Medical device company Baxano Surgical (NASDAQ: [[ticker:BAXS]]) has filed for Chapter 11 bankruptcy protection and the Raleigh, NC company’s chief financial officer has resigned.
Baxano said today that bankruptcy would allow it to keep selling its minimally invasive spinal surgery devices. Along with the bankruptcy filing, Baxano says Hercules Technology Growth Capital has agreed to provide debt financing, subject to court approval, that will support the company’s operations during the bankruptcy process. This “debtor in possession” financing gives Hercules seniority ahead of Baxano’s other debts for repayment.
The bankruptcy filing comes less than two months after Baxano disclosed it had hired investment bank Houlihan Lokey to explore “strategic alternatives” for its spine business. The company has not said whether that process turned up any bidders for the business. But in a securities filing, Baxano disclosed the resignations of CFO Timothy Shannon and board members Russell Hirsch and Roderick Young. Those resignations followed the departure of board member David Simpson in October. While the filings say that the resignations of each of the board members were “not a result of any disagreement with the company on any matter relating to the company’s operations, policies or practices,” no such statement is offered for Shannon’s resignation.
Baxano’s bankruptcy filing comes about 18 months after an acquisition that formed the company. Last year, Raleigh spinal-surgery devices company, TranS1, acquired privately-held San Jose, CA company Baxano, Inc. in a stock deal valued at about $23.6 million. TranS1 was founded in 2000 and, until last year, operated from Wilmington, NC. Like TranS1, Baxano also focused on developing and selling medical devices for the spine. The combined company became Baxano Surgical, headquartered in Raleigh with additional manufacturing and warehouse space in San Jose.
When the deal closed, executives said the merger of TranS1 and Baxano would help the combined company expand its reach in minimally invasive lumbar spine treatments, a market that Baxano pegged as a $3.9 billion annual market opportunity. As TranS1, the company’s primary revenue driver was its AxiaLIF devices, which are used in spinal fusion surgery. TranS1’s first product received Food and Drug Administration clearance in 2004 and was launched in 2005. Revenue peaked in 2009 at $29.8 million, but has steadily declined each year since. Company executives have attributed the sales slide to declines in surgeries conducted with the device because physicians have had problems getting insurance companies to reimburse for its use. In some cases, insurance companies have denied claims, deeming that the lumbar spinal fusion surgery was not medically necessary.
Even after combining operations, the new Baxano has been unable to move the needle enough on its financial performance. Second quarter 2014 revenue was $4.6 million, up 20 percent compared to the same period a year ago. The company’s net loss in the quarter was $5.6 million, a 31 percent improvement compared to a year ago.
But as of June 30, Baxano said it had cash and cash equivalents totaling just $3.8 million. In its quarterly report, Baxano said its independent auditor concluded that the company’s recurring losses and negative cash flow raised doubts about the company’s ability to continue operating. Baxano warned in the quarterly report that if it was unable to raise additional financing, it would “need to implement further expense reduction measures, including workforce reductions, the consolidation of operations and/or the delay or cancellation of certain operational programs, pursue a plan to license or sell our assets, or to cease operations.”
