Thursday, January 24, 2008

Cardiovascular Systems Antes Up

IN VIVO Blog heard some muted, but optimistic tones about this year's device IPO market at the JP Morgan conference. But Cardiovascular Systems Inc. must have heard a ear-splitting rendition of "Happy Days Are Here Again" that convinced it to file for an $86.25 million offering.

Don't get us wrong. The filing pleased as well as surprised us. We’re pleased because we identified Cardiovascular Systems as one of our notable Series A deals of the year in 2006. Imagine the sound of us tooting our own horn here.

But we’re surprised because, well the company just started selling its Diamondback 360° Orbital Atherectomy System, a minimally invasive catheter system for the treatment of peripheral arterial disease. That's because the FDA just granted Cardiovascular Systems 510(k) clearance in September.

In fact, the company says it “commenced a limited commercial introduction of the Diamondback 360° in the United States in September 2007.” By the end of the year the company shipped more than 1,700 single-use catheters to 57 hospitals and generated revenues of approximately $4.6 million, according to the S-1.

That’s a nice start, no doubt. But is it enough to go public on?

IN VIVO Blog says yes. Here's why.

Hedge Fund Maverick Capital, with 15% of the company, is among its biggest investors. Maverick is increasingly well regarded as a patient investor in start-ups, but when a company pursues a public offering the firm--with a reported $9 billion or more under management--can bring its considerable public market-oriented resources to bear. If Maverick isn't investing in the IPO itself, it already has a pretty good idea about who will.

Easton Capital is another large investor. A few years ago, Maverick and Easton seemingly brought another cardiovascular company to the public markets way too soon.

That company, Conor Medsystem Inc., also didn't have revenue or FDA-approval for its drug-eluting stent technology, giving an opening to critics who thought the company was unwisely testing the IPO market in 2004. Conor did spectacularly well in the IPO and post-IPO performance, well enough on the public markets to be acquired by Johnson & Johnson acquired the company for $1.4 billion, admittedly with disappointing results but also some new hope.

Some may see Cardiovascular Systems filing as an unwise move or the issuance of a 25-page "For Sale" sign. IN VIVO Blog, however, will be betting on an IPO.

Photo 'A Roll of the Dice' by Flickr user Darwin Bell used under a Creative Commons license.

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