPlus solution because trace amounts of iron could cause the cleaner to lose effectiveness earlier than normal. Other problems included the restating of financial results since 2000, and delays in SEC filings, because of errors in accounting.

B&L has the option of soliciting other proposals over a 50-day period, and under its agreement with Warburg, it would required to pay a break-up fee of $40 million if it accepted a superior offer.

Standard & Poor’s was not happy with the deal, immediately dropping B&L’s rating to junk and placing the company on credit watch with negative implications. The credit rating was lowered to BB+ from BBB.

Ronald Zarrella, CEO and chairman of B&L, hyped the deal, saying it provided “greater flexibility to focus on our long-term strategic direction to be a global leader” in the eye health sector. And Elizabeth Weatherman, a Warburg Pincus managing director, said B&L has “significant potential and a strong commitment to its employees, partners and customers worldwide.” She added, “This investment reflects a unique blend of our deep domain expertise in medical technology, pharmaceuticals and healthcare, which has been a focus area for Warburg Pincus since 1973.”

BC declines raising bid for Biosite

Bringing an end to the auction for Biosite, BC decided against topping a $90-a-share offer by IMI, saying that that a higher bid would not be “in the long-term interests” of its stockholders. With that report, BC decided against matching or bidding IMI’s bid of $92.50 a share.

Scott Garrett, president/CEO of BC, said in a company statement, “We continue to believe the combination of Biosite with Beckman Coulter is strategically sound. At $90 per share, our revised merger agreement includes a full and fair price for Biosite, and with all regulatory clearances associated with this transaction already in hand, is highly certain.”

Garrett went on to say that Biosite’s board had informed BC that IMI’s offer was superior to its own latest revised, and increased, bid. He added: “Although we do not agree with this conclusion, we expect that Biosite will terminate its existing merger agreement with Beckman Coulter and, concurrently, pay Beckman Coulter a termination fee of $54 million.”

BC’s most recent move for the company was in matching IMI’s previous offer of $90-a-share, putting the deal value at $1.64 billion.

The bidding war for Biosite was launched in March when BC made an initial offer to buy the company with an $85-a-share bid (about $1.55 billion). IMI, already an owner of 4.9% of Biosite’s stock, then created the auction scenario when in April it responded with its unsolicited $90-a-share bid. IMI’s offer also includes a payment to Biosite equal to the BC termination fee.

The three companies are involved in producing diagnostic products. IMI’s specialty is in pregnancy and fertility testing and it is looking, with the purchase of Biosite, for major growth in the immunoassay and cardiac diagnostic sectors.

With its auction win for Biosite, IMI simultaneously reported that it will collaborate with Proctor & Gamble to create SPD Swiss Precision Diagnostics GmbH, based in Geneva, Switzerland. IMI contributed its related consumer diagnostic assets, other than its manufacturing and core intellectual property assets, while P&G acquired IMI’s interest in the j-v for about $325 million in cash.

Doug Guarino, a spokesman for IMI, said that the two deals were not linked, in terms of one being a condition for closing of the other. The announcements, he told BB&T, were “coincidental.” He added, however, that “Once the bid was made and the banks new that that money was coming in [from P&G], they wanted to apply it toward the purchase” of Biosite.

The j-v effort will result in a 50/50 ownership of the new company that will develop, manufacture and market “existing and to-be-developed consumer diagnostic products, outside the cardiology, diabetes and oral care fields,” the companies said.

IMI said that the addition of SPD will be “accretive” to earnings, but Guarino said the company isn’t laying out any guidance as of now. Rather, he said that IMI will say “a little bit more over the coming weeks, [giving] more insight into the synergies that the deal proposes to us.”

Ricccardo Guitart, who joined the new management team from P& G and will serve as its CFO, called the j-v “a compelling strategic transaction and an excellent opportunity for P&G, Inverness and our business partners.”

SPD has more than 160 employees and will have a site in Bedford, UK, besides its Geneva headquarters. Professional diagnostics will continue to be managed by IMI.

Covering the female anatomy

Hologic focuses on breast cancer diagnostics and Cytyc focuses on cervical cancer diagnostics, the biggest proposed merger for the month, thereby covering much of the female anatomy — or, in a more clinical description, offering continuum-of-care products in women’s diagnostics. Hologic will pay $6.2 billion in cash and stock for Cytyc to create what it termed a “$10 billion global leader in women’s healthcare.” The deal prices Cytyc shares at $46.46, with Hologic to pay $16.50 in cash and 0.52 share of its own stock for each share of Cytyc.

“We’re going to be able to offer comprehensive women’s health solutions in the form of a product portfolio that addresses critical screening, diagnostic treatment needs including breast cancer, cervical cancer, menorrhagia, osteoporosis, contraceptives, preterm delivery, permanent contraception, endometriosis, and less invasive approaches to tissue-extraction and radiation treatment,” said Jack Cumming, Hologic’s CEO and chairman, during a conference call, and terming the combination a “natural fit.” Patrick Sullivan, Cytyc’s president/CEO and chairman, told conference call listeners that together Hologic and Cytyc “are creating a global leader in women’s health focused on every point in a women’s life cycle.”

Located just 15 miles apart, the two companies over the years have looked for ways to work more closely together, Sullivan said. The new company will be called Hologic, with Cytyc, upon closing, becoming a Hhlogic subsidiary. Hologic’s headquarters will remain in Bedford, while Cytyc’s offices will stay in Marlborough,

“When Hologic approached us several months ago, things heated up and the obvious benefits of the combination made this a logical next step in the evolution of our companies,” Sullivan said. He added that the deal would offer Cytyc shareholders “solid value today” as well as the opportunity to participate in the long-term prospects of the merged corporation.

Not only does the merger of Hologic and Cytyc make sense from a product standpoint, but Glenn Muir, CFO for Hologic, told listeners, “The combination provides multiple platforms to drive top and bottom-line growth, such as access to new channels with existing products and combined infrastructure to provide greater operating leverage. For example, he noted, “many of the physicians who use our breast cancer products are the same across both companies, allowing us to not just add new customers to our combined base but also accelerate adoption of new and existing products.”

Cumming will become CEO and Sullivan will become chairman of the combined company.

Hologic said the company would have a product portfolio that includes such brands as ThinPrep, Lorad, NovaSure, Suros ATEC, Discovery, FullTerm, R2 and MammoSite. The combined company also will have direct operations in more than 20 countries with more than 3,300 employees, including 1,200 sales and service professionals.

The companies expect deal completion in the third quarter, with Hologic shareholders owning roughly 45% of the combined company, and Cytyc shareholders will own about 55%.

No CMS coverage for treatment-resistant depression

As expected, the Centers for Medicare and Medicaid Services (CMS) last month confirmed its preliminary determination not to provide national coverage for Vagus Nerve Stimulation (VNS) therapy from Cyberonics (Houston) as a treatment for treatment-resistant depression (TRD).

The company — which had already received a preliminary ruling from the agency rejecting the coverage for VNS therapy for TRD in February —appeared to anticipate the final decision with its report in early May that it is restructuring the company, laying off about 15% of its workforce (90 employees) and focusing its energy in the near term on its pharmacoresistant epilepsy indication for the therapy, which has enjoyed full CMS coverage since 1999.

VNS Therapy gained FDA clearance in July 2005 for treatment-resistant depression, but the therapy has met much resistance from insurers and consumer watchdog groups for that indication.

The Senate Committee on Finance conducted an investigation into VNS’ approval for severe depression. The investigation, released in February 2006, revealed that at least 20 senior FDA staff had recommended against approving VNS for severe depression, with none favoring approval — but the director of the FDA’s Center for Devices and Radiological Health (CDRH), Dr. Daniel Schultz, overruled them all. In the final decision, CMS again said data failed to show the device worked for patients with treatment-resistant depression.

The agency said it heard from family and friends of depressed patients who urged coverage and was aware of the need for additional options for people who do not respond to other treatments.

“While empathizing with these patients, we do not believe that the evidence we have reviewed is sufficient to conclude that VNS improves health outcomes in the Medicare population,” CMS said. “Additionally, we are not convinced that the literature has clearly defined the treatment resistant group for whom VNS, if proved to be beneficial, might be indicated.”

Cyberonics said it continues to believe in the “unique value of VNS therapy for patients with TRD and is disappointed that Medicare beneficiaries whose lives have been compromised by TRD do not yet have broad access to this treatment option. We intend to work with CMS and other interested parties to understand the additional evidence they desire to extend coverage. The body of evidence supporting VNS Therapy in TRD continues to grow, and we plan to share that evidence with CMS, as well as with other payers, as it becomes available,” the company said in a statement.

New ventures: SSS to focus on sleep disorders in truckers

Safety Sleep Systems (SSS; Tulsa, Oklahoma) said it will develop solutions for those suffering from sleep-related medical issues, with an initial focus on the trucking industry. There is a clear need, given truckers’ varied schedules and demands on driving at late hours.

Company co-founders are Dr. James Duke, a polysomnologist and nationally known sleep expert with more than 30 years of diagnosis and treatment of sleep-related disorders; and Dr. Bobby Daniel, founder and owner of Oklahoma Rehab Services (Tulsa), a company which treats patients with pulmonary lung disorders.

According to Bruce Keltner, CEO of Oklahoma Rehab and the newly named CEO of SSS, the issue kept coming up in conversations he had with Duke that trucking companies and their employees were particularly vulnerable to sleep disorders, not just obstructive sleep apnea, but a whole host of other inter-related problems. “About three years ago, we started to work on equipment that would identify a lot of other medical issues,” he told BB&T.

The company noted that sleep apnea and sleep-related disorders have been related to the majority of trucking accidents in the last few years. The company’s founders believe their system can help identify and treat these disorders to comply with new federal regulations and reduce the number of trucking accidents, and also possibly save the lives of the truck drivers themselves.

“Because drivers are frequently not properly diagnosed, or find traditional treatments too costly and inconvenient, their sleep apnea frequently goes untreated,” said Duke. “The development of new cost-effective medical protocols, combined with efficient new technology, is key to making significant inroads to treatment and improving driver safety.”

Keltner said the company’s system is different from the simple monitoring systems found in hospitals that monitor patients and diagnose sleep apnea. “It’s a total management system.” The company diagnoses underlying issues — such as high blood pressure, diabetes and cardiovascular problems — possibley related to the sleep problem.

SSS has developed a system that allows these patients to be diagnosed from a remote location, such as in their own home. The equipment is able to transmit the data to a data center via a satellite hook-up. By doing the diagnosis outside the hospital, Keltner said that the company is able to save the trucking companies substantial amounts of money. As an example, he noted that one trucking company based out of Marshfield, Wisconsin, would have to pay $8,000 to have a sleep study done in the local hospital for one of its drivers. “We can do the test for $650 because it’s ambulatory and done by satellite.”

Thermo Fisher Scientific (Waltham, Massachusetts) and Quintiles Transnational (Research Triangle Park, North Carolina) have created a joint venture, called Cenduit (Research Triangle Park, North Carolina), to provide what they term “seamless, integrated Interactive Response Technology (IRT) services during the clinical trial phase of drug development.” IRT is a technology platform that integrates patient interaction systems through a combination of telephone response, web interface and handheld electronic patient diaries.

IRT is expected to grow as pharmaceutical companies look to streamline and better control increasingly complex drug development processes, according to the comopanies.

Dick Jones, a spokesperson for Quintiles, told BB&T that the technology helps automate certain aspects of clinical trials, such as patient randomization. Jones said the IRT platform can be used for clinical trials in the device industry as well as in the pharma sector. “The technology can be used in a variety of ways — over the phone, the web, and with handheld electronic patient diaries — and that’s the sort of thing that this new venture will be doing,” Jones said. “We believe uses of this type of electronic is going to grow.”

“Our companies have been looking for an opportunity to leverage the particular service strengths we bring to the drug development process,” said Marijn Dekkers, president/CEO of Thermo Fisher. “With Cenduit, we have combined two leaders — the clinical supply chain expertise of our Fisher Clinical Services business with the clinical development expertise of Quintiles — to offer a scalable, seamless technology platform.”

The name Cenduit signifies the channel through which information can move directly and freely, the companies said.

Desai previously served as executive director of Quintiles Cardiac Safety Services.

Milestone Scientific (Livingston, New Jersey) reported the formation of a new medical division, Milestone Medical, which will focus on leveraging Milestone’s CompuFlo technology to pursue the development of technological solutions for the medical industry.

Joe Martin, a former senior executive from Bayer, will serve as the CEO of the business unit.

Milestone is engaged in develoopoing technological solutions for the medical and dental markets.

Globetech Environmental (Calgary, Alberta) and MediVac Limited (Sydney, Australia) have signed a joint venture agreement to form a global partnership enabling each to realize synergies in the worldwide marketing of their products.

Globetech makes Logmed machines with technology that is used by hospitals to dispose of medical waste in a safe, clean and efficient manner. MediVac makes MetaMizer machines designed to provide an efficient medical waste disposal solution in smaller facilities.

The companies will establish an Australian-based joint venture company — Logmed International — to be owned equally by Globetech and MediVac.

Globetech will give to Logmed International, exclusive, worldwide marketing rights to sell Logmed machines and MediVac will give the new company exclusive, worldwide marketing rights to sell MetaMizer machines.

According to the companies, Logmed International will be funded by long-term lease contracts with creditworthy customers and Globetech’s CEO Donald Sampson will serve as CEO of Logmed International. Engineering resources will be shared to maximize synergies in manufacturing and machine servicing while concurrently minimizing costs, the companies said.

Globetech and MediVac also reported initial sales of the j-v which include three Logmed units that have been sold to an American customer, Tech-Rock, for $1.5 million. The company said that several more sales in both the northern and southern hemispheres are pending and are expected to close within the next 90 days.

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