In an effort to become a profitable company sooner, Nanogen (San Diego), a developer of molecular and rapid in vitro diagnostic products, reported in mid-August that it had agreed to combine its business with the Elitech Group (Paris), a private French diagnostics company, in an all-stock deal.

During Nanogen's second-quarter earnings call, Howard Birndorf, Nanogen's chairman/CEO, told investors that the company's 2Q08 financials demonstrate that it is moving toward profitability.

"However, we need to accelerate reaching profitability and improve the predictability of cash flow and recognize that combining our business with the Elitech Group will give us the critical mass necessary to address worldwide market opportunities for our technologies and products, and will greatly strengthen our company with investors and the stock market," he said.

Birndorf said the combination would create a global, in vitro diagnostics company with a broad product range, expected first-year revenues of more than $150 million and positive EBITDA. The boards of both companies already have approved the deal, which is expected to close by the end of 1Q09. The transaction is subject to approval by Nanogen's stockholders.

"Most of our competitors of a similar size offer a narrow product range and many of them don't earn a positive return. The combined company will be financially strong with a broad reach into our customers' laboratory needs," Birndorf said. "While our larger competitors focus on expensive system solutions for the high-volume laboratory customer, we will offer clinical chemistry, microbiology, molecular diagnostics and point-of-care solutions with a focus and an ability to reach the medium- and smaller-size customer."

The combination is structured as a tax-free, stock-for-stock exchange of shares of Nanogen common stock for all of the Elitech capital stock and is a reverse acquisition of Nanogen by Elitech. The combination is expected to create a transatlantic company that will continue to be listed on Nasdaq. The name of the combined company has not yet been determined, but it will be headquartered in San Diego.

Elitech shareholders are expected to receive shares of Nanogen common stock that have a value of 166.5 million.

Nanogen said that it expects to improve its cash flow by at least $15 million a year as a result of the merger.

Elitech President Pierre Debiais will lead the combined company as CEO. Michael Saunders, currently group VP of marketing and business development for Elitech, will become one COO, with a focus on European business and global commercial operations. David Ludvigson, currently president/COO for Nanogen, will become another COO, with a focus on the U.S. business and global business and finance. Nick Venuto, currently VP/CFO of Nanogen, will serve in the same capacity for the combined company.

Nanogen's products include molecular diagnostic kits and reagents and kits for rapid, point-of-care diagnostic tests. Elitech bills itself as the largest independent distributor of in vitro diagnostic products in France.

Covidien shines a year after debut

Somewhat more than a year ago, the business formerly known as Tyco Healthcare (Mansfield, Massachusetts), sporting its new identity as Covidien, was spun off from struggling industrial conglomerate Tyco International (Pembroke, Bermuda).

How has it done?

At least one veteran industry analyst thinks the answer is "Just fine."

Joanne Wuensch of BMO Capital Markets (New York) issued a research report in the middle of August taking a look at Covidien's results since its late-June 2007 spin-off.

Calling it "a year of accomplishments," she cited several acquisitions that have added to its product portfolio, the launch of a number of new products, a co-promotion agreement with Allergan (Irvine, California) for that company's sector-leading Lap-Band gastric banding system, the sale or pending sale of several business units as a move to sharpen the focus of its overall portfolio, and, far from least on the list, an 11% increase in sales in the first nine months of FY08.

"Our investment thesis on [Covidien] has been that the company should stand to benefit from the 'freedom' enabled by no longer being part of a larger, non-healthcare-focused company, but that it had a long row to hoe as it invested in R&D and SG&A [selling, general and administrative expenses], while streamlining its business portfolio," Wuensch wrote.

Noting that Covidien had delivered 3Q08 results that clearly exceeded expectations, she added: "Without argument, over the past year the company has accomplished quite a bit."

The "quite a bit" included unexpectedly strong revenues and earnings reported on Aug. 5 with third-quarter net sales rising 14% to $2.6 billion from $2.3 billion a year earlier, driven by higher volume and new products, operating income of $545 million vs. a loss of $761 million in the prior-year period, and diluted EPS from continuing operations of 65 cents vs. a loss of $2.29 a share in 3Q07.

For the first nine months of fiscal 2008, sales of $7.3 billion were 11% above the $6.6 billion in the prior year, with operating income of $1.4 billion vs. $199 million a year earlier, and diluted EPS from continuing operations of $2.03 vs. a loss of 86 cents a share in the comparable period.

Wuensch noted that almost 70% of Covidien's revenues are generated by its Medical Device business, which she termed "the company's bread and butter." Those revenues increased by 5% in the 3rd quarter.

Imaging Solutions, the firm's second-largest product category at roughly 13% of sales, posted 18% growth in the quarter, buoyed by its radiopharmaceuticals and contrast agents/delivery systems.

"The strength in the company's gross margins was noteworthy," Wuensch wrote, "hitting 53.7% in the 3Q versus 52.2% last year."

Arbios suspends operations, seeks trial financing

Not doing as well is another Massachusetts-based company, Arbios Systems (Waltham, Massachusetts), developer of what it hopes will be the first artificial liver device to the U.S. market. Arbios said in early August that it had suspended its operations. said the move is a way to conserve cash while it seeks financing or some relationship to fund clinical trials for its Sepet liver assist device.

Arbios said it is focusing its day-to-day operations exclusively on obtaining financing or consummating what it termed a "strategic transaction." All of the company's employees were released, except for Shawn Cain, president/CEO, and CFO Scott Hayashi. Cain and Hayashi will continue to provide services to Arbios as part-time consultants on a month-to-month basis while they seek funding and "strategic alternatives."

The company said it also plans to keep quiet about any developments with respect to these goals until or unless its board has approved a transaction. Arbios said it would consider other options, including liquidation, if a transaction was not consummated, or near consummation, by the end of August.

Arbios said it needs to either raise more money or enter into a relationship in order to fund the completion of clinical trials for Sepet, its out-of-body liver-assist device for blood purification of acutely ill patients suffering from chronic liver disease.

"We have spent the past several months seeking financing and strategic opportunities to maintain the momentum we have achieved towards the clinical validation and market approval of Sepet," Cain said in a statement. "Unfortunately, despite our recent accomplishments, in the current financial environment, we have not been able to obtain any funding."

The device is intended as a bridge-to-transplant for patients waiting for a new liver a list that is more than 17,000 names long. Sepet is a sterile, disposable cartridge containing microporous hollow fibers with permeability characteristics. When a patient's blood is passed through these fibers, blood plasma components of specific molecular weights are expressed through the micropores, thereby cleansing the blood of harmful impurities.

In May Arbios reported FDA approval of an investigational device exemption (IDE) to begin the pivotal clinical trial for Sepet. At that time, Cain said the trial was expected to support the company's filing for approval of the device in the U.S. and marketing efforts in the U.S. and Europe. He also said the design of the trial was expected to enhance physician acceptance of the device as a "much needed tool in sustaining patients through acute life threatening episodes of liver failure, a market which we believe exceeds a billion dollars annually."

ConforMIS launches bicompartmental iDuo

ConforMIS (Burlington, Massachusetts) is knee-deep in development of solutions aimed at less-invasive approaches to resolving the painful condition known as osteoarthritis. Its latest commercialized product, just launched in the U.S. after receipt of 510(k) approval by the FDA back in March 2006, is the iDuo, which the company terms "the first patient-specific bicompartmental knee resurfacing implant on the market."

The iDuo is designed for patients whose arthritic damage is limited to either the medial or lateral compartment of the knee, in addition to the patellofemoral compartment. ConforMIS says that 30% to 50% of patients who receive a total knee replacement (TKR) exhibit symptoms of osteoarthritis in just one or two of the three compartments of the knee.

Aimed at that market, the iDuo resurfaces only the affected areas, thus, according to the company, "preserving far more bone on both the femur and tibia than traditional knee replacement surgery."

The iDuo also preserves both the anterior and posterior cruciate ligaments, helping to maintain natural knee kinematics. The company said the extent of tissue preservation made possible with the iDuo "helps patients retain their future surgical options."

Each iDuo is designed from an individual patient's CT scan using the company's proprietary iFit technology and made specifically for that patient. The iDuo allows for individualized fit, including full coverage of the tibial cortical rim, and a simplified surgical technique.

"The move toward patient-specific approaches opens up possibilities for patients who were never ideal candidates for a total knee replacement," said Tom Minas, MD, director of the Cartilage Repair Center at Brigham and Women's Hospital (Boston). He was part of the surgeon design team for the iDuo. "As a surgeon," Minas said, "what has been especially intriguing for me is how much this approach has simplified and improved the surgical technique that can be employed for partial knee procedures."

Philipp Lang, MD, chairman/CEO of ConforMIS, said, "The iDuo significantly advances the range of treatment options for patients who suffer from knee osteoarthritis." Whereas a patient with bicompartmental disease traditionally has had TKR as the only option, he said that the iDuo "provides a less-invasive alternative for young and active patients that maintains their ability to move to a total knee in the future, if necessary."

Lang told Biomedical Business & Technology, "The fundamental challenge is that while you're trying to be bone-preserving, if you're doing any bone-cutting, you're limited in the amount of bone preservation you can achieve." He said that the iDuo surgical technique is "highly reproducible ... a fundamentally different approach to partial knee replacement. It will challenge the surgeon as to how they deal with knees, addressing the primary failure problems."

Lang added that ConforMIS has "basically married our system with a very reproducible technique. It wasn't even how we started out, but that's where development has taken us."

Jong Lee, senior VP of marketing for the company, said when asked by BB&T about surgeon response to the new system, "The doctors are pretty positive. For them, this is very novel. For the majority of docs to whom we're talking, the whole notion of bicompartmental implants is novel to them."

He added: "It looks innovative, it looks new, and it addresses one of the things that they worry about with unicompartmental, which is progression of disease to the patellar tendon region. So we have docs look at the iDuo and say, that's really interesting, that's something I'd like to know more about."

Noting that a number of surgeons are incorporating use of the iDuo system into their practices, Lee added: "The place where there has been the most 'wow' effect has been in the surgical technique and the way in which we do it with our jig system."

The iDuo comes packaged together with patient-specific instrumentation called iJigs, designed from the same scans as the implant, including data on the patient's biomechanical axis. ConforMIS says the iJig cutting and placement guides eliminate manual sizing during surgery and provide tactile guidance to precisely place the instruments, simplifying the surgical technique.

One tray of disposable iJigs replaces multiple trays of traditional instrumentation that would typically have cost a hospital several hundred dollars per surgery in instrument handling, storage, sterilization and lost operating room time.

FDA clears robotic assistant for hip surgery

Elsewhere in the orthopedic space, the FDA has cleared a robotic system that seems to follow the "practice makes perfect" school of thought. The DidiMatch Robodoc allows orthopedic surgeons to perform a hip replacement procedure virtually, using a 3-D bone image created from a CT scan of the patient's anatomy, before beginning the actual operation.

Robodoc (Sacramento, California), a Curexo Technology company, said it received 510(k) clearance for the system under the name of its predecessor, Integrated Surgical Systems (ISS; also Sacramento). The system is designed to reduce surgical fractures and complications and minimize human error.

"It's not just interesting, it's phenomenally interesting," Ramesh Trivedi, PhD, president/CEO of Robodoc, told BB&T.

According to the company, the Robodoc system delivers a "precise, repeatable surgical technique" to prepare the joint for hip replacement procedures. The process allows the surgeon to select an ideal implant from multiple implant manufacturers after reviewing a detailed CT scan of the patient's joint.

The robotic system includes two components: Orthodoc, a computer workstation equipped with software for 3-D preoperative surgical planning, and the Robodoc Surgical Assistant, a computer-controlled surgical robot used for precise cavity and surface preparation for hip and knee replacement surgeries. The system made medical history in 1992 as the first robot assisting in a human total hip replacement, the company noted.

Trivedi said the system is different from other robotic surgical systems in that the robot is actively involved in the operation. Other systems, such as the da Vinci system from Intuitive Surgical (Sunnyvale, California), are computer-assisted devices and the surgeon holds onto the robot arm like a joystick and is "driving" the operation. With the Robodoc system, the surgeon plans the operation, the plan is transferred to the robot, and once the surgeon makes the incision during the actual operation the robot proceeds with the rest of the surgery. That's why the company calls this system an "active robot," he said.

The main concerns the FDA had before clearing the device was whether or not it was safe, given the fact that it is computer-controlled, Trivedi said. "That is why it took us quite some time to go over FDA's concerns," he said.

Shelia Shah, a company spokeswoman, told BB&T that the Robodoc system is being used in other countries for knee procedures, as well as hip procedures, but that in the U.S. it is only cleared for use in hip surgeries. The company hopes the device will eventually be cleared in the U.S. for knee procedures as well as hip surgeries, she said.

The robotic assistant has been used in more than 24,000 joint replacement procedures worldwide, Robodoc said, and is shown to be less traumatic for patients and more precise than manual preparation techniques. In total hip surgery applications the Robodoc system executes exact bone cutting and precise implant placement to reduce surgical fractures and complications and minimize human error.

Zimmer suspends Durom sales to update labeling

Less-positive orthopedic news came from industry titan Zimmer Holdings (Warsaw, Indiana), which halted in late July U.S. sales of its Durom Acetabular Component more commonly known as the Durom Cup and lowered its earnings forecast. The company voluntarily suspended sales of the hip product after some U.S. surgeons reported problems.

Zimmer said it planned to update the implant's labeling to provide more detailed instructions to surgeons and to implement a surgical training program in the U.S. The company said the temporary move would result in a projected loss of $20 million to $30 million.

"Our first concern is patient safety and we could not delay our Durom announcement," David Dvorak, president/CEO of Zimmer, told investors during an earnings conference call that was moved up by one day to include the announcement on the Durom product. "Of course, our voluntary action with respect to the Durom Cup will have financial consequences, therefore accelerating the timing of our earnings release was necessary."

Dvorak said some surgeons in the U.S. have reported cup loosening and revisions of the acetabular component used in total hip replacement procedures. Zimmer said these results contrast with product experience in Europe, where post-marketing data continue to show "excellent clinical outcomes since the product launched in 2003." The Durom Cup was launched in the U.S. in mid-2006.

Zimmer indicated that the negative outcomes are technique-related and noted that roughly 1.5% revision rates were found among skilled surgeons compared to 5.7% among surgeons new to the device.

After reviewing clinical experience and product conformance to specifications in the U.S. and Europe, Zimmer said it has found no evidence of a defect in the materials, manufacture, or design of the implant. The company has identified that surgeons who regularly achieve the desired outcome with the Durom Cup consistently execute crucial technique steps and place the cup in a specific manner.

Following its review, Zimmer has determined that revised surgical technique instructions and a surgical training program are required to more consistently achieve desired clinical results in the U.S.

Versant closes $500 million fund

Versant Ventures (Menlo Park, California) has closed a $500 million fund early last month that it says will target roughly 30 to 35 medical device, biotech, and pharmaceutical investments throughout the U.S. The fund, Versant Venture Capital IV, will be focused on early-stage and seed opportunities. However, Versant said that a limited number may target later-stage companies as well.

"A lot of entrepreneurs think of funds of this size as being too large to do seed and early-stage investments, this fund size still allows us to do everything from the very small seed invest from a couple hundred thousand dollar seed just to get started all the way up through a much larger investment," Kevin Wasserstein, a managing director of Versant IV, told BB&T. "It still allows us to be able to do those things which we love, and we have been doing that all along."

Versant reports having more than $1.6 billion and 75 portfolio companies under management, spanning biotechnology, pharmaceuticals and medical devices.

"What we did historically is what we expect going forward in terms of the balance between medical device, biotech, and pharmaceutical companies ... close to half of the fund would be targeted toward medical devices," Wasserstein said.

The firm has more than 30 medical device investments, which cover 15 or more therapeutic areas, he said. The application areas include ophthalmology, diabetes, aesthetics and the spine.

If it's not the broadest medical device investment net by a fund, "It's right up there," Wasserstein said. "We definitely have investments almost from head to toe — literally — we're pretty broad in terms of our overall focus."

In addition to investing in seed-stage and early-stage companies, Versant is active in the companies it invests in, he added.

Brian Atwood, also a managing director of Versant IV, said, "We are proud to continue to partner with visionary entrepreneurs who are building companies that are transforming healthcare. An extraordinary number of unmet clinical needs remain in healthcare, and we look forward to continuing to be a springboard for these meaningful innovations."