Aye for an Eye

Well isn’t this just what the VC ordered?

Bausch & Lomb’s move to acquire privately held eyeonics Inc. certainly will be welcome news to medical device VCs wondering who the next acquirer will be. Last year wasn’t a good one for VCs who counted on mid-tier device companies to make up for the lazy pace of traditional acquirers.

Instead of emptying VC portfolios, these folks bought each other. Hologic merged with Cytyc. EV3 bought Fox Hollow. St. Francis bought Kyphon before being acquired by Medtronic. “If I come out of a meeting and find out that someone bought Arthrocare I’m going to shoot myself,” one VC told IN VIVO Blog at the JPMorgan conference.

A bit of hyberbole, perhaps.

Nevertheless, with public investors being somewhat squeamish VCs need smaller companies like Arthrocare to step up their acquisition pace. Now Bausch & Lomb, fresh from its acquisition by Warburg Pincus, may be prepared to help out, at least in picking up a few of the more mature or promising eye companies out there.

This is a fairly new strategy for B&L. In the past, Bausch & Lomb has shown a stronger interest in acquiring pharmaceutical companies with the acquisition of a controlling interest in Shandong Chia Tai Freda Pharmaceutical Group, the leading ophthalmic pharmaceutical company in China, as being one of the biggest. So the move toward devices is encouraging.

Bausch & Lomb does have a considerable surgical business. It offers a line of intraocular lenses (IOLs) and phacoemulsification equipment (used to remove a patient’s natural lens) as well as disposable surgical packs. Sales of cataract and vitreoretinal surgery products accounted for 17% of the company’s $2.292 billion 2006 revenues. It’s the third largest manufacturer of these products behind Alcon and AMO, according to the company’s 2007 annual report.

But sales of these products rose only 1 percent, according to the report. A pittance compared to what eyeonics is doing.

Eyeonics developed and sells its crystalens IOL, the only FDA approved accommodating IOL used to treat cataracts. The crystalens IOL replaces the eye’s natural lens and has been implanted in more than 95,000 eyes worldwide, according to the company.

In a statement, Ronald L. Zarrella, chairman and CEO of Bausch & Lomb, says the acquisition "immediately places Bausch & Lomb into the rapidly expanding premium IOL market." The release reports that market is growing more than 20% annually. "In 2007, eyeonics generated revenues of approximately $34 million, an increase of 100 percent over the prior year revenues of approximately $17 million. Its crystalens IOL is estimated to represent approximately 30 percent of the presbyopic IOL market in the United States," according to the release.

The acquisition automatically adds 10% to the surgical group's revenues. Still, the company has run into some challenges. Check out our MedTech Insight report here. For an early profile of the company click here.

The good news is another potential buyer is in the market. The less-than-good news is eyeonics is no spring chicken. Founded in 1998, the commercial stage company last summer filed to raise $86 million in an IPO. Yet it opted to be acquired. Venture investors include Versant Ventures, Brentwood Associates, Pequot Private Equity, ABS Ventures, and Entrepreneurs Fund.

Versant's Bill Link first invested in the company when he was still with Brentwood. (Link later would leave Brentwood to form Versant.) Together, the two groups owned 33% of the company.

So did eyeonics sell because its IPO chances were iffy? Or did Bausch & Lomb make them an offer literally too good to refuse? (So-called twin-tracking certainly happens in both the device and biopharmaceutical side of the industry.) Until we find out the terms, IN VIVO Blog is leaning toward the latter.

In any case, it's good to have another buyer out there.