A Medical Device Daily

Kyphon (Sunnyvale, California) last week reported closing the acquisition of St. Francis Medical Technologies (Alameda, California), a privately held company that manufactures the X-Stop Interspinous Process Decompression System, the first FDA-approved interspinous process device for treating lumbar spinal stenosis.

Kyphon in December reported its plans to acquire St. Francis Medical in a transaction valued at $525 million in upfront cash, plus additional revenue-based contingent payments of up to $200 million, payable in either cash or a cash/stock combination (Medical Device Daily, Dec. 5, 2006).

Kyphon says that the transaction broadens its focus on minimally invasive spine by adding the X-stop technology to its existing KyphX balloon kyphoplasty technologies for repairing vertebral compression fractures and its recently launched Functional Anaesthetic Discography procedure for diagnosing the source of low back pain, the company said.

“The acquisition of St. Francis is a key element in executing our strategy and advancing our mission to become the recognized global leader in restoring spinal function through minimally invasive therapies,” said Richard Mott, Kyphon’s president/CEO. “We believe this is an excellent strategic fit for Kyphon and further expands our innovative treatments for the aging spine to include less invasive treatment of lumbar spinal stenosis.”

Kyphon financed the transaction through a combination of cash on hand and bank financing, including a $425 million syndicated term loan and $200 - $300 million credit facility, arranged and led by Bank of America N.A.

Kyphon develops systems designed to restore and preserve spinal function and diagnose low back pain using minimally invasive technologies. The company’s products are used in balloon kyphoplasty for the treatment of spinal fractures caused by osteoporosis or cancer, in the Functional Anaesthetic Discography procedure for diagnosing the source of low back pain, and in the Interspinous Process Decompression procedure for treating lumbar spinal stenosis.

In other dealmaking news:

• Quest Diagnostics (Lyndhurst, New Jersey) reported signing a worldwide license agreement with U.S. Genomics (Woburn, Massachusetts). The companies called the licensing deal a move that will advance physicians’ ability to widely screen for Fragile X Syndrome (FXS), the most common form of inherited mental retardation.

The agreement gives Quest the rights to develop an advanced screening method for FXS based on Quest Diagnostics’ and U.S. Genomics’ jointly developed genetic testing technology. No financial terms of the agreement were disclosed.

Using U.S. Genomics’ applications, Quest said it plans to develop an automated testing process, resulting in a simpler, more efficient test that allows physicians to have access, for the first time, to widespread population-based carrier testing.

Quest said it would develop the new test to address and resolve the limitations of current FXS screening. Such tests currently involve a complex combination of techniques, which makes testing cumbersome and impractical for prenatal and pregnancy screening programs. The new test also should help physicians, including pediatricians, neurologists and obstetrician-gynecologists, more efficiently screen patients with mental, neurological or endocrine symptoms that may be caused by a Fragile X gene mutation, Quest said.

Quest develops diagnostic tests and advanced healthcare information technology solutions designed to improve patient care.

• RehabCare Group (St. Louis) and Methodist Medical Center (Peoria, Illinois) reported their intention to form a joint venture that would develop, own and operate a new 50-bed long-term acute care hospital (LTACH) near downtown Peoria. The proposed partners are applying for a Certificate of Need (CON) through the State of Illinois and hope to begin construction of the new hospital following CON approval, as well as necessary licensure through the Illinois Department of Health. Financial terms were not disclosed.

The 56,000 square-foot LTACH, to be called The Greater Peoria Specialty Hospital, will be located in the three-block area bordered by Richard Pryor Place, Romeo B. Garrett Avenue and Hightower Street in Peoria. An early 2009 opening is projected. Once fully operational, the LTACH would provide jobs for an estimated 150 full-time employees, the partners said.

LTACHs provide specialized, around-the-clock care for extended-stay patients with chronic or medically complex conditions, such as ventilator dependency, brain injury, cardiopulmonary disease, chronic pain and neuropathy. Patients are typically admitted to an LTACH following treatment in a traditional acute care hospital, and the average length of stay is 30 days.

OSF Saint Francis Medical Center said it views the LTACH as an important addition to the Peoria medical community and has provided a letter of support to accompany the CON application.

Established in 1982, RehabCare is a provider of rehabilitation program management, servicing over 24,000 patient visits each day in conjunction with more than 1,400 hospitals and skilled nursing facilities in 42 states, the District of Columbia and Puerto Rico.

Methodist Medical Center of Illinois is a 353-bed care provider serving the more than 300,000 residents of the Greater Peoria area.