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BIRTCHER TO GAIN SEVEN ARGON GAS COAGULATOR HANDPIECES VIA BEACON LABS

This article was originally published in The Gray Sheet

Executive Summary

BIRTCHER TO GAIN SEVEN ARGON GAS COAGULATOR HANDPIECES VIA BEACON LABS acquisition proposed in a letter of intent signed by Birtcher Medical and Beacon Laboratories on Feb. 15. In acquiring Beacon, Birtcher would pick up products including a line of patented, FDA-cleared disposable handpieces, which can be used in both open and minimally invasive surgical procedures. The addition of the seven-product Beacon line would allow Birtcher immediately to double the number of handpieces it offers for use with its ABC argon beam coagulator device. Birtcher has been planning to expand its handpiece line and is awaiting FDA 510(k) clearance of a group of products "similar" to the Beacon devices. Through the Beacon acquisition, Birtcher also would gain the Beamer One line of electrosurgical "carts," which are accessories attached to conventional electrosurgical generators in order to provide them with argon gas capabilities. The cart accessory allows hospitals to obtain argon coagulation technology at a lower cost than if it were to purchase an entire ABC system. The only other firm offering carts in the U.S. is Valleylab, which sells them under a license from Birtcher. Under the letter of intent, Birtcher would purchase privately held Beacon for $5 mil. through the transfer of approximately 475,000 shares of preferred stock to Beacon shareholders, who must still approve the proposed deal. Shareholders will vote on the acquisition at a meeting on March 1. The three principle shareholders, Beacon Chairman James Young, President Richard Fleenor and VP sales and marketing William Goslo, already have agreed to support the deal and have been offered employment by Birtcher. Following completion of the deal, Birtcher would sell the handpieces under its own name through the company's U.S. sales network of direct reps, independent distributors and stocking distributors. Birtcher also expects to retain at least some of Beacon's independent U.S. distributors, who would sell Beacon handpieces and gas carts under the Beacon label. For at least the short term, some Birtcher sales reps and distributors also may sell the gas cart under the Beacon name. Overseas, Birtcher plans to retain the Beacon name for the time being. Birtcher also expects to continue operating Beacon's Broomfield, Colorado manufacturing site at least until the facility's lease expires in approximately one year. At that time, the company may move the Beacon operations to Birtcher's Mexican manufacturing facility, according to the company. The acquisition agreement comes thirteen months after Birtcher prevailed in a patent infringement dispute with Beacon over argon coagulation technology. Under a January court order, Beacon was enjoined from selling the Beamer One in the U.S. but was permitted to continue selling its handpieces ("The Gray Sheet" Jan. 6, 1992, I&W-1). Birtcher subsequently prevailed in another argon coagulation- related patent battle, which was with Valleylab, the only other player in the U.S. market. Valleylab agreed to pay Birtcher $2.5 mil. plus 5% sales royalties to license the Birtcher argon gas technology. ("The Gray Sheet" Sept. 28, 1992, p. 10). The Beacon acquisition would further bolster Birtcher's patent portfolio, Birtcher President and CEO William Maya emphasized in comments on the deal. He said that by gaining "all of Beacon's trademarks and electrosurgery patents, as well as additional patents pending domestically and internationally," Birtcher would obtain "a broad patent position on all gas-enhanced electrosurgery technology worldwide." Maya added that the acquisition "is not expected to be dilutive, and is expected to make a meaningful contribution to earnings growth in fiscal 1994," adding $1 mil. to $2 mil. in revenues in fiscal 1994, which begins on July 1. For the six months ended Dec. 31, Birtcher reported net income of $1.1 mil. on sales on $23.3 mil., up from a loss of $400,000 on revenues of $28.1 mil. in same period a year earlier. Beacon says its first profitable year was fiscal 1992, which ended Dec. 31.
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