Trans1 to Buy Baxano

Following reports of a wider loss of revenue in the fourth quarter of 2012 ($12 million to last year’s $5 million), spine device company Trans1 Inc. has decided to invest in surgical instrumentation. Trans1 has inked a deal to buy San Jose, Calif.-based Baxano Inc., which focuses on the design, development and manufacture of tools that for the restoration of spine function and preservation of healthy tissue.

The loss taken in Q4 was attributable to operating costs that were almost double that of Q4 2011, and a large government settlement that cost the company $6.5 million, according to company filings. However, company President and CEO Ken Reali was positive about 2013.

“In the fourth quarter we made significant progress on our key operational goals, including further reimbursement progress, expanding clinical publications and driving adoption of the Veo direct lateral system,” he said. “In addition, we re-launched AxiaLIF in November at a large peer-to-peer training event in anticipation of the activation of our Category I code on January 1. We believe that the stabilization of our domestic business and the initial stocking order in China have created positive momentum for TranS1 as we enter 2013.”

The Baxano deal will cost Trans1 approximately $24 million, $23.6 million of which it will gains from issuing stock and the rest from cash reserves. The company also will refinance $3 million of Baxano’s existing debt in the transaction at closing. Current Trans1 shareholders will own roughly 72.4 percent of the combined company and the remainder will be owned by current Baxano shareholders. The final number of shares will be subject to certain adjustments at closing. The merger transaction is currently expected to close early in the second quarter of 2013 and is subject to Trans1 shareholder approval and customary conditions to closing.

According to Trans1, this acquisition will expand its focus on minimally invasive lumbar spine treatments, with a combined addressable market opportunity of $3.9 billion. Baxano will complement Trans1’s existing proprietary product portfolio with differentiated patented products, and the combined sales force of the two companies will provide significant cross-selling opportunities within the MIS (minimally invasive surgery) surgeon-customer focus, according to the company. Finally, and perhaps most importantly in Trans1’s current financial position, the buy is hoped to improve the company’s financial profile.

“We believe that Baxano is a complementary strategic fit for our product portfolio,” Reali said. “Minimally invasive treatments are the fastest growing segment of the spine market. The combination of our AxiaLIF and Veo lumbar fusion products with Baxano’s iO-Flex and iO-Tome systems for lumbar direct decompression and facetectomy, respectively, will allow us to better meet the needs of our spine surgeon customers. This merger will create a unique company with the vision of being a leader in providing less invasive and minimally invasive solutions for spine disorders.”

“We are enthusiastic about the combination of Baxano with TranS1,” said Tony Recupero, president and CEO of Baxano. “We believe the combined company will have a compelling set of minimally invasive products to benefit patients, surgeons, hospitals and payors and will continue to build on the positive sales momentum we have built at Baxano over the past few years.”

Baxano had revenues of $3.9 million and $9.4 million for the fiscal years ending Dec. 31, 2011 and 2012, respectively. On a pro forma basis, the combined company’s revenues were approximately $24.0 million (unaudited) for the year ending Dec. 31, 2012.

TranS1 develops products to treat degenerative conditions of the spine affecting the lumbar region. The company is based in Wilmington, N.C.