Medical Device Daily Associate

Pathway Medical Technologies (Redmond, Washington), a developer of endovascular treatments for peripheral arterial disease (PAD), yesterday reported closing a $25 million Series B round of financing, a little more than a year after closing a Series A round valued at $15 million.

According to Tom Clement, president/CEO of the company, Pathway initially had thought it would not seek another round of financing for at least another year, but an excellent opportunity presented itself.

“It was more money available at an excellent valuation,” Clement told Medical Device Daily. “It also gives us the money now to work right through a product launch and well into revenue streams.”

Pathway manufactures the Pathway Atherectomy system for treating PAD, and Clement said that Pathway expects to launch the product in the U.S. some time in early 2008, once FDA approval is garnered.

Peripheral vascular intervention has become a hot market, and PAD is a serious disease that affects an estimated 14 million people in the U.S. alone. It is characterized by the accumulation of plaque in the arteries (primarily in the legs) and can lead to a host of serious problems including stroke, heart attack, amputation or — if untreated — death.

In 2004, the now eight-year-old company was struggling in its development of a device to remove fatty deposits of plaque from arteries in the heart, and had been forced to lay off a slew of employees. The company then decided to design the device to treat the arteries in the leg and started attracting capital, including the Series A round in March 2005.

Clement referred to the success of a key competitor in this sector, FoxHollow Technologies (Redwood City, California), which went public in October 2004 with an offering that garnered $67 million (MDD, Oct. 29, 2004). That, he acknowledged, had the effect of attracting positive attention to systems to treat PAD. That attention undoubtedly was bolstered further by FoxHollow’s deal with pharma powerhouse Merck (Whitehouse Station, New Jersey), which will use its system for drug and diagnostic development. Merck has purchased $95 million in FoxHollow stock, with promises to invest another $100 million over the next four years.

FoxHollow’s SilverHawk plaque excision system is a minimally invasive catheter system, FDA-approved in 2003,used to remove atherosclerotic plaque.

While professing to be a fan of FoxHollow, Clement said he believes the Pathway system for PAD will bring to market “an even easier device to use that has a bit more breadth to it.” He said that Pathway’s device is superior to the SilverHawk because, in addition to scraping plaque from the arteries, it also vacuums out these materials.

He said that the company is close to concluding its registry trial which has enrolled more than 140 patients.

“We’ve reached the statistical numbers that we need [but] we want to follow those patients for six months and we want to gather a few extra patients so that at six months we still have a properly powered trial,” Clement told MDD.

Two new investors joined the financing round: lead investor HLM Venture Partners and Latterell Venture Partners. In addition, existing investors ABN AMRO Capital Lifesciences, Giza Ventures and Oxford Bioscience also participated.

In other financing news:

• PhotoMedex (Montgomeryville, Pennsylvania) said it has entered into an agreement with institutional investors for the placement of about 9.8 million shares of common stock at $1.17 a share, together with warrants to purchase about 2.4 million shares of common stock at $1.60 a share. Gross proceeds from the private placement will be roughly $11.4 million.

Cowen and Co. acted as the sole placement agent for this offering.

Jeff O’Donnell, president/CEO of PhotoMedex, said that the company plans to use the proceeds from the placement for general working capital purposes.

“We now have the working capital to increase the size of our sales force and accelerate our launch of the XTRAC laser system. In addition, we plan on expanding our surgical services business to take advantage of a national laser services contract.”

PhotoMedex makes excimer laser and fiber optic systems for use in dermatological applications.

• Medical Properties Trust (Birmingham, Alabama) reported that its operating partnership, MPT Operating Partnership, has begun an offering, of $100 million aggregate principal amount of exchangeable senior notes, due 2011, through an offering to qualified institutional buyers.

The operating partnership has granted the initial purchasers an option to purchase up to another $15 million of notes within a 13 day period, beginning on and including the first date of original issuance of the notes, to cover any over-allotments.

The company said it intends to use a portion of the proceeds to complete the acquisitions of six facilities for which it has made commitments of about $90 million. It said it expects to complete the purchases in 4Q06.

During the period between receipt of the offering proceeds and completion of the acquisitions, the company said it intends to use the net proceeds to reduce balances under its revolving credit arrangement. It will use the remainder of the net proceeds from the offering to pay the cost of a capped call transaction that is expected to reduce the potential dilution with respect to the company’s common stock.

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