Cancer diagnostics company Neoprobe (NYSE Amex:NEOP) has sold its radiation-detection device business to Devicor Medical Products in a deal that could reach a value as high as $50 million.
Devicor, a Wisconsin-based holding company backed by Chicago private equity firm GTCR Golder Rauner, has agreed to buy Neoprobe’s device business for $30 million in cash and up to $20 million in royalty payments, according to a statement from Dublin, Ohio-based Neoprobe.
Under the terms of the deal, Neoprobe is eligible to receive the full royalty payment if Devicor’s sales of the acquired products exceed $21 million in any of the next five fiscal years.
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For Neoprobe, the deal serves two primary purposes. First, it allows the company to focus on its drug development efforts, which are largely what provide the company’s value. The company is preparing next quarter to file for federal regulatory approval to begin selling Lymphoseek, a radiopharmaceutical that is used to identify cancerous lymph nodes in patients with breast cancer or melanoma. Approval of the drug would be a huge milestone for the company. The company estimates Lymphoseek’s market value at (pdf) $450 million.
“This transaction allows Neoprobe to strategically focus its expertise, competencies and resources in the radiopharmaceutical space and in doing so become a pure-play specialty pharmaceutical company where attractive valuations can be realized for our shareholders,” CEO Mark Pykett said in the statement.
Second, the deal gives Neoprobe some much-needed cash to buy candidates to fill its pipeline between Lymphoseek and RIGScan, another radiopharmaceutical that is likely several years away from commercialization. With such a wide gap between potential product launches, Neoprobe will almost certainly seek to acquire a company or license a drug to fill that gap.
CFO Brent Larson last month discussed with MedCity News the company’s desire to add to its pipeline after Neoprobe filed documents with federal regulators that would allow the company to sell up to $100 million in new shares.
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The sale will also provide financing for Neoprobe’s development program for RIGScan, a targeting agent used to detect tumors left behind after colon cancer surgery.
Neoprobe plans to move forward with manufacturing this year and would begin clinical development of RIGScan next year. The drug has been dormant for more than a decade after the U.S. Food and Drug Administration didn’t approve its application in 1997, saying the company needed to conduct further clinical studies. Pykett has pegged the drug’s worldwide market potential at $3 billion.
