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Cardiac medical device firm Kips Bay completes $20 million investment

Kips Bay Medical (NASDAQ:KIPS), which one month ago went public with its recent struggles with the U.S. Food and Drug Administration, has made a deal that secures the company up to $20 million in fresh investment.

Under the terms of the agreement, the Illinois-based Aspire Capital Fund will purchase up to $20 million in Kips Bay stock over the next three years. Kips Bay essentially decides when and how much stock Aspire purchases over that period of time and is not required to use the entire $20 million investment.

If Aspire has the rights to purchase all $20 million of Kips Bay stock right now (currently at $1.60 per share) with no limits, Aspire would own 12.5 million shares (roughly 80 percent of all outstanding shares).

But this isn’t capital the company will use any time soon, Chief Financial Officer Scott Kellen said Tuesday. Instead, Kellen called the agreement an “insurance policy” that will ensure the company won’t need to raise money any time in the near future.

“With this in place we can focus on running the business, on product development and the clinical aspects rather than focus on the next fundraise,” Kellen said.

Kips Bay stock had dropped gradually since going public at $8 per share in February, which provided the company $13.8 million. The stock dipped below $3 at the start of September and then took a precipitous drop in mid-September after the company announced the FDA told Kips Bay it had not provided sufficient data for its Investigational Device Exemption and must provide additional information prior to pursuing a clinical study. The stock has been as low as $1.06 since.

The Aspire deal was under way well before the issues with the FDA. Company founder Manny Villafana said when he announced the changes around the IDE that time Kips Bay would not need to make any changes as a result of this, adding that no additional money would need to be raised. ’We still have enough to do the things that we have to do,’ Villafana said in September and then added: ’extra time obviously costs us more.’

The Plymouth, Minnesota company manufactures a nickel-titanium alloy mesh called eSVS Mesh, which is used to reinforce leg veins that are grafted to the heart during coronary artery bypass surgery. Studies have shown that six in 10 of these vein grafts fail within a decade and up to 20 percent fail within just one year of the procedure. Unlike arteries, veins typically don’t carry much blood pressure and so they don’t develop the same muscular walls that healthy arteries do.

Kips Bay said it will continue to develop its international business and expand its customer base in Europe as it waits out uncertainty with the FDA. In August, the company told shareholders that it could have started clinical trials of eSVS Mesh in the United States this year if it received approval in the third quarter.

The company is now revising those estimates.

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