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May 30, 2005 02:00 AM

Expanding reach

Mike McNulty
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    It's late spring-flowers are blooming in the North, baseball is back in the limelight and CardioTech International Inc. must be buying another company or expanding.

    That's because CEO and President Michael Szycher isn't afraid to take business risks, as long as they're well calculated. And he seems to expand around this time every year or so.

    Last year, the polyurethane medical product company moved from its Woburn, Mass., headquarters to a larger structure in Wilmington. It also nearly doubled the manufacturing space at its Catheter and Disposables Technology Inc. subsidiary.

    This year, CardioTech is acquiring another firm. In addition, it became a minority partner in a company that initially will sell bare stents in Europe and eventually will develop a urethane drug depot that can be applied to bare stents.

    Szycher figures the moves are not very risky. And they could result in big paybacks.

    CardioTech has an offer on the table, disclosed late last year, to buy CarTika Medical Inc.-a medical device contract manufacturer that had more than $7 million in sales in 2004-for about $6.6 million. The deal is subject to a variety of preconditions, including Securities and Exchange Commission approval. It's expected to close in early June.

    Plymouth, Mass.-based CarTika specializes in injection molding, pad printing, catheter assembly and thermoformed polymer products. It employs about 50 at its 17,000-sq.-ft. plant, which features two Class 10,000 clean rooms.

    CardioTech also has agreed to form a joint venture with Implant Sciences. Called CorNova Inc., the firm will sell bare stents that feature a biocompatible and radiopaque metal nanocoating in the European Union by late summer. The stent will be sold with an advanced rapid-exchange catheter delivery system in a ready-to-use kit.

    Meanwhile, CorNova is beginning to develop a drug-eluting version of the stent composed of ChronoFlex DES, a polyurethane synthesized by CardioTech and exclusively licensed to CorNova.

    Building on two fronts

    CardioTech has relied heavily on acquisitions to build its business since 2000 while it continued to develop its polyurethane-based coronary artery bypass graft, called CardioPass, and other urethane goods. The graft is undergoing clinical tests in Brazil and Europe.

    Founded in 1993 as a research and development subsidiary of PolyMedica Industries Inc. and spun off in 1996 to concentrate on biomaterials and implantable devices, CardioTech has made major inroads in the medical device field since then. In the spring of 1996, it created a line of catheters and vascular products made from its ChronoFlex-brand TPU.

    In 1998 it unveiled a vascular access graft and a graft used on diabetics with lower leg problems caused by poor circulation.

    By 2000, the then-Woburn-based firm was set to grow and it made a flurry of key moves, in addition to the two expansions last year, including:

    * purchasing specialty polyurethane maker Tyndale-Plains Hunter Ltd. for about $1 million in a cash-stock transaction in mid-2000. The deal gave CardioTech the rights to TPH's hydrophilic PU, which is used primarily to provide permanent lubricity to the surfaces of medical devices, serve as drug delivery systems or to improve blood compatibility;

    * moving into the original equipment and contract manufacturing arenas in 2001 when it bought Catheter and Disposables Technology-which makes specialty products such as drug cath-eters, sensing balloons, diagnostic and therapeutic devices, and endoscopes-and the firm's 15,000-sq.-ft. Plymouth facility;

    * at the same time, selling a small plant it owned in Wales and the rights to two vascular grafts it developed;

    * entering the wound and burn products market with a line of dressings in July 2002 and creating another line in January 2003; and

    * acquiring Gish Biomaterial Inc., a maker of devices used in open-heart surgery and vascular-access products, for about $7.6 million in the spring of 2003. The also included a 52,000-sq.-ft. plant in Rancho Santa Margarita, Calif., which features an 8,500-sq.-ft. Class 10,000 clean room that CardioTech uses to make artificial arteries.

    Moving into the black

    Through all the moves, even with growing sales, CardioTech has yet to show a profit. But that's about to change, the executive said.

    ``In July, August and September I think we'll be operationally profitable,'' he said. ``We plan to be profitable even though we'll be in Phase Two of our coronary bypass graft clinical trials in Brazil, which means we'll expand from one hospital to 10. We have also sought approval from government bodies in Germany. And the tests cost a lot of money.''

    The coronary bypass graft, made with the firm's patented polyurethane, is its most highly touted and unique product.

    ``It is our opinion that the reason over 38 companies using silicone, non-bio-degradable urethane and other materials failed with their grafts is that we developed our own polyurethane which has the properties that make it the closest thing to an artery,'' he said. ``Silicone can't be used because of tensile strength and it can tear.''

    Clinical testing, research and development have been the key reasons for the firm's losses.

    CardioTech's revenues in the fiscal third quarter ended Dec. 31 came in at about $5.3 million, up slightly from sales of $5.1 million in last year's quarter. The company had a loss of $652,000, compared to a loss of $557,000 last year. Included in the third quarter loss for 2004 is about $200,000 incurred in the start of CABG clinical trials in Europe.

    The purchase of CarTika should brighten the firm's earnings picture in the next fiscal year. ``We're buying the company because we're after the same customers, but they do have customers we don't have and we have some they don't have,'' Szycher said. ``This makes us more vertically integrated in the contract product industry. This also gives us more machinery and more people.''

    CarTika is located two miles from CDT in Plymouth, which should help both contract manufacturers, he said. The acquired company likely will operate in a similar fashion to CDT when it comes to its contract manufacturing business.

    ``Typically a customer makes a request for any material, and in 60 percent of the cases we end up with something that is urethane or silicone,'' Szycher said. Often the product is a catheter.

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