CRY CryoLife Inc

Medical devices and tissue processing company CryoLife (CRY) and surgical items maker Cardiogenesis Corporation recently announced that their boards have approved a definitive agreement whereby CryoLife will acquire all outstanding shares of Cardiogenesis for $0.457 per share.  

The cash deal values Cardiogenesis at about $22 million, net of cash and liabilities. The price stands at a premium of 43% to Cardiogenesis’ closing price on March 28, 2011. The deal is expected in the form of a tender offer, prior to a merger, and to close sometime in mid-to-end May 2011. CryoLife will utilize cash in hand to finance the transaction.  

Cardiogenesis’ products are utilized for treating patients with refractory angina on account of diffuse coronary artery disease. The company had revenues of $11.3 million for the year ending December 31, 2010. Its prominent YAG laser system and one-time use fiber-optic delivery systems received approval from the Food and Drug Administration (“FDA”) for performing a surgical procedure called Transmyocardial Revascularization (“TMR”) on patients suffering from angina who are not responding to standard treatment.

Patients receiving TMR treatment with products manufactured by Cardiogenesis have demonstrated improvement in angina ailment, incident-free life span, lower heart ailment related hospitalization and enhanced ability to exercise. The TMR surgical procedures market is estimated to be worth about $175 million in the U.S. CryoLife opines that the delivery of biologic substances, for example stem cells, could grow the estimated market to over $700 million.

In addition, Cardiogenesis has produced the PHOENIX Combination Delivery System to intertwine the intramyocardial delivery of biologic materials with TMR. The gain from injecting biologics, such as stem cells, with TMR is greater reduction of angina and better functioning of the cardiac system. In addition, it is expected to improve the quality of life for victims of diffuse disease who are not eligible for surgical bypass.

The PHOENIX system has received CE Mark certification. Cryolife will launch it in select European countries in the second half of the current fiscal year and in other countries later in 2012.               

The products of both companies are designed to meet the needs of cardiovascular surgeons. The takeover of Cardiogenesis will swell Cryolife’s portfolio in a big way. Relying on its wide marketing network, Cryolife plans to increase its revenues from TMR in the low double-digits in the year subsequent to the takeover, excluding the beneficial impact of positive surprises such as successful clinical trial results.               

CryoLife is preparing itself depending on the percentage of shares rendered in the tender offer. After completion of the tender offer, the company plans to conclude the merger so that it can acquire all the remaining shares of Cardiogenesis at the same price.

CryoLife plans the tender offer, for the Cardiogenesis shares, to start around April 4, 2011 and to be open for a minimum of 20 official days. The officials of Cardiogenesis who control 2.7% of its voting shares have agreed to tender all of their shares following CryoLife’s request.   

Cryolife anticipates substantial benefits to accrue from its acquisition of Cardiogenesis. Firstly, Cardiogenesis is the leader in the treatment of refractory angina and the combined programs of the two companies will serve a range of conditions. Secondly, the two companies have complementary product lineups. Thirdly, the acquisition will almost double the size of CryoLife’s cardiac surgery specialist marketing force in the U.S.

Moreover, CryoLife’s international marketing force to provide a major impetus to overseas sales of Cardiogenesis products. Furthemore, the successful delivery of biologic substances allied with Cardiogenesis’ TMR devices will position Cryolife as a leader in treating chronic myocardial ischemia.

Should the transaction conclude in May 2011, CryoLife expects sales from the Cardiogenesis produce line to be about $4 million to $5 million during 2011, primarily from the disposable handpiece and service lines.

The company also expects the transaction to be accretive to its sales growth and gross margin and to be either breakeven or mildly accretive to diluted earnings (adjusted for acquisition and integration charges) per share in 2011. The deal is subject to standard closing clauses and regulatory green light.         

CryoLife is a leader in processing and distribution of implantable human tissues for use in cardiac and vascular surgeries across the U.S. and Canada. Among other products, the company’s CryoValve SG pulmonary heart valve, based on its proprietary SynerGraft know how, received FDA 510(k) clearance for replacement of defective natural or prosthetic pulmonary valves.  The company competes, in certain niches, with St. Jude Medical (STJ) and Edwards Lifesciences Corp. (EW).

 
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