Kyphon Acquires All Spine-Related assets of Disc-O-Tech
Wednesday, December 20, 2006
Kyphon Inc. (Nasdaq: KYPH), announced today that it has signed two definitive agreements (the "Transactions") to acquire all of the spine-related product assets and associated intellectual property rights of Disc-O-Tech Medical Technologies, Ltd., a privately held Israeli company, and its U.S. subsidiary (collectively "Disc-O-Tech"). Kyphon’s agreements with Disc-O-Tech are subject to governmental regulatory review in the U.S. and other customary closing conditions, and Kyphon presently anticipates being able to close on both transactions in 2007.
Disc-O-Tech’s portfolio includes several innovative products and associated intellectual property rights for performing minimally invasive spine procedures. The first transaction concerns the B-Twin Expandable Spinal System, which is an expandable interbody device for minimally invasive fusion in patients with degenerative disc disease in the lumbar and cervical spine and which is CE marked in Europe but not approved for use in the U.S., and the SKy Bone Expander System, which is available only outside the U.S. for use in the treatment of vertebral compression fractures ("VCFs"). The second transaction concerns Disc-O-Tech’s Confidence Cement System and should enable Kyphon to offer to its customers in the U.S. and abroad another VCF treatment option depending on a patient’s individual needs and a clinician’s goals for his or her patients. The technologies subject to these Transactions thus promise to further extend Kyphon’s minimally invasive spine franchise beyond its present technologies for the treatment of VCFs and to diagnose the source of low back pain.

Under the terms of the agreements, Kyphon will pay Disc-O-Tech $60 million upon execution of the definitive agreements and another $40 million upon the earlier of either closing of the agreement concerning acquisition of the B- Twin and SKy Bone assets or February 1, 2007. A total of another $120 million in three equal annual installments will be paid beginning in January 2008 for Disc-O-Tech’s Confidence System assets under the second agreement. An additional $20 million in contingent payments may also be paid based on the development of further technologies. Kyphon will finance the upfront payments due under the definitive agreements with cash on hand and an already established escrow.

"Disc-O-Tech’s innovative B-Twin Expandable Spinal System and related intellectual property assets will permit Kyphon to further serve the fast- growing industry segment focused on minimally invasive treatment of degenerative disc disease," said Richard Mott, president and chief executive officer of Kyphon. "Subject to receipt of appropriate regulatory clearances, the acquired VCF products also promise to expand our capabilities to offer clinicians a broad suite of fracture management and repair options both in our established markets as well as providing opportunities to access more cost-sensitive emerging markets. With these asset acquisitions, coupled with the recently announced definitive agreement to acquire St. Francis Medical Technologies and the X-STOP® Interspinous Process Decompression System, we have established two new platforms for continued growth in minimally invasive spinal therapies while bolstering our core VCF fixation franchise," concluded Mott.

"We are pleased to be able to couple our unique technology platforms with Kyphon’s strong sales channel resources to provide spine specialists with less invasive treatment options for their patients," said Motti Beyar, president and chief executive officer of Disc-O-Tech Medical Technologies. "Kyphon is the ideal partner to maximize the potential of our innovative portfolio as they share our commitment to bringing advanced spinal therapy technologies to the clinician and patient communities."

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