asx release: htw patent case., page-34

vcr/htw - which way? Beads and blanks for the natives? It failed to work in America, so let’s try to see if they buy it in Australia where its easy….read this if you doubt it…



Silicon Valley Special - NewsWeekly - TechNews


A new home down under

by Joshua Jaffe in San Francisco
852 words
20 June 2005

Apple Tree Partners' general partner Seth Harrison wasn't happy with a buyout offer for his portfolio company HeartWare Ltd., so he took the company on the road — all the way to Australia.

The company earlier this year successfully raised $25 million on the Australian Stock Exchange in an oversubscribed initial public offering that will go toward funding animal and human trials of its heart pump products for patients with congestive heart failure. Apple Tree's exit avenue on the ASX, however, was no easy journey.

First off, the company had to exit Chapter 11 bankruptcy protection in the United States. "We felt [HeartWare's] technology was so high potential that it was worth continuing to endorse and fund the company," explains Harrison, who was general partner at Oak Investment Partners and a venture partner at Sevin Rosen Funds before establishing New York-based Apple Tree in 1999.

In fact, one of the firm's first investments was $5 million into a $21 million round raised by Sacramento, Calif.-based Kriton Medical Inc., a heart pump manufacturer. Kriton eventually filed for Chapter 11 and emerged as HeartWare. It relocated to Miami with the help of Apple Tree in September 2003.

After investing an additional $9 million, the company attracted acquisition interest. Harrison says the offer to buy HeartWare from a large company, which he declined to identify, was for about $20 million in cash up front — more than the $14 million Apple Tree had invested in both Kriton and HeartWare. The buyout offer also provided for additional earnout payments if the company released its product on schedule in 2007.

As negotiations dragged on, Harrison met with some Australian surgeons at a trade show to discuss clinical trials HeartWare was going to be doing later that year Down Under. The surgeons suggested he consider seeking funding for the company in Australia because of the willingness of the Australian public market investors to back early-stage life sciences companies.

Harrison, 44, who boasts a medical degree as well as an M.B.A. from Columbia University, began exploring the idea and was put in touch with bankers at Inteq Ltd., the Sydney-based corporate broking firm that eventually structured the offering. Inteq in turn referred Harrison to Emerging Growth Capital Pty. Ltd., a Sydney-based investment bank focused on the life sciences, which ended up underwriting HeartWare's offering.

"The transaction was unusual," says Howard Leibman, HeartWare's director of corporate development and previously an investment banker at Emerging Growth Capital. "To my knowledge it's the only U.S. VC-backed company to have raised money on the Australian Stock Exchange and to have its primary listing in Australia."

Harrison chose an IPO over the buyout offer because he believed HeartWare's technology had the potential to gain traction if it could be released on time. That was the other reason Australia made sense to him as an exit avenue.

HeartWare makes left ventricular assist devices, or VADs, which garnered a bad reputation in the U.S. after a number of investors lost money when the devices proved to be too big and too susceptible to infection and blood clots. VADs are implantable devices that help people's hearts pump; the left VAD is responsible for pumping blood to the rest of the body.

Harrison says VADs' reputation was deserved because they were based on technology from the 1970s. HeartWare's devices, however, are newer, smaller and much more reliable — a claim he's confident will be borne out in clinical trials in Australia. This was a difficult story to sell to U.S. investors, however, especially given the startup's history as a restart.

Yet the inability of HeartWare to raise new venture funding in the U.S. in the end yielded Apple Tree a higher valuation for the company via the public listing. HeartWare would have likely attained a pre-money valuation no better than $15 million in 2004, says Harrison, meaning its post-money valuation on a $25 million fundraising basis would have been $40 million. Its post-money valuation after the IPO in Sydney was $75 million; Apple Tree retains about 60% of the company.

Since then, however, that figure has slipped to about $65 million as shares of most life sciences companies in Australia have fallen this year. The company, though, is in Australia for the long haul, having shifted its corporate operations to Sydney. Stuart McConchie, who used to work at Australian medical device company Telectronics Ltd., was appointed HeartWave's CEO in 2004 and splits his time between Sydney and Miami .

"I'd expect that the success of HeartWare's IPO might prompt other U.S. companies to consider the Australian Stock Exchange route, says HeartWare's Leibman. " Perhaps, but timing, in HeartWare's case, seemed paramount. "There was a gap," says Harrison of the company's financing needs. "Fortunately, this was an excellent way of filling it." n

Joshua Jaffe covers technology for the Deal. http://www.TheDeal.com