After giving it the old college try to gain regulatory approval of its lead antibiotic – followed by an extensive process to evaluate its options – Replidyne (Louisville, Colorado) has agreed to merge in an all-stock deal with Cardiovascular Systems (CSI; St. Paul, Minnesota), a device company developing interventional systems for vascular disease.
Replidyne will issue new shares of its common stock to CSI shareholders. CSI shareholders are expected to own 83% of the combined company and Replidyne shareholders are expected to own 17%. The deal is expected to close in the first quarter of 2009.
David Martin, president/CEO of CSI, said the company expects about $35 million to $40 million in additional cash and investments from the merger.
"We're very excited about this transaction, it provides the critical capital for us to continue to grow our business, we will be able to achieve access to public financial markets during these difficult times, and certainly this gives Replidyne investors an attractive option before their investment," Martin told listeners during a Tuesday morning conference call.
For Replidyne, the decision to merge with CSI came after a rather lengthy process of evaluating strategic alternatives – a process that the company began after abandoning further clinical development of faropenem medoxomil, an oral, community antibiotic.
"Over the past several months we and our advisors have evaluated more than 120 life sciences companies," Kenneth Collins, president/CEO of Replidyne told call listeners yesterday. "We looked at biotechnology and pharmaceutical companies and medical technology companies including molecular diagnostic and device companies."
Collins said Replidyne didn't just evaluate its strategic alternatives in the context of a merger – the company also considered liquidation of Replidyne and operating on a reduced scale to develop its earlier stage anti-infective programs, he noted.
"Out of this process we believe we have identified an excellent opportunity for our shareholders to realize future returns and liquidity," Collins said.
In October 2006 Replidyne reported that the FDA had issued a non-approvable letter for its new drug application for faropenem. The company submitted the NDA in December 2005 for four adult indications: acute bacterial sinusitis (ABS), community-acquired pneumonia, acute exacerbation of chronic bronchitis (AECB) and uncomplicated skin and skin structure infections. The NDA was based on the results of eleven Phase III clinical trials for those indications and a safety database of more than 5,000 patients treated with the drug, the company said.
Collins said that the non-approval of faropenem "marked a change in the FDA requirements for community antibiotics. Previous non-superiority studies were adequate but the FDA now requires superiority trials for the important indications of" ABS and AECB. Replidyne said that historically the agency had not required superiority design studies such as placebo-controlled studies for approval for antibiotics. Last year Replidyne ended its partnership with Forest Laboratories for the commercialization of the drug.
But the biopharmaceutical company didn't give up easily; in March 2007 Replidyne reported a preliminary regulatory plan for the further Phase III development of faropenem, with the hopes that it could become the one of the first products to meet the FDA's new standards for community antibiotic development.
"Faropenem was our lead program and a significant component of our company valuation," Collins said. "These and other significant changes to the FDA approval process for these products as well as delays for the FDA issuing updated formal guidance increased the perceived execution risk, cost, and time for conducting studies ... with that determination we set about the process of exploring strategic alternatives for Replidyne and retained Morgan Stanley as our advisor."
Collins said Replidyne was "impressed by the strong launch" of CSI's Diamondback 360, the growth opportunity for treatment of peripheral arterial disease (PAD) with the device, particularly in calcified lesions, and "the quality of the management team driving the company."
Martin said CSI has devoted its resources since 1997 to developing the Diamondback 360. The atherectomy device is based on orbital technology, he said, for the treatment of PAD, which is caused by the accumulation of plaque in peripheral arteries (commonly the pelvis or leg), reducing blood flow. The plaque deposits range from soft to calcified, with calcified plaque being difficult to treat with traditional interventional procedures, according to CSI. The company said its device is capable of treating a broad range of plaque types both above- and below-the-knee, including calcified vessel lesions.
In August 2007 the FDA granted 510(k) clearance for the use of the Diamondback 360 as a therapy in patients with PAD. CSI introduced the product in the U.S. in September 2007 and began a full commercial launch in the first calendar quarter of 2008.
The Diamondback 360 uses the orbital rotation of a diamond grit coated offset crown that is attached to a flexible drive shaft. Physicians position the crown at the site of an arterial plaque lesion and remove the plaque by causing the crown to orbit against it, creating a smooth lumen, or channel, in the vessel, according to CSI.
In response to an investor question during yesterday's call regarding the current growth rate for the PAD market, Martin said CSI believes there is "way more opportunity" beyond the 15% a year rate that has been reported, considering there are up to 12 million patients in the U.S. with the disease. He added that CSI's ability to treat calcium in both below- and above-knee applications puts the company in the lead and "above that 15% overall generalization for the atherectomy category."
Upon consummation of the merger, Replidyne's name will be changed to Cardiovascular Systems and the combined company will apply for listing on the Nasdaq Global Market under a new trading symbol.
CSI had filed for an initial public offering in January but withdrew its registration statement for the IPO yesterday. "The current equity market conditions have resulted in the IPO market coming to a standstill. Given the uncertainty regarding timing of a market recovery, we believe that this transaction offers the best opportunity at this time for continued growth and for our company to gain access to the public capital markets," Martin said.
Citi acted as financial advisor to CSI, and Fredrikson & Byron served as CSI's legal counsel. Morgan Stanley acted as financial advisor to Replidyne, and Cooley Godward Kronish served as Replidyne's legal counsel.
In other dealmaking activity:
• Datascope (Montvale, New Jersey) said it has received a request for additional information, or a "second request," from the Federal Trade Commission, seeking additional information concerning Getinge's (Stockholm, Sweden) proposed acquisition of the company.
Getinge and Datascope said they remain committed to working cooperatively with the FTC as it conducts its review of the proposed acquisition and remain confident of a successful close to the transaction. Getinge's offer is conditioned upon, among other things, the expiration or termination of the waiting period under the HSR Act.
Datascope specializes in intra-aortic balloon counterpulsation and makes products for clinical healthcare markets in interventional cardiology, cardiovascular and vascular surgery and critical care.
• Precision Dynamics (PDC; San Fernando, California), said it has acquired TimeMed Labeling Systems (Burr Ridge, Illinois), a provider of specialty healthcare labels. PDC said it would now offer hospitals a full range of wristbands and specialty labels that interface directly with their laboratory, pharmacy and information technology systems to accurately identify and track patients, enhance communications between caregivers, and improve the safety of dispensing medications.
• Pediatrix Medical Group (Fort Lauderdale, Florida) said it has completed the acquisition of a neonatal physician practice in Hammond, Louisiana. The practice staffs the Level III neonatal intensive care unit (NICU) at North Oaks Medical Center, which has annual patient volume in excess of 3,500 patient days. Pediatrix paid cash for the practice and said it expects that it will contribute to the company's earnings immediately. No additional terms were disclosed.