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CardioTech buys again, as losses rise

By Mike McNulty, UT Akron BureauWilmington, Massachusetts-CardioTech International Inc., the polyurethane medical products company, is buying another company and expanding, despite growing losses.That’s because chief executive officer and president Michael Szycher isn’t afraid to take business risks, as long as they’re well-calculated. Last year, the polyurethane medical products company moved from its Woburn, Massachusetts, headquarters to a larger structure in Wilmington. It also nearly doubled the manufacturing space at its Catheter and Disposables Technology Inc. subsidiary.This year, CardioTech is acquiring another firm. In addition, it became a minority partner in a company that initially will sell bare stents in Europe and eventually will develop a urethane drug depot that can be applied to such bare stents. Stents are devices which can be used to widen blood vessels leading into or from the heart, helping improve blood flow and prevent cardiac difficulties.Szycher figures these various moves are not very risky. And they could result in big paybacks.However, through all the moves-even with growing sales-CardioTech has yet to show a profit. But that’s about to change, the executive said.”In July, August and September I think we’ll be operationally profitable,” he said. “We plan to be profitable even though we’ll be in Phase Two of our coronary bypass graft clinical trials in Brazil, which means we’ll expand from one hospital to 10. We have also sought approval from government bodies in Germany. And the tests cost a lot of money.”The coronary bypass graft, made with the firm’s patented polyurethane, is its most highly touted and unique product.”It is our opinion that the reason over 38 companies using silicone, non-biodegradable urethane, and other materials failed with their grafts is that we developed our own polyurethane which has the properties that make it the closest thing to an artery,” he said. “Silicone can’t be used because of tensile strength and it can tear.”Testing, R&D hit bottom lineClinical testing, research and development investments have been the key reasons for the firm’s losses.CardioTech’s revenues in the fiscal third quarter ended 31 Dec. came in at about $5.3 million, up slightly from sales of $5.1 million in last year’s quarter. The company had a loss of $652 000, compared to a loss of $557 000 last year. Included in the third quarter loss for 2004 is about $200 000 incurred in the start of coronary artery bypass graft clinical trials in Europe.CardioTech’s latest offer on the table, disclosed late last year, is to buy CarTika Medical Inc. – a medical device contract manufacturer that had more than $7 million in sales in 2004 – for about $6.6 million. The deal is subject to a variety of preconditions, including Securities and Exchange Commission approval. It’s expected to close in early June.Plymouth, Massachusetts-based CarTika specialises in injection moulding, pad printing, catheter assembly and thermoformed polymer products. It employs about 50 at its 1600-m2 plant, which features two Class 10,000 clean rooms.CardioTech also has agreed to form a joint venture with Implant Sciences. Called CorNova Inc., this firm will sell bare stents that feature a biocompatible and radiopaque metal nanocoating in the European Union by late summer. The stent will be sold with an advanced rapid-exchange catheter-delivery system in a ready-to-use kit.Meanwhile, CorNova is beginning to develop a drug-eluting version of the stent composed of ChronoFlex DES, a polyurethane synthesised by CardioTech and exclusively licensed to CorNova.Building on two frontsCardioTech has relied heavily on acquisitions to build its business since 2000 while it continued to develop its polyurethane-based coronary artery bypass graft, called CardioPass, and other urethane goods. The graft is undergoing clinical tests in Brazil and Europe.Founded in 1993 as a research and development subsidiary of PolyMedica Industries Inc. and spun off in 1996 to concentrate on biomaterials and implantable devices, CardioTech has made major inroads in the medical-device field since then.In the spring of 1996, it created a line of catheters and vascular products made from its ChronoFlex-brand TPU. In 1998 it unveiled a vascular access graft and a graft used on diabetics with lower leg problems caused by poor circulation.By 2000, the firm was set to grow and it made a flurry of key moves, in addition to the two expansions last year, including:* Purchasing specialty polyurethane maker Tyndale-Plains Hunter Ltd. for about $1 million in a cash-stock transaction in mid-2000. The deal gave CardioTech the rights to TPH’s hydrophilic PU, which primarily is used to provide permanent lubricity to the surfaces of medical devices, serve as drug-delivery systems or to improve blood compatibility.* Moving into the original equipment and contract manufacturing arenas in 2001, when it bought Catheter and Disposables Technology – which makes specialty products such as drug catheters, sensing balloons, diagnostic and therapeutic devices, and endoscopes – and the firm’s 1400-m2 Plymouth facility.* Selling a small plant it owned in Wales and the rights to two vascular grafts it developed.* Entering the market for wound- and burn-treatment products with a line of dressings in July 2002 and creating another line in January 2003.* Acquiring Gish Biomaterial Inc., a maker of devices used in open-heart surgery and vascular-access products, for about $7.6 million in the spring of 2003. The deal also included a 4800-m2 plant in Rancho Santa Margarita, California, which features an 800-m2, Class 10,000 clean room that CardioTech uses to make artificial arteries.The purchase of CarTika should brighten the firm’s earnings picture in the next fiscal year.”We’re buying the company because we’re after the same customers, but they do have customers we don’t have and we have some they don’t have,” Szycher said. “This makes us more vertically integrated in the contract product industry. This also gives us more machinery and more people.”CarTika is close to CDT in Plymouth, which should help both contract manufacturers, he said. The acquired company will probably operate in a similar fashion to CDT when it comes to its contract manufacturing business.”Typically a customer makes a request for any material, and in 60 percent of the cases we end up with something that is urethane or silicone,” Szycher said. Often the product is a catheter, he added.UT”



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