CryoLife acquires Cardiogenesis

May 17 2011

CryoLife, Inc. (NYSE: CRY), an implantable biological medical device and cardiovascular tissue processing company, today announced that it has successfully completed its acquisition of Cardiogenesis Corporation ("Cardiogenesis").

The acquisition of Cardiogenesis adds to the company's portfolio a leading surgical product used in the treatment of diffuse coronary artery disease and severe angina.  Cardiogenesis had sales of approximately $11 million in 2010 and approximately $3.1 million in the first quarter of 2011.

Cardiogenesis' market leading YAG laser system and single use, fiber-optic delivery systems are FDA approved for performing a surgical procedure known as Transmyocardial Revascularization (TMR), which treats patients with angina that is not responsive to standard medications.  Patients undergoing TMR treatment with Cardiogenesis products have been shown to have angina improvement, longer event-free survival, reduction in cardiac related hospitalizations, and increased exercise tolerance.  The current market potential for TMR surgical procedures in the U.S. is estimated to be greater than $175 million.  CryoLife believes that the delivery of biologic materials, such as stem cells, in conjunction with TMR could increase the estimated U.S. market potential to greater than $700 million.

Cardiogenesis has also developed the PHOENIX™ Combination Delivery System, which is designed to combine the intramyocardial delivery of biologic materials with TMR.  The synergy of injecting biologics, such as stem cells or growth factors, with TMR may provide greater angina reduction, improve cardiac function and enhance quality of life in patients with diffuse disease who are not candidates for surgical bypass or intervention.  The PHOENIX System has received a CE Mark and CryoLife intends to begin commercialization efforts in select European markets in the second half of 2011, with a more extensive launch expected in 2012.

"We believe the acquisition of Cardiogenesis is highly complementary to our business," said Steven G. Anderson, Chairman, President and Chief Executive Officer of CryoLife.  "The addition of Cardiogenesis' strong core business and innovative product pipeline will position CryoLife as the leader in surgical products used to treat patients with severe angina and will help expand our product portfolio for cardiac surgery."

At a special meeting of Cardiogenesis shareholders held on Monday, May 16, 2011, shareholders of Cardiogenesis approved the merger of Cardiogenesis with CL Falcon, Inc., a wholly-owned subsidiary of CryoLife.  Pursuant to the agreement and plan of merger and reorganization ("Merger Agreement"), CL Falcon, Inc. merged with and into Cardiogenesis pursuant to a long-form merger completed using the procedures available under California law.  Cardiogenesis subsequently merged within and into CryoLife Acquisition Corporation, a wholly-owned subsidiary of CryoLife.

The consideration in the merger was $0.457 per share, less applicable withholdings.  This was the same consideration CryoLife paid for the 23,221,166 shares of Cardiogenesis that it acquired pursuant to a tender offer that expired at midnight on May 2, 2011 at the end of the day.  Following the merger, shares of Cardiogenesis common stock ceased to be traded on the OTCQB market.

Strategic and Financial Benefits

The acquisition of Cardiogenesis is highly complementary to CryoLife's business and enables CryoLife to extend its product offerings and reach.

• Clear TMR leader:  Cardiogenesis is the market share leader in TMR to treat refractory angina; CryoLife now has programs across valve replacement surgery, reconstructive cardiac surgery, TMR to treat refractory angina, and surgical sealants and hemostatic agents to prevent and control bleeding.
• Complementary programs: Cardiogenesis' experience with TMR products and relationships with leading cardiac surgery programs are a strong complement to CryoLife's valve replacement and reconstructive cardiac surgery franchise.
• Increased direct selling organization:  The assimilation of Cardiogenesis' direct sales representatives will nearly double CryoLife's cardiac surgery specialist sales force in the U.S.  Once fully cross-trained, CryoLife and Cardiogenesis representatives will be able to promote the full range of both companies' cardiac surgery products and services.
• International growth:  CryoLife's global presence can further strengthen and enhance Cardiogenesis' international growth.  Cardiogenesis currently does not have a presence in international markets.  CryoLife's international sales and marketing network, which reaches into approximately 70 countries, can accelerate Cardiogenesis' growth more rapidly in key international markets.
• Large market potential: The successful delivery of biologic materials, such as stem cells, in conjunction with Cardiogenesis' TMR devices would make CryoLife a leading participant in the treatment of chronic myocardial ischemia.  Cardiogenesis has been in discussions with the Food and Drug Administration (FDA) regarding initiating a randomized, prospective clinical trial to evaluate TMR in conjunction with bone marrow derived stem cell therapy to treat patients with severe refractory angina.  

2011 Financial Guidance

With the completion of the Cardiogenesis merger, the Company now expects total revenues for the full year of 2011 to be between $122.0 million and $125.0 million, including revenues from the Cardiogenesis product line to be between $4.0 million and $5.0 million, which primarily reflects disposable hand piece and service revenues.

The Company expects to incur transaction and integration expenses related to the acquisition of Cardiogenesis, which include the increase to cost of goods sold related to the step up in inventory values required under purchase accounting, and other business development charges of between approximately $0.07 and $0.09 per share for the full year of 2011, which includes $0.03 per share incurred in the first quarter of 2011.

The Company plans to provide a more comprehensive update of 2011 guidance in its second quarter financial conference call, expected to occur in late July 2011.

SOURCE CryoLife, Inc.