CardioVascular Plans Buyback

A little more than a year ago, tiny CardioVascular Dynamics Inc., struggling with too many products in development, moved to simplify its life.

The Irvine biomedical company spun off a new company to develop technology that uses radioactive drugs to treat vascular disease.

Now, CardioVascular Dynamics has reversed itself. It announced plans last week to buy back its offspring, Radiance Medical Systems, in a cash-and-stock deal that could cost more than $8 million.

“If we’d known a year ago what we know today, we wouldn’t have spun it off,” said Jeffrey O’Donnell, CardioVascular Dynamics’ chief executive.

Analyst Phillip Nalbone, of Volpe Brown Whelan in San Francisco, agreed that the parent company might have done better by keeping the kid at home. He said that fledgling CardioVascular doesn’t have millions of dollars to play with.

Still, company officials insist that the deal will put CardioVascular in a better position to reap financial benefits from the promising technology. CardioVascular hopes the move also will help revive the company’s stock, which has been trading around $3.50 a share, about one-third of its initial offering price two years ago.

Last year, CardioVascular Dynamics was floundering in the pursuit of so many technologies it couldn’t support them all, said Nalbone. Wall Street investors were looking for evidence that the company could control itself and produce results, he said.

So, it moved to transfer its technology for radioactive therapy to Radiance. The new company wanted to find a way to incorporate irradiated foil inside an inflatable plastic balloon used to treat clogged arteries.

At the time, Michael Henson, CardioVascular’s chairman, became Radiance’s chief executive. Henson stepped down as the parent company’s chief executive and was succeeded by O’Donnell.

Radiance picked up $2 million in new funding from venture capitalists. In addition, its parent invested $200,000 plus technology in Radiance. For that, the parent got a 30% stake, royalties on potential sales of the technology, and warrants to buy stock.

Since then, said CardioVascular Dynamics executives, things have changed.

Last summer, CardioVascular granted Indianapolis-based Guidant Corp. exclusive rights in the United States and Canada to market another technology used in treating clogged vessels. Guidant and the Irvine company also agreed to share marketing rights elsewhere.

In exchange, CardioVascular received a welcome source of cash from licensing royalties--and freedom to focus instead on Radiance technology.

What’s more, Henson said radioactive therapies are becoming one of the hottest opportunities in cardiology. Tests of Radiance’s own technology on dogs and pigs suggest it’s safe and possibly suitable for human trials. The company has patented its technology,

CardioVascular Dynamics said it paid $1.4 million to exercise its stock warrants, a step that boosted its 30% stake to 48%. It also announced plans last week to buy out the venture capitalists by paying $7 million in cash or stock--a move subject to approval of shareholders of both the parent and its offspring.

Henson, who remains the parent’s chairman, acknowledged that the buyback is costly. “Hindsight is terrific,” he said.

If the buyback is approved, CardioVascular Dynamics wants to push ahead with clinical trials of Radiance technology. Since the spinoff, Radiance’s payroll has grown to 10 employees from three. Officials hope they might have a product to sell in Europe in 2000.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Seeking Revival

Cardiovascular Dynamics Inc., looking to revive its sagging stock, is acquiring Radiance Medical Systems, a company it shed a little more than a year ago. Monthly closing stock prices for Cardiovascular Dynamics:

Monday close: $3.50

Source: Bloomberg News