Medical Device Daily

Orthovita (Malvern, Pennsylvania) yesterday reported a $32.5 million equity offering, one of the largest the company has seen. The company says the offering will put it in a better position to commercially develop Cortoss, its bone augmentation product and main revenue generator.

The company said it expects to offer about 12.3 million shares of common stock, with the share price based on a 15% discount to the 30-day volume weighted average price of the company’s common stock immediately prior to the date of the definitive offering documents.

The company expects to receive about $32.2 million in net proceeds.

Additionally, it also reported receiving $45 million in senior secured note facilities in a separate transaction.

Orthovita said the net proceeds of the equity offering will be used for product development, sales force expansion and other general corporate purposes.

One of the key products that funds will be used to develop is Cortoss, a bone augmentation device that targets vertebral compression fractures. The company reported earlier this year that it completed enrollment for its prospective, randomized study of the product (Medical Device Daily , Feb. 23, 2007).

“This very significant financing, involving some of the leading investors in the life sciences industry, positions Orthovita to complete the commercial development effort for our product candidate Cortoss and to maximize the long-term sales opportunities tied to our currently marketed products Vitoss and Vitagel,” said Antony Koblish, president/CEO of Orthovita. He said the investment “validates the continuing strength of our product line and the promising progress in our efforts to develop and commercialize innovative new products for spine, orthopedic and biosurgery fields in the years ahead.”

Essex Woodlands Health Ventures is the lead investor in the offering and will appoint a member to the Orthovita board.

Lehman Brothers, Magnetar Capital, and affiliates of William Harris Investors, existing shareholders are the other investors in the offering.

In a separate transaction, Orthovita said it is repurchasing from a securitization vehicle arranged by Paul Capital Healthcare.

The company entered into the revenue interest agreement with Paul Capital Healthcare in October 2001 to fund clinical development and marketing programs for its products. The terms of the 2001 agreement applied to sales of certain products in North America and Europe through 2016, and the revenue interest obligation will terminate upon the closing of the repurchase transaction.

The repurchase price for the revenue interest obligation consists of a payment of $20 million in cash and about 1.14 million unregistered shares of the company’s common stock.

The company said that Paul Capital has indicated that it expects to continue to maintain its existing equity position in Orthovita as part of its long-term commitment to the company.

The company also reported that it has entered into a $45 million senior secured note purchase facility with LBI Group, an affiliate of Lehman Brothers.

Notes issued under the facility will bear annual interest at 10% and will be due in 2012. The company said initially it will issue $25 million of its 10% senior secured notes due 2012 under the facility.

Proceeds from the initial $25 million principal amount note issuance will be used to pay to the Paul Capital Healthcare securitization vehicle the $20 million cash portion of the revenue interest obligation repurchase price and pay off about $2 million of outstanding indebtedness.

The company said it will use the remaining proceeds to fund continued expansion of manufacturing capacity to meet the demand for Orthovita products.

“With a $32.5 million equity transaction, a $45 million debt facility, and the termination of our revenue interest obligation, Orthovita will have in place an unprecedented level of financial resources to maximize the growth potential of our product line and our existing pipeline. Upon the closing of these transactions, we will be well positioned to complete all elements of our current strategy,” said Albert Pavucek Jr, CFO of Orthovita.

In other financing activity:

Implantable lens maker eyeonics (Aliso Viejo, California) has registered with the Securities and Exchange Commission for an initial public offering of common stock. The company did not disclose the number of shares or the estimated price range of the offering but indicated the offering price could total up to $86.3 million.

eyeonics makes implantable lenses that replace the natural lens in the human eye, typically as a result of cataracts. The company launched its first lens, crystalens AT-45, in January 2004; its second generation lens, crystalens AT-45 SE, in August 2005; and its current product, crystalens Five-O, in November 2006. Eyeonics said it is currently conducting clinical trials on a fourth-generation lens.

The crystalens technology is designed to allow the lens to move in the eye in a manner similar to the natural lens. By using the eye’s muscle to move the lens backwards and forwards naturally, patients can focus through a continuous range of vision including near, far and intermediate vision.

Among the risks cited in its SEC filing, the company said that the safety and effectiveness of crystalens “has not been evaluated in patients under the age of 50 and there is limited clinical data surrounding its long-term stability in the human eye. Clinical trials indicate that patients receiving crystalens may have rare occurrences of certain adverse events that could cause permanent vision problems and may require secondary surgical reintervention.”

It said that the rate of adverse events “is comparable to or lower than the rate associated with the control population of standard monofocal IOLs. The possibility of unfavorable side effects, and any resultant adverse publicity, could deter ophthalmologists from using crystalens, which may significantly diminish our revenues and harm our business.”

eyeonics said it will use the net proceeds of the offering to establish an international sales and marketing organization and to expand its existing U.S. sales and marketing force. The proceeds will also be used for R&D, including clinical trials and regulatory compliance, and for working capital and general corporate purposes.

In 2006, eyeonics’ losses widened to $8.4 million, from $5.4 million in the prior year. The company’s full-year revenue rose 6% to $17.1 million, from $16.1 million in 2005.