Birtcher Medical Seeks to Acquire Argon Gas Competitor

Birtcher Medical Systems Inc. plans to purchase a Colorado competitor in the hopes of capturing a market that has been the focus of a court battle for more than a year.

Beacon Laboratories Inc., which lost a lawsuit to Birtcher last year regarding competing blood-clotting surgical devices, would be acquired in a stock swap of about 475,000 shares of Birtcher convertible preferred stock. The value of the stock, as of Tuesday, was $2.6 million. The value would change, however, depending on when the preferred stocks were exchanged for common stock.

The deal, which still needs approval by Beacon Laboratories shareholders, would close by next month, Birtcher Chief Executive William E. Maya said.

“This gives us the opportunity to circle the wagons in argon gas technology,” Maya said.

Maya was referring to the recent development of the argon gas coagulator, a device that stops blood flow during bloodless surgery. The device works by emitting a stream of ionized argon gas.

The process has been hotly debated in court by Birtcher, Beacon Laboratories and Valleylab Inc. of Boulder, Colo., all of which developed similar argon gas devices.

Birtcher has come out on top of the patent-infringement issue. A jury early last year found Beacon Laboratories’ patent to infringe against Birtcher’s 1987 patent for its brand of argon gas coagulator.

And late last year, Valleylab, a subsidiary of Pfizer Inc., settled its own patent-infringement suit against Birtcher, agreeing to pay the Irvine-based company $2.5 million plus a 5% annual royalty on all of Valleylab’s worldwide sales of gas-related products until 2005.

Maya said the agreement to purchase tiny Beacon Laboratories, which has annual revenue of about $2 million, gives the company added patent protections as well as additional product lines and distribution agreements.

Beacon Laboratories’ shareholders, who are to vote on the merger at an annual meeting March 1, are expected to approve the buyout.

Maya said his company began considering the buyout several months ago. “As time went by, it became more sensible,” Maya said.

The acquisition was praised by at least one analyst, who said it is another sign that Birtcher may be pulling out of its financial doldrums. The company recently reported an $892,000 quarterly loss, blaming sluggish sales and hang-ups with several FDA approvals. Most of the FDA approvals have finally come through, Maya said.

And with the additional product line offered by Beacon Laboratories, the company may see rosier times ahead, said John J. Girton, an analyst with San Francisco-based brokerage, Van Kasper & Co.

“I’m pretty excited about it,” Girton said. And with Valleylab losing its own patent claim with Birtcher, “it looks like they are the only game in town now.”

Birtcher stock closed Tuesday unchanged from Friday at $5.50 a share on the NASDAQ market.