CSI will sidestep IPO, merge with public start-up

Faced with a prolonged drought in the market for initial public offerings (IPOs), Cardiovascular Systems Inc. (CSI) said Tuesday that it will merge with a publicly traded biopharmaceutical start-up on the verge of collapse.

CSI, based in New Brighton, originally filed for an IPO in January, hoping to raise $86.3 million to help expand sales of its Diamondback 360 device, which removes plaque from arteries in the pelvis or leg. But a weak economy and a volatile stock market have nearly wiped out investor demand for IPOs, prompting CSI to go public by acquiring the remaining assets of Replidyne Inc. of Colorado.

Replidyne is essentially a shell company: It has no products, zero revenue and few employees. What the company does have is a ticker symbol on the Nasdaq stock exchange and up to $40 million in cash on its balance sheet.

"Executing this transaction with Replidyne is an expedient way to take our company into the public market and generate a capital infusion for future growth," CSI Chief Executive David Martin said in a statement. With Replidyne's cash reserves "we can further expand our sales and marketing organization and infrastructure to drive revenue growth and continue to invest in product development for future market expansion."

The merger underscores the difficulty emerging medical device companies face raising money in such a difficult economic environment.

Under terms of the deal, expected to close in the first quarter of 2009, CSI investors will own 83 percent of the new company with the remaining 17 percent going to Replidyne shareholders. The combined company will be called Cardiovascular Systems Inc. and trade under the ticker symbol CSI.

"We have a large market opportunity and great technology," Martin said in a separate interview. "We knew that we wanted to go public. But the financial markets have not been friendly. This deal was very opportunistic."

Over the past few months, IPOs have ground to a halt, forcing companies to either postpone or pull their stock debuts altogether. In the first nine months of this year, 77 companies withdrew their IPOs, 19 in the third quarter alone, according to Bloomberg News. Through September, just 55 companies have gone public, down from 226 during the same period in 2007.

Getting creative

There have been no Minnesota IPOs in 2008. Four local companies -- IDS Group Inc., Milestone AV Technologies Inc., Vision-Ease Lens Corp. and Transoma Medical Inc. -- have pulled their planned IPOs. AGA Medical Corp. has filed its registration statement but has yet to go public.

As a start-up, "you need liquidity, access to public markets, cash -- and the way to do that is an IPO," said Tom Gunderson, an analyst with Piper Jaffray & Co. in Minneapolis. "But the IPO market has completely closed down. People are starting to get creative and [the Replidyne merger] is a creative way to do it. I think CSI made a good choice."

Gunderson noted that CSI had enough resources to last until 2009 but companies "always want to have a safety net." Replidyne's cash will now sustain CSI until it turns a profit, he said.

"We are in 300 hospitals when we should be in 1,500," Martin said. "Our job is not to watch the daily fluctuations of the stock market. Our job is to put this technology into the hands of doctors."