Kyphon Signs Definitive Agreement to Acquire St. Francis Medical Technologies
December 04 2006 - 6:38AM
PR Newswire (US)
Acquisition Establishes New, Complementary Growth Platform in
Rapidly Growing Minimally Invasive Spine Market SUNNYVALE, Calif.,
Dec. 4 /PRNewswire-FirstCall/ -- Kyphon Inc. (NASDAQ:KYPH),
announced today that it has signed a definitive agreement to
acquire St. Francis Medical Technologies, Inc. ("St. Francis"), a
privately held, California-based company that manufactures the X
STOP(R) Interspinous Process Decompression (IPD(R)) System, the
first FDA-approved interspinous process device for treating lumbar
spinal stenosis. The transaction broadens Kyphon's focus in
minimally invasive spine by adding the X STOP(R) technology
platform to its existing KyphX(R) balloon kyphoplasty technologies
for repairing vertebral compression fractures and its recently
launched Functional Anaesthetic Discography(TM) procedure for
diagnosing the source of low back pain. Under the terms of the
agreement, Kyphon will acquire 100% of the fully diluted equity of
St. Francis for $525 million in upfront cash payable upon closing,
plus additional revenue-based contingent payments of up to $200
million payable in either cash or a combination of cash and stock,
at Kyphon's election. Any contingent payments will be made no
earlier than 2008. Kyphon's agreement with St. Francis is subject
to governmental regulatory review and other customary closing
conditions. Until receipt of regulatory approval, the acquisition
will not be able to close, although Kyphon presently anticipates
that closing may occur in the first quarter of 2007. Upon closing,
Kyphon expects to incur an estimated one-time, pre-tax charge of
approximately $35 to $50 million for in-process research and
development (IPR&D). Although the company has not finalized the
purchase price allocation and thus cannot yet assess the exact
impact on 2007 GAAP earnings, Kyphon anticipates that the
transaction will be significantly dilutive to 2007 GAAP earnings
due to the expected level of transaction- related intangible
amortization and the fact that the IPR&D charge will not be
tax-deductible. Excluding the impact of the non-cash IPR&D
charge, Kyphon expects this acquisition to be approximately $0.15
to $0.20 dilutive to pro forma, non-GAAP earnings per share in 2007
due primarily to the amortization of intangibles resulting from
this transaction. Excluding both the non-cash IPR&D charge and
the non-cash amortization of intangibles, the company anticipates
the transaction to be neutral to $0.10 accretive to pro forma,
non-GAAP earnings per share in 2007. In 2008 and thereafter, Kyphon
anticipates the transaction will be significantly accretive to GAAP
earnings per share. Kyphon will finance the upfront payment due
upon closing through a combination of cash on hand and bank
financing, including a syndicated term loan and credit facility.
Depending on market conditions, the company may access the equity
or equity-linked markets in 2007 to retire some portion of the
debt. "This acquisition directly supports our stated strategy of
bringing minimally invasive spine therapies to our markets and adds
an innovative new product platform to benefit the large number of
patients suffering from lumbar spinal stenosis," said Richard Mott,
president and chief executive officer of Kyphon. "We have been
impressed with the progress St. Francis has made over the past
several years in developing its X STOP(R) technology and with the
strength and breadth of the associated intellectual property
portfolio it built to protect its innovations. This acquisition
will leverage the strong distribution capabilities of our direct
sales organization and provide another growth engine for delivering
enhanced value to our shareholders," Mott concluded. "Both Kyphon
and St. Francis share a common commitment to technological
innovation through minimally invasive products and procedures to
address debilitating spinal diseases," said Kevin Sidow, president
and chief executive officer of St. Francis. "In building its
balloon kyphoplasty franchise, Kyphon has established relationships
with thousands of spine specialists through its large direct sales
force and clinical education programs. Kyphon is the ideal partner
to maximize the potential of our X STOP(R) system and accelerate
adoption of this important technology." Advisors In connection with
the transaction, Banc of America Securities LLC is acting as
financial advisor, and Latham & Watkins LLP is legal counsel,
to Kyphon. J.P. Morgan Securities Inc. is acting as financial
advisor, and Wilson Sonsini Goodrich & Rosati LLP is legal
counsel, to St. Francis. Conference Call and Webcast Kyphon
management will host a conference call to discuss the acquisition
of St. Francis Medical Technologies, Inc. today, Monday, December
4, 2006 at 5:30 a.m. Pacific Time (8:30 a.m. Eastern Time).
Interested parties may access the call by dialing 1-888-732-6202
(U.S.) or 1-719-457-1017 (International) and entering code 324322.
A live webcast of the call will also be available from the Investor
Relations section of the company's corporate Web site at
http://www.kyphon.com/. The call will be archived on this site for
a minimum of two months. An audio replay of the call will also be
available beginning from 7:30 a.m. Pacific Time on Monday, December
4, 2006, until 12:00 a.m. Pacific Time on January 4, 2007. To
access the replay, dial 1-888-348-4629 (U.S.) or 1-719-884-8882
(International) and enter access code 324322. About Kyphon Inc.
Kyphon develops and markets medical devices designed to restore
spinal function and diagnose low back pain using minimally invasive
technologies. The company's products are used in balloon
kyphoplasty for the treatment of spinal fractures caused by
osteoporosis or cancer, and in the Functional Anaesthetic
Discography procedure for diagnosing low back pain due to
degenerative disc disease. More information about the company and
its products can be found at http://www.kyphon.com/ and its patient
education Web site, http://www.spinalfracture.com/. Functional
Anaesthetic Discography is a trademark, and Kyphon and KyphX are
registered trademarks, of Kyphon Inc. About St. Francis Medical
Technologies, Inc. St. Francis Medical Technologies is a privately
held medical device company based in Alameda, California focused on
the design, development and marketing of technologies and
procedures for orthopaedic and neurological spine surgery. The X
STOP(R) technology is the company's initial product line. For more
information, please visit: http://www.sfmt.com/ . X STOP(R),
X-STOP(R), XSTOP(R), IPD(R), and ST. FRANCIS MEDICAL
TECHNOLOGIES(R) are trademarks of St. Francis Medical Technologies,
Inc. This press release contains forward-looking statements within
the meaning of the U.S. Private Securities Litigation Reform Act of
1995. Forward looking statements include, but are not limited to,
those that use words such as "believes," "expects," "anticipates,"
"targets," "intends," "plans," "projects," and words of similar
effect, and specifically include the company's future financial
projections and anticipated business direction and performance.
Forward-looking statements are based on management's current
preliminary expectations without taking into account any possible
impact from any other future business development transaction and
are subject to risks, uncertainties and assumptions, which may
cause the company's actual results to differ materially from the
statements contained herein. Material factors that may cause
results to differ from the statements made include unexpected
delays in obtaining regulatory approvals for the transaction;
delays in completing the transaction, and the risk that the
transaction may not be completed at all; the significant amount of
debt that Kyphon will incur in connection with the transaction,
including the restrictions that debt covenants will impose on its
future operations and the risk that Kyphon may default on repayment
of the debt; failure to achieve the revenues, cost savings, growth
prospects and any or other synergies expected from the proposed
transaction; the combined company may require additional capital
and may not be able to raise sufficient capital, on favorable terms
or at all; and delays and challenges associated with integrating
the companies, including employees and operations, after the
transaction is completed. Other information on potential risk
factors that could affect Kyphon, its business and its financial
results are detailed in the company's periodic filings with the
Securities and Exchange Commission (SEC), including, but not
limited to, those risks and uncertainties listed in the section
entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Factors Affecting Future
Operating Results," which can be found in Kyphon's annual report on
Form 10-K for the year ended December 31, 2005 filed with the SEC
on March 3, 2006 and in Kyphon's quarterly report on Form 10-Q for
the quarter ended September 30, 2006 filed with the SEC on November
9, 2006. Kyphon undertakes no obligation to release publicly any
revisions to any forward-looking statements contained herein to
reflect events or circumstances after the date hereof. DATASOURCE:
Kyphon Inc. CONTACT: Investors and Media, Julie D. Tracy, Vice
President, Investor Relations and Corporate Marketing of Kyphon
Inc., +1-408-548-6500, or Web site: http://www.sfmt.com/ Web site:
http://www.kyphon.com/
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