Medical Device Daily Associate

ATS Medical (Minneapolis) developer, manufacturer and marketer of cardiac surgery products and services, reported a definitive agreement under which it will acquire all the outstanding shares of privately held 3F Therapeutics (Lake Forest, California) in a stock for stock transaction with a potential value with milestones of nearly $58 million.

3F is an early-stage medical device company in the emerging field of minimally invasive, beating-heart tissue valve replacement. ATS said it views the planned acquisition of 3F as a major step in executing its longstanding vision of obtaining a leadership position in all segments of the cardiac surgery market.

ATS will acquire 3F by issuing 9 million shares of ATS common stock to 3F shareholders. Those shareholders will be issued up to an additional 10 million shares upon the achievement of certain milestones.

ATS also will assume the 3F balance sheet that included an estimated $10 million in cash as of Dec. 1, 2005, to fund future development.

The company said it anticipated closing the proposed acquisition, which is still subject to various terms and conditions, including ATS shareholder approval, sometime in 2Q06.

Piper Jaffray has served as financial advisor to ATS and UBS Securities acted as financial advisor to 3F in connection with the transaction.

“The joining of ATS Medical and 3F Therapeutics firmly establishes ATS Medical as a leader and creates the most advanced heart valve therapy product portfolio in the world,“ said Michael Dale, chairman, president and CEO of ATS Medical during a conference call on the transaction. “By increasing the aggregate value of the markets we will participate in from $350 million annually in 2002 to over $1.6 billion annually today, ATS Medical can now provide a clear and complete path toward our vision of becoming an industry leader with annual revenues well in excess of $100 million.“

3F Therapeutics was founded in 1998 with a focus on serving the needs of the cardiac surgeon. The company's heart valve product design concepts are intended to improve on the performance of existing heart valves by mimicking natural valves. 3F said it believes that there is not a single solution for each heart valve implant. To that end, it has worked toward offering cardiac surgeons several biological tissue heart valve options from which to choose.

The company's first product, the 3F Aortic Bioprosthesis, has been commercially released in Europe and the FDA premarket approval (PMA) submission process is under way, with the final PMA module slated for submission in 2Q06.

Additionally, 3F said it believes that future substantial growth within the heart valve industry will be the result of the introduction of minimally invasive and transapical products.

To address this future demand, 3F is working on the development of various minimally and transapical aortic valve concepts. The company's first product in this arena is its Enable Aortic Heart Valve, which is intended to reduce surgical cross-clamp and cardio-pulmonary bypass time. The Enable is presently in clinical studies outside the U.S., and the company said it believes an investigational device exemption clinical study will be approved in the U.S. sometime this year.

The company also is developing a transapical aortic valve, the Entrata Aortic Valve system, using technology and intellectual property licensed from Percutaneous Valve Technologies (Fort Lee, New Jersey), now part of Edwards Lifesciences (Irvine, California). That product is currently in animal trials.

“The 3F Therapeutics product pipeline addresses all segments of the existing $600 million tissue valve market and our development program and intellectual property support the creation of a new off pump, beating heart valve replacement segment in the years to come,“ said Walter Cuevas, president and CEO of 3F. “We believe ATS and 3F together can ultimately satisfy all unmet patient and cardiac surgeon needs in the heart valve therapy space.“

Dale told Medical Device Daily that the company was still evaluating what to do with 3F's developmental products its 3F Mitral Apparatus, a mitral heart valve designed to replicate the natural mitral apparatus and its Endurance Valve System for the treatment of congestive heart failure in patients with right heart failure symptoms.

“We are evaluating in real time, relative to our resources with what's possible,“ Dale said. “We have very high interest in both of those, and we just need time and money“ to get them to completion.

Dale estimated that the combined firms would spend in excess of $6.5 million over the next two years on research, development, clinical and regulatory activities in support of its new products, adding that the combined company would not be profitable at least through the end of 2006.

He said that money should help the company gain approval for ATS's new Pivot Model 1000 product line, launch the feasibility and U.S. clinical trials for the 3F Enable Heart Valve and finish off the R&D feasibility study for the 3F Entrata system.

ATS said the milestones that are part of the purchase price could be triggered if “either/or“ the Enable or Entrata devices receive the CE mark and either of those receives FDA approval.

The company said it would keep its headquarters in Minneapolis and maintain the existing 3F operations in Lake Forest, keeping the “majority“ of 3F's employees, including Cuevas.

In other dealmaking news:

• Health Management Associates (HMA; Naples, Florida) reported that it has agreed to acquire the 83-bed Cleveland Clinic-Naples Hospital (Naples, Florida) from the Cleveland Clinic (Cleveland).

Following the sale, the Cleveland Clinic and HMA plan for the Naples hospital to continue its clinical affiliation with the Cleveland Clinic. The transaction is expected to be completed during the quarter ending June 30.

Cleveland Clinic-Naples Hospital is a general acute-care hospital. It serves a rapidly growing population base of about 300,000 residents, which does not take into account seasonal population increases experienced during the winter months.

HMA is an operator of non-urban, general acute-care hospitals in communities situated throughout the U.S.

• Nationwide Health Properties (Newport Beach, California) said it has entered into a joint venture with The Broe Companies (Denver) for the acquisition of medical office buildings, and that the venture has completed its first acquisition of 21 medical office buildings located in Georgia, Louisiana, South Carolina, Tennessee, Texas and Virginia.

It includes nearly 800,000 square feet of primarily “on campus“ properties affiliated with Hospital Corporation of America (Nashville, Tennessee) hospitals.

The portfolio, which currently is about 82% occupied, will be managed by Broe's medical office management division, InSite Properties.

NHP is a real estate investment trust that invests in healthcare facilities. The company has investments in 422 facilities in 39 states.

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