Medical Device Daily

The market for initial public offerings (IPOs) has appeared to heat up somewhat in February, with two companies in medical device and related sectors climbing on this bandwagon.

Alphatec Holdings (Carlsbad, California) filed for an IPO of up to $149.5 million, and Luna Innovations (Roanoke, Virginia) for one of up to $57.5 million.

Alphatec didn't disclose the expected terms of the IPO in its filing with the Securities and Exchange Commission on Monday.

The company makes a variety of products primarily for the spine fusion market in the U.S., and it participates in the Japanese spine fusion and orthopedic trauma markets through its subsidiary, Alphatec Pacific.

Alphatec's FDA-approved product line consists of spine screws, spinal spacers and plates and other components. Its target market is about 15,000 U.S. surgeons, selling through a network of independent distributors as well as a direct sales force. It reports that in 2005 its products were used in about 4,500 surgical procedures.

About 38% of its sales came from its line of Zodiac polyaxial pedicle screws, and it says that loss of licensing rights (the '555 license) related to this product line from Biomet (Warsaw, Indiana) is a significant risk factor. Additionally, it noted that the validity of the U.S. patents covered by the '555 license "is being challenged by Medtronic [Minneapolis] in an infringement action brought by Biomet in the U.S."

It added that the European patent covered by the '555 license agreement "has recently been revoked by the European Patent Office after it was successfully challenged in an opposition proceeding in Europe initiated by Stryker [Kalamazoo, Michigan] and Synthes [Oberdorf, Switzerland]." Biomet, it said, can appeal this decision.

Alphatek acquired Cortek (Dedham, Massachusetts) late last year (Medical Device Daily, Sept. 15, 2005) and is in the process of integrating the operations of the two companies. Cortek gives its complementary offerings in precision-milled allograft spacers for interbody fusion. With the purchase, Alphatec said that that it would expand Cortek's line of allograft products within existing markets, using its own distribution and sales network.

The company was founded in 1990 by Shunshiro "Roy" Yoshimi, the current president, CEO and chairman of its Alphatec Pacific subsidiary. The company initially focused on being a contract manufacturer of medical devices, and it then moved into the spine fusion market in 2003-2004.

Alphatec said it plans to use proceeds from the IPO to expand sales and marketing, fund the clearance or approval and subsequent commercialization of near-term product candidates, support R&D, pay down and retire debt, and for general corporate purposes such as acquisitions of businesses, products or intellectual property. Other uses may be used to satisfy redemption, dividend and liquidation obligations to existing stockholders.

It will apply to have its common stock approved for quotation on the Nasdaq under the symbol ATEC.

First Albany Capital is the underwriter for the offering.

In its filing with the SEC, Luna Innovations did not state the number of shares being offered or the estimated price range for its offering.

Luna researches, develops and commercializes technologies such as fiber optics, wireless monitoring and nanotechnology. Its molecular technology efforts focus on materials – including polymers, reagents and nanomaterials – with enhanced performance characteristics.

The company has developed contrast agents for MRI use, nanomaterials used in solar cells, and protective coatings. It has also created sensing technologies used in medical monitoring equipment, as well as wireless and fiber-optic monitoring systems for defense and industrial instrumentation.

Luna makes its money from contract research services provided to corporate and government entities, as well as product sales and licensing fees.

Among the risks listed by Luna is its plan to develop and commercialize "multiple products . . . across many industries, technologies and markets" and the possibility that it cannot manage this "simultaneously." It said that as of Dec. 31, 2005, it had "68 research contracts covering a broad range of technologies . . ." and that "expanding our operations into new geographic areas and relying on multiple facilities to develop and manufacture different products concurrently pose additional challenges."

Luna said it would use the proceeds from the offering for general corporate purposes, including working capital, capital expenditures, other corporate expenses and potential acquisitions of complementary products, technologies or businesses.

For the nine months ended Sept. 30, 2005, the company reported a net loss of $269,000, moving from net income of $2.5 million it reported for the year-earlier period. The company said it expects to have "significant additional expenses as we expand our business, including increased expenses for research and development, sales and marketing, manufacturing, finance and accounting personnel and expenses associated with being a public company."

It reports the bulk of its revenues coming from contract research performed for others and expects contract research to remain "a significant portion of our consolidated total revenues for the foreseeable future." Most of this work is government-funded.

The company plans to list its shares on the Nasdaq under the symbol LUNA.

ThinkEquity Partners, WR Hambrecht & Co. and Merriman Curhan Ford & Co. were the underwriters for the offering.

Luna Innovations in September acquired Luna Technologies, a venture capital-backed developer and manufacturer of test and measurement systems for fiber-optic components and assemblies.

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