Medicis Buying LipoSonix

Medicis (NYSE: MRX) has agreed to acquire LipoSonix, a Seattle-based maker of an ultrasound technology for cosmetic body contouring. The deal includes a $150 million up-front cash payment and up to $150 million in future milestone payments.

 

LipoSonix had raised nearly $40 million in VC funding since 2001, including a $27 million Series C round in 2004 at a post-money valuation of approximately $67 million. Backers include Versant Ventures, Accuitive Medical Ventures, Carlyle Venture Partners, Delphi Ventures, SV Life Sciences, Three Arch Partners and Essex Woodlands Health Ventures. 

 

PRESS RELEASE 

Medicis (MRX) and LipoSonix, Inc. today jointly announced they have entered into a definitive merger agreement under which Medicis will acquire LipoSonix, an independent, privately-held company with a staff of approximately 40 scientists, engineers and clinicians located near Seattle, Washington. As a result of the acquisition, Medicis will broaden its aesthetics portfolio pipeline with LipoSonix's body contouring technology. This completely non-invasive, focused ultrasound technology is designed to treat troublesome areas of fat which may not respond well to diet or exercise. LipoSonix recently launched its first product in Europe, where it is being marketed and sold through distributors. Subject to approval by the U.S. Food and Drug Administration (FDA), Medicis anticipates entering the potentially lucrative U.S. marketplace with the LipoSonix technology in the 2011 timeframe, if not sooner.

 

 

Under the terms of the transaction, approved by both companies' boards of directors, Medicis will pay stockholders upon closing $150 million in cash for all of the outstanding shares of LipoSonix. Medicis will fund the transaction from its existing cash balances. In addition, Medicis will pay LipoSonix stockholders certain milestone payments up to an additional $150 million upon FDA approval of the LipoSonix technology and if various commercial milestones are achieved on a worldwide basis.

 

“We are excited to announce this strategic merger, which will create a global opportunity for Medicis in the body contouring aesthetics market,” said Jonah Shacknai, Chairman and Chief Executive Officer of Medicis. “Medicis is a clearly established leader in facial aesthetics. The Company established the modern facial filler category with RESTYLANE(R), and we expect to demonstrate similar innovation in the field of body aesthetics and contouring. Joining forces with LipoSonix provides us with an opportunity, subject to FDA approval, to offer physicians the ability to provide their patients with the most advanced technology for non-invasive reduction of fat. The LipoSonix technology, if approved by FDA, would provide the market with an alternative to invasive liposuction for targeted fat reduction. We believe many adults wanting to reduce fat in specific areas could be potential candidates for this procedure. Additionally, we believe entering this growing and potentially enormous worldwide market would add long-term value to our stockholders as we continue to strengthen our position in the aesthetics marketplace.”

 

“We believe this merger provides both Medicis and LipoSonix with an exciting opportunity to effectively take our body sculpting technology to a global market by building on the success we have already achieved with a proven formula for leadership in aesthetics,” said Jens U. Quistgaard, President and Chief Executive Officer of LipoSonix. “I am personally very excited to be collaborating with an organization that similarly values scientific discipline, integrity, and providing complementary and highly-effective products to customers and patients. This is a great alliance, and we look forward to a promising future of excellence.”

 

Medicis will allocate the $150 million initial payment to the acquired assets of LipoSonix, including intangible assets, in-process research and development (R&D) and goodwill. Any portion of the purchase price that is identified as in-process R&D will be charged to earnings immediately upon the closing of the transaction. Medicis is in the process of completing a valuation to determine the amounts to be assigned to the acquired intangible assets, including their related amortization periods and the amount of in-process R&D. We currently anticipate with the incorporation of this transaction that the Company will continue to achieve gross profit margins in excess of 89%, selling, general and administrative (SG&A) margins of approximately 52%, and R&D margins of approximately 10% of increasing sales projections in 2009 and beyond. The Company will provide updated 2008 financial guidance upon the closing of the transaction and completion of the valuation work.

 

The Market

 

The LipoSonix technology is not intended as a replacement for liposuction, but as a complementary body contouring procedure that could appeal to a much broader audience due to its completely non-invasive nature. According to the American Society for Aesthetic Plastic Surgery (ASAPS), liposuction was the number one surgical cosmetic procedure in 2007 with over 450,000 procedures. This equates to a combined U.S. market of over $2 billion for liposuction and abdominoplasty.(1)

 

LipoSonix Technology

 

The object of the LipoSonix technology is to achieve targeted reduction of adipose tissue by precisely focusing ultrasound energy to cause permanent disruption, or ablation, of fat cells, or adipocytes, without damage to the epidermis, dermis or underlying tissues and organs. A custom-designed ultrasound transducer delivers energy across the skin surface at a relatively low intensity, and brings this energy to a focus in the subcutaneous fat to effect ablation.

 

Once adipocytes have been ablated, large white blood cells, or macrophage cells, are attracted to the area to engulf and transport the lipids and cell debris. This removal results in an overall reduction in local adipose tissue volume.(2) During the clinical development of this technology, the objectives will include demonstrating precise and effective body sculpting which:

 

 

 

 — is completely non-invasive;

 — can reduce abdominal circumference by several centimeters;

 — has little to no patient down-time;

 — has no need for infusion of wetting solutions; and

 — provides profitable use of physician time.

LipoSonix has exclusively licensed patents, and has filed a number of additional patent applications on related methods and technology. LipoSonix continues to work to expand and strengthen this portfolio.

 

The combined company will continue to be headquartered in Scottsdale, Arizona, and will retain a strong presence in Bothell, Washington, near Seattle. The Bothell facility will be used for the manufacture of the ultrasound systems and for the development of future generations and enhancements to the technology.

 

The transaction is subject to customary closing conditions. LipoSonix stockholders have provided written consents approving the merger transaction. The companies expect the transaction to close early in the third quarter of 2008. For information about the transaction, please visit http://www.medicisliposonix.com.

 

Conference Call/Webcast

 

Medicis and LipoSonix will host a conference call and webcast for the investment community today, June 16, 2008, at 5 p.m. ET/2 p.m. PT, to discuss the announcement. To participate in the conference call, please dial (877) 567-5763 (within the U.S.) or (706) 679-4760 (outside the U.S.) fifteen minutes prior to the start of the call. The access code for the live call is 50945420. A playback of the conference call will be available for two business days following the live call. To access the playback, please dial (800) 642-1687 (within the U.S.) or (706) 645-9291 (outside the U.S.) and enter reservation number 50945420. A live webcast of the conference call will be available online at http://www.medicis.com/company/index.asp. The webcast will be archived for two business days following the live call.

 

About Medicis

 

Medicis is the leading independent specialty pharmaceutical company in the United States focusing primarily on the treatment of dermatological and aesthetic conditions. The Company is dedicated to helping patients attain a healthy and youthful appearance and self-image. Medicis has leading branded prescription products in a number of therapeutic and aesthetic categories. The Company's products have earned wide acceptance by both physicians and patients due to their clinical effectiveness, high quality and cosmetic elegance.

 

The Company's products include the prescription brands RESTYLANE(R) (hyaluronic acid), PERLANE(R) (hyaluronic acid), DYNACIN(R) (minocycline HCl), LOPROX(R) (ciclopirox), PLEXION(R) (sodium sulfacetamide/sulfur), SOLODYN(R) (minocycline HCl, USP) Extended Release Tablets, TRIAZ(R) (benzoyl peroxide), LIDEX(R) (fluocinonide) Cream, 0.05%, VANOS(R) (fluocinonide) Cream, 0.1%, and ZIANA(R) (clindamycin phosphate 1.2% and tretinoin 0.025%) Gel, BUPHENYL(R) (sodium phenylbutyrate) and AMMONUL(R) (sodium phenylacetate/sodium benzoate), prescription products indicated in the treatment of Urea Cycle Disorder, and the over-the-counter brand ESOTERICA(R). For more information about Medicis, please visit the Company's website at www.medicis.com.

 

About LipoSonix

 

LipoSonix, Inc. is an independent, privately-held company that employs a staff of approximately 40 scientists, engineers and clinicians near Seattle, Washington.