WorldHeart (Oakland, California), unveiled plans Tuesday to significantly restructure the company — reducing its workforce by half — to control spending and focus its operations on developing its next-generation rotary ventricular assist device (VAD).

The company hosted a teleconference Tuesday about the restructuring and also reported that it expects to receive $14.1 million in new financing through a private placement transaction from several existing investors, some new investors, as well as members of the company’s management team.

“The financing and the significant restructuring plan are expected to fund our operations through the start of our U.S. clinical trials and on into [2Q08],” Jal Jassawalla, president/CEO of WorldHeart, said during the teleconference.

Jassawalla said WorldHeart expects to complete the $14.1 million transaction in two stages, with the first stage closing with about $2.8 million sometime this week and the second closing with about $11.3 million in December after shareholder approval at the company’s annual meeting.

The restructuring will include a reduction in WorldHeart’s workforce by 50-55 people, about 50% of its total employees, primarily at the Oakland, California and Heesch, the Netherlands locations. WorldHeart expects to incur initial restructuring expenses of about $700,000, primarily severance-related charges, in the 4Q06. Additional restructuring charges may be incurred and will be reported when available, the company said.

Richard Juelis, vice president, finance and chief financial officer for WorldHeart, told teleconference listeners the company has seen a shift in demand away from first-generation VAD products to next-generation VAD products, which has resulted in a decline in sales of its first-generation Novacor LVAS.

Juelis said the company drew in $1.4 million in 3Q06 revenues compared to $2.2 million for 3Q05, and year to date revenue at nine months was $7.7 million compared with $8 million in 2005.

As a consequence, WorldHeart will reduce manufacturing, selling and administrative costs primarily associated with the Novacor LVAS, although the company plans to continue to support the product.

These initiatives are designed to enable WorldHeart to focus its resources on preparing and qualifying the next-generation Levacor rotary VAD for clinical trials in the U.S., which are expected to begin in the second half of 2007, Jassawalla said.

“We see growing interest by cardiologists and surgeons in the field to its next-generation field,” Jassawalla said. “To address this need we have financing in place and we have a plan in place.”

In a company statement, Jassawalla said the restructuring will put the company in a favorable position to address the growing market for next-generation devices. He also said WorldHeart believes the trend in the industry toward next-generation technology is positive for the industry overall and for the company.

“We expect to capture a significant share of this emerging market by putting all of the technical, regulatory and clinical experience we gained with the Novacor LVAS toward the development of the Levacor rotary VAD,” Jassawalla said. “Furthermore, the subsequent expected development of the Novacor II pulsatile VAD, the next device in our pipeline, will give WorldHeart potentially, the broadest product platform in this field.”

The Levacor is a fourth-generation rotary VAD. It is the only bearingless, fully magnetically levitated implantable centrifugal rotary pump in clinical trials, according to WorldHeart. An advanced, continuous-flow pump, the Levacor uses magnetic levitation to fully suspend the spinning rotor, its only moving part, inside a compact housing, the company said.

The purchase agreement WorldHeart entered into Monday for the private placement financing includes existing investors Maverick Ventures Management, Special Situations Fund, and Medical Strategy (on behalf of Medical BioHealth-Trends), and new investors, such as Greenway Capital.

“This financing will enable WorldHeart to focus its energies exclusively on the final development, evaluation and eventual commercialization of our next-generation Levacor rotary VAD,” Jassawalla said. “We expect to initiate clinical use of the Levacor in Canada in the near-term and start a U.S. feasibility trial in the latter half of 2007. Thus far, we have been very pleased with the performance of the Levacor in the first two patients in our European feasibility trial. As a result, we have seen strong worldwide interest from leading clinical centers wishing to participate in clinical trials of our fourth-generation, fully magnetically levitated, bearingless, centrifugal pump.”

Over the next year, Jassawalla said, WorldHeart will seek to monetize certain assets and to form strategic partnerships and alliances of other players in the cardiovascular field to increase financial flexibility.

In July WorldHeart reported that the first patient implanted with its VAD was discharged from the hospital after the VAD was explanted, having recovered sufficient cardiac function to restore him to a good quality of life (Medical Device Daily, July 5, 2006). Since then, a second patient has been successfully implanted with the rotary VAD and continues to recover.

In other financing news, Zila (Phoenix), a cancer diagnostic company initially focused on oral cancer, reported the execution of definitive agreements for a private placement of $40 million in common stock, convertible debt instruments and warrants to selected accredited investors. Existing Zila shareholders and their related funds will make up more than 80% of the private placement, the company said. The proceeds will be used to complete an acquisition and to augment existing working capital. When exercised, the warrants associated with the placement will generate an additional $23 million for the company.

“This financing is a critical step toward transforming Zila into the dominant company in the early detection of oral cancer,” said Douglas Burkett, PhD, chairman, and president/CEO of Zila. “The proceeds will enable us to complete our planned acquisition of a dental products company on or about Nov. 28, while providing us a strong balance sheet to complete the OraTest regulatory effort and grow our ViziLite Plus business. I am appreciative of the strong participation by many of our existing institutional shareholders as well as the support of new investors.”

The unnamed acquisition target would give Zila a national sales and marketing organization that has a small suite of high-margin dental products that would complement Zila’s cancer screening and detection products. The target generates about $35 million in annual revenue and is profitable. Zila expects to acquire the company for $34 million.