Exclusive: Pathway Medical Technologies To Be Acquired by Bayer’s Medrad Unit for $125M

8/19/11Follow @xconomy

[Update:8:25 am PT] Pathway Medical Technologies, the Kirkland, WA-based maker of a device that clears out blood vessel blockages in the legs, has agreed to be acquired for $125 million by Medrad, a Warrendale, PA-based medical device unit of Bayer Healthcare, Xconomy has learned.

The acquisition hasn’t yet been announced by either company, and the deal is still pending, awaiting final regulatory and shareholder approval, sources say. The deal also includes a bonus pool of $6.3 million to retain certain members of Pathway’s senior management team after the deal closes, according to a merger document reviewed by Xconomy.

Pathway CEO Paul Buckman declined to comment about the deal, as did chairman Tom Clement and director David Auth, when reached by e-mail. [Updated comment from Medrad.] Medrad spokeswoman Alicia Cafardi said “this transaction is pending and we cannot provide detail or comment at this time.”

The deal appears to offer up a mixed bag of returns, depending on your point of view. All of the buyout returns will go to the Series D-2 preferred stockholders, while the holders of other classes of stock will not get any returns, according to the merger document. Pathway raised its Series D financing, worth $42.5 million in May 2009, from Forbion Capital Partners, Giza Venture Capital, HLM Venture Partners, Latterell Venture Partners, Oxford Bioscience Partners, WRF Capital, and individual investors. The company, according to the most recent tally Buckman offered in a June interview, had raised a total of about $130 million since its founding in 1998—meaning that a $125 million purchase price by definition doesn’t offer much of a return for the total investment.

Tom Clement, Pathway Medical founder and chairman

Still, Pathway has been one of the bigger success stories of the Seattle medical device cluster of the past decade. The company, founded by Clement, originally intended to drill out plaque and clot buildups in vessels around the heart. But as the cardiology market showed a clear preference for stents, the tiny mesh devices that prop open clogged arteries, Pathway briefly shut down in late 2004 and early 2005. Clement went back to the drawing board to reinvent the device, and raise more money, to go after a more promising market niche of blockages in leg vessels—what’s known medically as peripheral artery disease. That new opportunity was attractive for a couple reasons. About 2 million Americans are estimated to seek treatment every year for this condition, which causes leg pain when people walk. And stents don’t work well in the legs, because they have a tendency to twist and break.

Pathway’s current device, marketed under the trade name Jetstream, uses a tiny stainless-steel drill mounted on a catheter that slides inside clogged leg arteries, where it cuts through and vacuums out hard plaque blockages and squishier clot-like substances.

Pathway persevered through its lean times, and got its first device cleared for sale by the FDA in the summer of 2008. It showed some promising early signs in the market, signing up more than 100 physician customers in the first few months, and getting them to use it … Next Page »

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