Medical Device Daily Associate Managing Editor

In a bid to trump sector rival Ventana Medical Systems ' (Tucson, Arizona) to acquire Vision Systems (Melbourne, Australia), Cytyc (Marlborough, Massachusetts) pulled the trigger on a merger offer yesterday that provides a more than 10% premium to Vision Systems' shareholders over Ventana's offer, first disclosed last month (Medical Device Daily, Aug. 15, 2006.)

Cytyc, maker of the ThinPrep cervical cancer screening system, offered to pay A$497 million in cash ($374 million), or about A$2.35 for a share, for Vision systems, a manufacturer of instruments and reagents used to detect cancer. That offer represented a 10.3% increase over Ventana's bid of A$2.13 (about $346 million).

In connection with this transaction, Cytyc said it believes it will incur certain one-time charges, to be detailed at the close of the transaction. Excluding transaction-related expenses and transaction amortization, Morgan Stanley & Co. provided Cytyc with a financing commitment, which along with Cytyc's available cash and committed financing facilities, will be used by Cytyc to finance this transaction, it said.

“Vision Systems is an exciting growth company with best-in-class products for the global anatomic pathology market,” said Patrick Sullivan, Cytyc's president/CEO and chairman during a conference call on the proposed merger. “This acquisition offers unique and powerful synergies for both Vision and Cytyc with no product overlap.”

The acquisition gives Cytyc, he said, a “very efficient way” to expand into the histology sector, the study of tissue for diagnostic evaluations of cancer and infectious diseases.

He said that the addition of Vision's Novocastra branded antibodies to the company's portfolio, as well as the incorporation of Invetech, Vision System's product development unit, would further strengthen Cytyc's position in the global diagnostics market.

John McDonough, president of Cytyc Development, noted during the conference call that the sale of instruments, reagents and consumables for the anatomic pathology market is currently in excess of $1 billion per year and is expected to grow about 10% per year for the next five years.

“Within this market, one of the largest and fastest growth segments is automated advanced staining and primarily immunohistochemistry [IHC],” said McDonough. Another significant factor driving market growth “is the continuing emergence of new diagnostic kits that have the potential to influence therapeutic modalities.”

Cytyc said it believes its offer is superior to Ventana's for several reasons

“The first is the price premium offered to Vision shareholders,” said Cytyc CFO Tim Adams. “Second,” he said, “the tender process we have elected will allow Visions's shareholders to cash out more quickly. And third, we have limited conditions associated with our offer and in particular no minimum acceptance condition.”

Adams also noted that, unlike the deal with Ventana, there is virtually no regulatory risk associated with the Cytyc's offer. “[S]ince Vision BioSystems and Ventana compete head-to-head in the sale of IHC instruments and ancillary regents in many countries, we believe there is considerable risk of intervention by the antitrust regulatory authorites in various jurisdictions, including the United States and the United Kingdom.”

Shares in Vision Systems jumped 11% to A$2.51, a premium to the Cytyc bid, suggesting investors believed a higher bid could emerge.

James Fox, managing director of Vision Systems, told Reuters that the latest bid was good news for the company's shareholders. “The highest price will win and that's not over yet obviously. We've had a Ventana bid, now there's a Cytyc bid and there may be another bid, who knows?” he said.

Responding to an analyst question during the conference call concerning the possibility of a bidding war with Ventana, Sullivan said the company has a “very disciplined approach. We have talked about it in the past. And I think that we have in the past walked away from acquisitions when they did not make financial sense. And I think do the same thing here, if it makes sense.”

“[O]ur primary focus is providing a return to Cytyc shareholders,” added McDonough “We have strong financial metrics behind that and we will not step outside those boundaries.”

In other dealmaking news:

• MIV Therapeutics (MIVT; Vancouver, British Columbia), a developer of biocompatible coatings and advanced drug delivery systems for cardiovascular stents and other implantable medical devices, said it has entered into an agreement to acquire Vascore Medical (Suzhou, China), a manufacturer of cardiovascular stents and other medical devices.

MIVT proposed purchase calls for the payment of $1 million in cash and the issuance of 4 million restricted common shares, at a price of $1 per share, over a period of time and subject to release based on certain escrow milestones.

MIVT said that the proposed acquisition swill provide it with extensive design, manufacturing and marketing capabilities.

“By marrying our advanced next generation of biocompatible HAp stent coatings with Vascore's field-tested stent business and strong manufacturing operations, we believe we can accelerate our mission to make MIVT a force in the worldwide cardiovascular stent industry,” said Dr. Mark Landy, president of MIVT. “This acquisition gives us a significant presence in China, one of the world's fastest growing cardiovascular stent markets.”

Vascore, founded in 2001, has been distributing its cardiovascular stents and other biomedical products throughout China since 2002.

Kirtland Capital Partners reported that its portfolio company, MicroGroup Holding (Cleveland), has purchased Bolt Bethel and Bolt Blaine (both Minneapolis) Bolt manufactures precision metal components and assemblies for medical device, aerospace and defense products. Terms of the transaction were not disclosed.

“The Bolt acquisition will enable MicroGroup to expand its geographic reach, customer base and manufacturing capabilities,” said Charla Espinosa, MicroGroup's COO. “Minnesota is a key market for medical device firms, and the Bolt acquisition will give MicroGroup a stronger presence in this region.”

MicroGroup is a supplier of metal tubing and precision components primarily for medical device and analytical instrument customers.