Synovis Life Technologies to Purchase Assets of Pegasus Biologics

ST. PAUL, Minn.–(BUSINESS WIRE)–Synovis Life Technologies, Inc. (Nasdaq: SYNO), has entered into a definitive purchase agreement through a wholly owned subsidiary to acquire substantially all the assets of Pegasus Biologics, Inc., a privately held medical device company based in Irvine, Calif., focused on the development of advanced biological solutions for soft tissue repair. The purchase price is $12.1 million in cash and resulted from a sealed bid auction process. Synovis expects to close the transaction on or before July 15, 2009, utilizing current cash reserves.

Approximately 10,000 patients had been treated with Pegasus’ equine pericardial products in various orthopedic and complex wound applications from March 2006 to May 2009, when Pegasus effectively ceased operations after attempts to raise additional operating capital were unsuccessful due to the overall economic climate. Previously, Pegasus had obtained more than $38 million in venture equity and debt. In 2008, Pegasus generated $9.1 million in revenue and had approximately 75 employees at year-end. Synovis plans to maintain Pegasus’ manufacturing operations in Irvine and will operate the acquired assets as a separate division.

“Growth through acquisition, in addition to organic growth, is a strategic priority for Synovis,” said Richard W. Kramp, Synovis Life Technologies president and chief executive officer. “We are very pleased to have the opportunity to combine the talent, technology and products of Pegasus with our own and to enter two additional high potential markets. Pegasus is an especially strong fit for Synovis; the company has complementary technologies and soft tissue repair products ─ already FDA cleared and CE Marked ─ giving Synovis access to the large and growing orthopedic and wound care markets. Pegasus products are consistent with our mission of providing surgical solutions that minimize risks, improve patient outcomes and reduce healthcare costs.”

Synovis plans to market the acquired products with a combination of direct sales people recruited from the recently disbanded Pegasus sales force, and independent sales distribution, and to focus this sales team solely on the acquired products. Synovis expects to regain Pegasus’ 2008 revenue levels in fiscal 2010 and to make immediate and meaningful reductions in operating expenses from those historically incurred by Pegasus. However, Synovis also anticipates the new division will incur operating losses between $1 million and $2 million in the fourth quarter of fiscal 2009 and potentially $5 million in fiscal 2010, while reaching breakeven during fiscal 2011 and being accretive after that. Kramp said, “As we move forward, we see opportunities to leverage our infrastructure and certain operating expenses to reduce costs, as well as the potential to achieve gross margins similar to our current gross margins. Given the compressed timeline of the auction process, these future estimates are preliminary and could change materially as we integrate the new business.”

Kramp continued, “We have the knowledge and resources to drive the Pegasus technologies and products to a significant place in their respective markets, and this transaction is an important investment in our long-term growth. Our immediate priorities for this acquisition are to appoint leadership and rebuild the sales staff for our newest division while reconnecting with physician customers.”