HeartWare International (NSDQ:HTWR) CEO Doug Godshall told MassDevice.com today that he’s had his eye on CircuLite, which HeartWare acquired in a deal that could be worth as much as $350 million, for about 6 years.
"We started looking at CircuLite in early 2007, when they first hit our radar screen. At the time, I think we probably had a market capitalization of $100 million, so it was not a very viable option. And we’ve been tracking them ever since, frankly," Godshall told us. HeartWare’s market cap today is nearly $1.6 billion.
"Really at the tail end of last year, when they got approval in Europe and were ready to start their U.S. trial, it began to look like something that had enough risk taken out of it, with substantial upside remaining, that it struck us that we should take it much more seriously. It was really earlier this year that we came to the conclusion that it was possible to get something done and that e should try to do so," he said.
Framingham, Mass.-based HeartWare paid $12 million in cash to settle CircuLite’s outstanding debt and issued another $18 million worth of HTWR shares to consummate the deal, which closed Dec. 1.
The deal also includes provisions for a series of milestone payments pegged to regulatory and sales goals, including the resumption of sales of the Synergy device in the European Union. CircuLite warned last summer that the inflow cannula on the Synergy pump can fracture.
Godshall said CircuLite is well on its way to fixing the problem and hopes to have the Synergy device back on the market early next year.
"Earlier this year they experienced some issues with their cannula, not the pump itself, that led to them putting a halt on shipping to modify the design of the cannula. It’s not a very radical redesign at this juncture. They’re in the midst of testing that modified design now, and it looks quite promising. Their expectation, at least prior to today, was that they’d be filing with regulators in the 1st quarter of next year," Godshall explained. "We haven’t seen anything in our due diligence that suggests it would have to be longer than that. So it’s really a question of how long it takes the European regulatory authorities to bless the redesign."
One of the main attractions in the deal was the complementary nature of CircuLite’s pumps to the HeartWare portfolio, he added. In addition to the AA battery-sized Synergy pump, which is surgically placed in a subcutaneous pocket under the right collarbone, CircuLite is developing a pump designed to be delivered endovascularly.
"CircuLite is clearly a very different patient population and highly complementary to our own internal portfolio, versus a next generation within our own current market. I’m much more interested in developing technology that can replace ourselves within our market, and if somebody has a better idea than us in a new market that can broaden our business and patient access, then that’s appreciably more interesting to me," Godshall said. "We’re delighted that we found ourselves in the position that we could find such a unique, high-value asset in a price range that looks like it leaves a ton of reward and upside for our shareholders."
HeartWare said it will issue $20 million worth of stock once the Synergy pump is back on the market in the EU. Another $75 million cash or stock payment is due after CE Mark approval of an interventional system (the current CE Mark is for ambulatory heart patients who haven’t responded to standard treatment).
A cash or stock payment of $50 million is due when the interventional system wins pre-market approval from the FDA. Once annual sales of the Synergy device reach $30 million, HeartWare said it will put down another $15 million cash or stock payment. A 5th, $85 million cash or stock deposit is due after annual sales reach $250 million. And there’s another $75 million on the line in further milestones pegged to sales.
