Medical Device Daily Contributing Writer

ZICHRON YAAKOV, Israel – Lumenis (Yokneam, Israel) management and technology seem to be grafted but not biologically connected. The company is facing delisting and indictments by the SEC, while it is recognized as a technology and global marketing giant.

But the medical device giant and innovator may be about to be kissed by a prince to awaken it from seven years of nightmare. Not one, but four potential buyers of the valiant but encumbered and debt-bound Lumenis have emerged of late.

One party thought to be interested in the purchase of the company is reportedly in negotiations with Lumenis' major debt holder, Bank Hapoalim, but the talks have bogged down over the price, according to the local daily Haaretz, which also identified global electronics giant Philips Electronics (Amsterdam, the Netherlands) as a potential buyer.

A third party is Elco Holdings (Tel Aviv, Israel) Chairman and CEO Gershon Salkind, who is aiming to acquire the controlling interest in Lumenis, according to the online financial daily Globes. Salkind is known for buying up companies in distress.

The fourth or first candidate – if you are reading left to right or right to left, as in Hebrew – seems to be businessman Meir Shamir, purported to be offering to buy Lumenis at a value of $100 million, more than $30 million above its present market cap.

A spokesman for Shamir's holding company, Mivtach Shamir Holdings (Tel Aviv), told Medical Device Daily that Shamir could not comment on these reported dealings but will do so when it becomes relevant. She said that “various investments are regularly reviewed as part of the ongoing business of the holding company, and news would be reported in due time.“

Lumenis is valued at under $70 million and owes about $230 million in debt to Bank Hapoalim; a literal inversion of market cap and liabilities relative to the heady 1990s, until the spring of 1999 when a major shareholder group unceremoniously ousted founder Shimon Eckhouse, president, CEO and chairman, and then knocked Lumenis into debt when it acquired Coherent , with no apparent plan on how to finance the purchase.

The situation worsened, until about a year ago, when Lumenis management was caught by the U.S. Securities and Exchange Commission's Division of Enforcement, trying to do some aesthetic surgery on its books, misreporting financial statements by artificially inflating its revenues in 2002, 2003, and 2004, in clear violation of U.S. federal securities laws.

Now, Lumenis has offered a settlement aimed at convincing the SEC to reconsider its intention to recommend that a civil proceeding be brought against the company, and also offering to delist its shares, even from the Pink Sheets, where it has been trading for the past two years, but not pay a fine.

The company said: “We will continue to cooperate with the ongoing SEC investigation. If the SEC still decides to issue an order for the deregistration of the company's shares, Lumenis will continue normal business operations while the deregistration of the company's shares is in effect. Lumenis shares will not be quoted or traded in the U.S. and will remain delisted until the company can re-register with the SEC.“

The SEC Division of Enforcement agreed in principle to these proposals, so the terms of the agreements will probably be upheld.

In fact, delisting would take the company out of the limelight, where it would be freer to negotiate a sale, but many shareholders are not waiting around to find out what will happen when the company is again private and not at all accountable to them.

Lumenis said that it is working diligently with its independent auditors, BDO Ziv Haft, appointed after the former auditors resigned in the summer of 2004, and with the accountants Alix Partners to produce audited financial statements thoroughly transparent and accountable, aiming at re-registration in the second quarter of 2007, and in the meantime, focusing on core operations, recovery plan, and future business growth.

Lumenis reported another annual loss, $14.7 million for 2005 on $273 million revenues, vs. $11.4 million loss in 2004, although the fourth quarter loss was $3.9 million, compared with a $6.3 million loss in 4Q04.

Meanwhile, Lumenis' technology continues to improve. The company reported that it had sold its 600th Lumenis One, now with the new Aluma module (featured at the 64th Annual Meeting of the American Academy of Dermatology meeting in San Francisco early this month). And Frost & Sullivan bestowed its 2005 Technology and World Market Leader award in laser and light-based technologies, based on excellence in penetrating and servicing a variety of regional and global markets, recognizing superior planning and execution of product launches, strategic alliances, distribution strategies, technological innovations, mergers and acquisitions and initial public offerings.

Medigus raises $7M on TASE

The privately held and VC-backed medical device company Medigus (Omer, Israel) raised NIS 32 million ($7 million) in stocks and options on the Tel Aviv Stock Exchange (TASE), at a company value of $52 million, before money.

IBI Investment House, Apex Underwriting & Issue Management, Altshuler Shaham Mutual Funds Management, Rosario Capital and Menorah Holdings lead the consortium of underwriters for the IPO. Investment institutions bought 80% of the shares offered late last month.

Medigus has developed an endoscopic system for the treatment of gastroesophageal reflux disease (GERD), the SRS system, which includes a specialized flexible endoscope designed to perform an endoluminal partial anterior fundoplication for the treatment of GERD.

The gastroscope looks quite standard, but it contains a miniature video camera, an endoscopic stapler and an ultrasound sensor. The “reflexive“ ultrasound locating device comes into function to ensure the stapler is in the correct placement and alignment across stomach and esophageal wall.

When the procedure is performed, a disposable cartridge of staples is inserted into the rigid section of the scope. The endoscope is inserted via the mouth and eso-phagus to a precise site. It is used to push back and staple the stomach lining against the esophagus, hence, it creates a 180 degrees anterior fundoplication that prevents acid reflux.

Lior Lurie, Medigus business development manager, told MDD, “Medigus wants to replace the current surgical surgical procedure, with its noninvasive procedure. About 150,000 of these surgical procedures are carried out in the U.S. each year.“

“Medigus completed preclinical trials during December 2005 at the Virchow Clinic of the Charite Campus Hospital (Berlin) and is preparing the requests for approval to perform clinical trials,“ said Lurie.

Development of the SRS device system for GERD involved design and fabrication of several core technologies that have other potential applications for cholangio-pancreotography, orthopedics, gynecology, gastroenterology, morbid obesity and various other hole-in-the-donut procedures. One of these core technologies – the company's miniature visualization camera technology, includes a 3 mm video camera and a new 1.8 mm video camera, which is the smallest high-performance CCD camera for endoscopy in the world.

Medigus CEO Elazar Sonnenschein told MDD that devices for several of the above-mentioned potential applications are currently under development, in part via a strategic agreement with Johnson & Johnson/Ethicon Endo-Surgery .

Medigus posted NIS 9.6 million revenue in January-September 2005, compared with NIS 1.5 million in the corresponding period in 2004, bringing the company its first-ever profit of NIS 240,000 ($50,000).

Rabinowich, a former income tax commissioner, is invested in the company with the ProSeed Venture Capital Fund, Johnson & Johnson Development, Israel Healthcare Ventures, Ofer Hi Tech, Delta Ventures, Biocom Fund and Dexxon. Other private investors include Osem controlling shareholder Gad Propper and television emcee Nissim Mishal.

Two U.S. firms, C.R. Bard (Murray Hill, New Jersey) and Curon Medical (Fremont, California), are direct competitors with GERD devices.