A Medical Device Daily

Orthopedic products manufacturer Encore Medical (Austin, Texas) said late last week that it had entered into a definitive merger agreement with a company newly formed and controlled by Blackstone Capital Partners in a going-private transaction valued at some $870 million.

Under the terms of the agreement, Encore's stockholders will receive $6.55 in cash for each share of Encore common stock they hold, a 36% premium to the Nasdaq closing price of $4.81 on June 30. The transaction will be financed through a combination of equity contributed by Blackstone and debt financing.

Upon completion of the transaction, Encore will become a privately held company and its common stock will no longer be traded on the Nasdaq National Market. The parties currently anticipate consummating the deal later this year.

It is anticipated that members of Encore's existing senior management team will retain their current posts after the transaction closes and will participate in the ownership of the new entity.

Encore entered into the merger agreement based on the unanimous recommendation by a special committee comprised of independent directors of its board of directors and the unanimous consent of the full board.

Stockholders representing about 15% ownership of Encore's common stock have entered into voting agreements in which they have agreed to vote or execute consents, as applicable, in favor of approving the merger agreement and the transactions contemplated by the agreement.

“This transaction offers outstanding value for our stockholders with a significant premium over where our stock has traded during the past year. It also provides Encore with a strong financial partner with knowledge of the healthcare industry to assist in our future growth,” said Kenneth Davidson, chairman and CEO of Encore Medical.

Chinh Chu, senior managing director of Blackstone, said, “We are attracted to Encore's market leadership, solid industry fundamentals and exciting prospects. We look forward to working in partnership with the strong management of Encore to accelerate the growth of the company.”

The closing of the transaction is subject to certain terms and customary conditions, including receipt of stockholder and regulatory approvals and the completion of a tender offer and consent solicitation for all of an Encore subsidiary's outstanding 9.75% senior subordinated notes.

The equity financing necessary for the transaction has been fully committed by Blackstone and the debt financing necessary for the transaction has been committed by Bank of America and Credit Suisse, subject to customary closing conditions including completion of definitive documentation.

Encore Medical is a diversified company that manufactures a comprehensive range of orthopedic devices used by orthopedic surgeons, physicians, therapists, athletic trainers and other healthcare professionals to treat patients with musculoskeletal conditions resulting from degenerative diseases, deformities, traumatic events and sports-related injuries.

Through its Orthopedic Rehabilitation Division, Encore is a leading distributor of electrical stimulation and other orthopedic products used for pain management, orthopedic rehabilitation, physical therapy, fitness and sport performance enhancement.

Encore's Surgical Implant Division offers a comprehensive line of reconstructive joint products and spinal implants.

Quest Diagnostics (Lyndhurst, New Jersey), the nation's largest provider of diagnostic testing, information and services, said Wednesday that it has completed the previously announced acquisition of Focus Diagnostics (Herndon, Virginia) in a cash transaction valued at some $185 million.

Focus Diagnostics is a leader in tests for infectious and immunologic diseases and has established a reputation for being first to introduce new assays to the market, including diagnostic tests for Lyme disease, West Nile virus and sudden acute respiratory syndrome. It also develops such diagnostic products as HerpeSelect for herpes simplex virus.

Focus is a portfolio company of private equity firms DLJ Merchant Banking and the Sprout Group. Excluded from the transaction is Focus Bio-Inova, Focus Diagnostics' pharmaceutical testing operation.

The transaction, which was initially reported in May (Medical Device Daily, May 22, 2006) and is expected to close sometime in 3Q06, is subject to regulatory review and other customary closing conditions. Additional terms of the transaction were not disclosed.

“Focus Diagnostics has been recognized worldwide for its leadership in infectious and immunologic diseases and its expertise in developing new diagnostics,” said Surya Mohapatra, PhD, chairman and CEO of Quest. “[It] will further expand our capabilities and strengthen our position as the leading provider and developer of esoteric tests to hospitals and physicians.”

Focus Diagnostics offers its reference testing services to large academic medical centers, hospitals and commercial laboratories.

The acquisition is not expected to have a material impact on Quest's 2006 earnings per share, excluding anticipated charges associated with the transaction.

Bruker BioSciences (BRKR; Billerica, Massachusetts) said that it closed on the acquisition of molecular spectroscopy company Bruker Optics on July 1 for $135 million, payable about 59% in cash and 41% in BRKR stock.

Bruker Optics is a manufacturer of research, analytical and process analysis instruments and solutions based on infrared and Raman molecular spectroscopy technology.

About 11.4 million new Bruker BioSciences shares were issued for the stock component of the purchase consideration. The number of Bruker BioSciences shares issued was determined by dividing the value of the stock consideration, $55.8 million, by $4.91, the trailing average of BRKR closing prices per share for the period of 10 consecutive trading days ending three days prior to the closing date.

Bruker BioSciences is the parent company of Bruker AXS, Bruker Daltonics and Bruker Optics.

In other dealmaking news:

VQ OrthoCare (Irvine, California), a provider of orthopedic and spine solutions, said that it has acquired the orthopedic brace business of Omni Life Science (Vista, California), a manufacturer of joint replacement products for the orthopedics market. The transaction closed on June 30.

The acquisition consists of all of the assets of Omni's orthopedic brace manufacturing and distribution business, as well as its complete line of custom and ready-to-fit ligament instability and osteoarthritis bracing products.

The Omni Life Sciences name will continue to be found on braces during a transition period before all products are converted to the VQ OrthoCare brand, and integrated in the company's existing bracing product line in 2007.

“The acquisition of the Omni knee bracing division is an important milestone in VQ's expansion in the orthopedic space,” said James Knape, founder and CEO of VQ OrthoCare. “Osteoarthritis and ligament bracing are two of the fastest-growing product segments offered by VQ. In-house control of brace manufacturing is the next logical step in our plan to offer quality, innovation, and cost-effective technology to physicians, patients and payors under the VQ OrthoCare name.”

“The sale of Omni's brace division to VQ OrthoCare is of significant mutual benefit for both companies,” said David LaSalle, chief operating officer. “This provides a tremendous opportunity for the brace division with a company increasingly focused on brace manufacturing and sales, while Omni focuses its efforts on joint replacement products.”

Manufacturing is expected to continue at Omni's facility in Vista, under VQ OrthoCare management. A new line of VQ OrthoCare braces, under development in partnership with Omni Life Sciences prior to the acquisition, is scheduled for market introduction by VQ OrthoCare in early 2007.

VQ OrthoCare is a provider of braces, electrotherapy, bone growth stimulation, continuous passive motion, cold therapy and traction.

Omni's product line includes total hip and knee replacement implants.

Reflect Scientific (Mountain View, California), a manufacturer of laboratory equipment and related supplies to the biotechnology, pharmaceutical and medical industries, reported the closing of its acquisition of Cryomastor, a California company.

Principal terms of the merger required the company to pay an aggregate of $700,000 to the Cryomastor shareholders, pro rata; advance $300,000 for the operations of Cryomastor; assume and pay a $300,000 debt of Cryo-mastor owed for a U.S. patent that comprises its intellectual property within 90 days of the closing; and execute three-year employment agreements with Cryomastor's current directors and executive officers.

The company raised more than $1 million in a private offering of restricted common stock through a registered broker/dealer to accredited investors at $1 per share that was a condition of the closing of the merger.

Reflect said it anticipates an extension of the offering to July 31 to complete the maximum offering of $1.5 million.

As part of the completed merger, Reflect receives all rights to Cryomastor intellectual property, product and customer testing programs that the company has under way.

Cryomastor is a privately-held company that was formed to provide low- and ultra low-temperature storage systems to the biotech, life science, hospitals, military, research and disease control centers industries.

Inovio Biomedical (San Diego) said it has exercised an existing option with RMR to license certain patented technology relating to the delivery of gene-based therapeutics into skin. The license also includes other patents involving the delivery of genes or drugs via ex vivo, intratumoral and intramuscular electroporation.

As an example of potential applications, in the area of bioterrorism, RMR is currently employing its skin electroporation technology in the pre-clinical development of an anthrax vaccine under a Department of Defense Small Business Innovation Research Program (SBIR) grant.

The technology also may be useful with respect to targets such as the Lassa fever virus currently being studied by the U.S. Army in collaboration with Inovio. The ex vivo patents are relevant to the delivery of genes to dendritic and stem cells.

Inovio has a number of ongoing clinical trials that involve delivering DNA vaccines into muscle tissue. It said that recent pre-clinical studies suggest that, for certain indications, needle-less skin electroporation of DNA plasmids encoding selected antigens may also be effective at inducing desired immune responses.

The technology licensed from RMR covers various skin electroporation electrode designs and methods, including a needle-less design using a flexible material that conforms to the skin contour.

Inovio and RMR have agreed to collaborate in an effort to develop research prototypes into commercial-grade electrodes for skin delivery as well as other novel forms of electroporation-assisted DNA delivery. Inovio has agreed to provide RMR with other development expertise pertinent to projects such as RMR's SBIR-funded pre-clinical study using RMR's conformable dermal electrodes to deliver a DNA vaccine against anthrax.

Inovio also has licensed from RMR patents that claim the intra-tumoral delivery method used in an ongoing clinical trial at the Moffitt Cancer Center & Research Insti-tute, which is delivering the gene-encoding interleukin-12 directly to melanoma lesions. RMR, Inovio, the University of South Florida and Moffitt Cancer Center have been collaborating in the development of this novel therapy for melanoma for the past two years.

“Inovio has aggressively pursued consolidation of key intellectual property rights in the area of gene and drug delivery to any human tissue via in vivo electroporation,” said Avtar Dhillon, MD, Inovio Biomedical's CEO. “We are pleased to strengthen our relationship with Drs. Richard Heller, Mark Jaroszeski and Richard Gilbert of RMR. Their scientific leadership contributed to the initiation of a pioneering clinical study using our proprietary electroporation delivery platform for a gene-based treatment.”

Dhillon added: “We anticipate that our collaboration with RMR may also enable other important applications of electroporation technology for DNA vaccines to counter bioterrorism agents and pandemics such as avian flu and HIV.”

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