ATS Medical Inc. (NASDAQ:ATSI) stock has been a dog for quite a while, never rising above $5 a share since 2004. Yet some investors stand to profit handsomely from Medtronic Inc.’s (NYSE:MDT) proposed $370 million acquisition of the company.
In 2007, ATS Medical, desperate for cash, sold stock to San Francisco venture capital firm Alta Partners for $16.4 million, according to documents filed with the Securities and Exchange Commission.
The deal included a warrant for Alta to buy an additional 1.96 million shares of stock at $1.65 per share, which it did. At the time, ATS stock was trading around $2.30 a share. Based on Medtronic’s offer of $4 a share, Alta stands to net $7.84 million, earning it a nice profit of $4.64 million.
The following year, the company borrowed money from board member Theodore Skokos. In return Skokos received a warrant to purchase 245,098 shares at $2.04 a share, which means Skokos could see a $480,3922 profit from the Medtronic deal.
A few months later, Essex Woodlands Health Ventures in Palo Alto, California, paid $20 million to acquire stock and related warrants, which allowed the venture firm to purchase 1 million shares at $2.475 a share. Medtronic’s acquisition could net Essex a profit of $1.525 million based on that warrant.
Some analysts say ATS Medical’s perpetual cash crunch forced stock sales that diluted returns for existing investors. The company lost money every year for each of the last five years, dropping $28 million alone in 2006.
The diluted pool also relegated the company’s stock price to single digits even though it sold quality technology at double digit rates. There are 70 million outstanding shares of ATS Medical, a huge number when you consider the company’s overall market value of $313 million.
A Deep-dive Into Specialty Pharma
A specialty drug is a class of prescription medications used to treat complex, chronic or rare medical conditions. Although this classification was originally intended to define the treatment of rare, also termed “orphan” diseases, affecting fewer than 200,000 people in the US, more recently, specialty drugs have emerged as the cornerstone of treatment for chronic and complex diseases such as cancer, autoimmune conditions, diabetes, hepatitis C, and HIV/AIDS.
Considering ATS Medical once traded as high as $20 a share nine years ago, it’s a safe bet that the only investors really celebrating Medtronic’s $4 a share offer are the ones who reside in San Francisco.
