Medical Device Daily

dj Orthopedics (San Diego), which specializes in rehabilitation and regeneration products for the non-operative orthopedic and spine markets, has agreed to purchase Aircast (Summit, New Jersey) from its stockholders, including majority owner Tailwind Capital, for about $290 million in cash.

In a Monday morning conference call, Les Cross, president and CEO of dj, billed his company as “an industry leader in nearly every rehabilitation product category in non-operative orthopedics“ and said that the addition of Aircast would give it “substantially greater scale worldwide“ in this sector.

The merger, he said, would “combine the two most recognized names in non-operative orthopedics: Donjoy and Aircast,“ terming these “highly complementary product lines.“

Cross especially highlighted Aircast's cold therapy systems, noting their potential use in the U.S. to treat 350,000 total hip replacements, 450,000 total knee replacements and about 2 million knee arthroscopies each year.

While he noted that dj is a leader in knee bracing, the addition of Aircast's product line gives it a stronger position in ankle bracing, and he also underlined Aircast's strong relationships with orthopedic surgeons worldwide. Aircast's products, Cross said, are “highly visible among athletes, orthopedic surgeons and athletic trainers.“

Aircast also manufactures vascular systems, with that business providing products used to prevent deep vein thrombosis (DVT) as a pervasive post-surgical risk.

Cross said this business would expand dj's opportunities in the “hospital-based vascular systems business. DVT prophylaxis is an important component of post-surgical care, and Aircast's VenaFlow system is expected to be a solid contributor to our future growth.“

DVT prophylaxis, he noted, can reduce the occurrence of pulmonary embolism (PE), the cause of many hospital deaths. Aircast's VenaFlow product combines graduated sequential compression with advances in rapid inflation to help patients maintain good circulation after surgery to prevent DVT and PE.

Cross pointed to Aircast's 30-year history of consistent revenue and cash flow growth. “Additionally, with more than a third of Aircast's business outside the U.S., the acquisition will nearly double the size of our International segment. Aircast will also add critical mass to our direct sales efforts in Germany, the UK, France and the Nordic countries and will bring important infrastructure to our growing European business.“

Cross said that with less than 200 product offerings in the Aircast portfolio, “the integration should represent fairly low risk for us. We should also achieve meaningful operating expense synergies as Aircast's U.S. general and administrative functions are integrated into our existing operations.“

For the year ended Dec. 31, Aircast had revenues of about $96.8 million and EBITDA of about $24.4 million. dj said it expects the acquisition to be “highly accretive“ to earnings following integration, expected to take six to nine months.

dj said its earnings during the initial quarters after closing will be impacted by a one-time charge to write-off about $2.3 million of unamortized deferred debt issue costs associated with its existing credit facility, increased costs of goods sold due to a required purchase accounting write-up of inventories and other integration costs.

Wachovia Securities was financial advisor to dj Orthopedics in the transaction and Wachovia Bank provided an underwritten commitment for financing the acquisition.

The transaction is expected to be completed by March 30, although Cross noted that it could take several weeks to acquire the necessary regulatory approvals.

dj provides more than 600 rehabilitation products, including rigid knee braces, soft goods and pain management products used to prevent injury, treat chronic conditions and for recovery after surgery or injury. Its regeneration products consist of bone growth stimulation devices used to treat non-union fractures after spinal fusion surgery. It sells its products in the U.S. and in more than 50 other countries.

In other dealmaking activity:

Encore Medical (Austin, Texas), a maker of orthopedic devices used to treat musculoskeletal conditions, reported closing its purchase of Compex Technologies (New Brighton, Minnesota), a maker of electromedical products used for pain management, rehabilitation and sports training.

The deal was unveiled in November (MDD, Nov. 15, 2005). Encore paid about 18 million shares of Encore common stock and incurred about $17 million in debt in connection with the deal, which was primarily used to pay off Compex's existing debt.

Kenneth Davidson, CEO and chairman of Encore, said the purchases expands his company's presence “in the very important pain management segment of the orthopedic rehabilitation market [and opportunities] to leverage our presence in the orthopedic rehabilitation market and increase our growth of rehabilitation products that address pain management.“

Encore, through its Orthopedic Rehabilitation Division, distributes electrical stimulation and other orthopedic products; through its Surgical Implant Division, it offers reconstructive joint products and spinal implants.

Compex is now a subsidiary of Encore, with Davidson serving as its CEO. Dan Gladney, Compex president and CEO, and Marshall Masko, president of worldwide consumer products, have resigned.

First Albany Capital served as financial advisor to Encore; Greene Holcomb & Fischer was financial advisor to Compex.

Siemens Medical Solutions (Malvern, Pennsylvania), with its subsidiary PETNET Pharmaceuticals (Knoxville, Tennessee), reported acquiring New England PETNET Manufacturing & Distribution Center (Woburn, Massachusetts), enabling the provision of biomarkers for clinical and pre-clinical positron emission tomography (PET) imaging to the New England region through PETNET's SafetyNet international network of more than 45 manufacturing and distribution centers.

Siemens bills PETNET as the world's leading producer of PET biomarkers, with the largest U.S. network of cyclotron-equipped radiopharmacies. Molecular imaging biomarkers – small tracers that monitor biological processes – enable identification of the biological mechanisms of disease to determine personalized therapies.

“PETNET customers in the New England region will have access to an array of programs to support and enable the continuous development of their skills, productivity and technology,“ said Michael Reitermann, president, Molecular Imaging Division, Siemens Medical Solutions.

A unit of Siemens (Erlangen, Germany), Siemens Medical operates in more than 120 countries and reported sales of EUR 7.6 billion in 2005.

Duravest (Chicago), a holding company that acquires and develops what it terms “convergent medical technologies,“ reported completing the acquisition financing of Bio-Magnetic Therapy Systems (BMTS; Frankfurt, Germany), a company that delivers non-invasive treatments for osteoarthritis, osteoporosis and orthopedic injuries, along with associated pain management. It reported completing the acquisition itself last month (MDD, Jan. 24, 2006).

Duravest said it would integrate BMTS into its investment portfolio by expanding and internationalizing the company's distribution network, providing it with additional sales and marketing opportunities and expanding its economies of scale.

BMTS is the second acquisition for Duravest, following its majority stake acquisition in Estracure (Montreal) in 2005.

BMTS reported revenues of $7.5 million and net income of $0.87 million in 2004 and estimates record profits of more than $1 million in 2005. Duravest said that the acquisition of BMTS would be immediately accretive.