Kensey Nash Corporation

Marsh Creek Corporate Center
55 East Uwchlan Avenue
Exton, Pennsylvania 19341
U.S.A.
Telephone: (610) 524-0188
Fax: (610) 524-0265
Web site: http://www.kenseynash.com

Public Company
Incorporated: 1984br/>Employees: 294
Sales: $58.21 million (2004)
Stock Exchanges: NASDAQ
Ticker Symbol: KNSY
NAIC: 541710 Research and Development in the Physical Sciences and Engineering Sciences; 325211 Plastics Material and Resin Manufacturing; 339112 Surgical and Medical Instrument Manufacturing

Kensey Nash Corporation is a medical technology company skilled in developing puncture closure devices for cardiovascular catheterizations. Kensey Nash's mainstay product is the Angio-Seal Vascular Closure Device, which seals and closes femoral artery punctures made during angioplasty procedures performed with a catheter. From this foundation, the company developed other technologies and devices designed for other medical markets, such as sports medicine and spine. The Angio-Seal, however, accounts for a majority of the company's annual revenue, ranking as the leading device in its market in the United States and Europe. One promising product for the company, which won regulatory approval for use in Europe in 2002 and in the United States in 2005, is the TriActiv Balloon Protected Flush Extraction System. TriActiv, via a small balloon, blocks debris from floating into the bloodstream and flushes and extracts debris from a blood vessel after a treatment procedure. The Angio-Seal device is manufactured, marketed, and distributed by St. Jude Medical, Inc., from whom Kensey Nash receives a royalty payment for each device sold.

Origins

Kensey Nash was founded by two individuals who knew which market they wanted to serve, but who lacked a precise idea of the product they would use to serve their selected market. Dr. Kenneth R. Kensey and John E. Nash formed their eponymous company in 1984 to develop medical products for diagnosing and treating cardiovascular disease. That much was clear from the beginning, but the pair had yet to develop a product or device to aid in cardiovascular treatment. Kensey Nash was a development company, an enterprise that recorded little financial success for more than its first decade of business. The process of finding its place in the broadly defined medical products industry was gradual, beginning with a focus on rotary technology that led to the identification of a market for puncture closure devices. By the late 1980s, Kensey Nash researchers had intensified their development of puncture closure devices, an effort that led to the filing of the company's first patent for the Angio-Seal Device in 1987. The Angio-Seal became Kensey Nash's signature product, a device that served as the primary financial engine driving the company's growth during its first two decades of business.

The market need for Kensey Nash's Angio-Seal was created when an angioplasty was performed with a catheter. The company, literally, filled a hole. An angioplasty requires a cardiologist to insert a thin tube, a catheter, into the femoral artery near the groin of the patient. Once the catheter is inserted, the cardiologist snakes it up the body until it reaches the damaged blood vessels, such as the coronary arteries. Next, a tiny balloon is inflated, which clears the blocked artery. The procedure remained minimally invasive, generally leaving holes just two to three millimeters wide in the femoral artery, but a hole in one of the body's main arteries, no matter how small, had the potential to cause major damage without a monitored and extended recovery process. After a catheterization, a nurse was required to put physical pressure on the femoral artery for up to 30 minutes to prevent blood loss, a problem that was compounded because patients often took anti-clotting drugs as part of the procedure. Once the nurse had applied pressure on the hole for the requisite time, the patient was forced to lay flat for as long as 24 hours under a 10-pound sandbag to keep the wound closed. Kensey Nash's Angio-Seal promised to dramatically alter the recovery process, virtually eliminating it.

Signing an Agreement with
American Home Products in 1991

When Kensey Nash filed its first patent related to the Angio-Seal in 1987, the company was years away from developing a marketable device, one that would require approval from the U.S. Food and Drug Administration (FDA) before it could be sold domestically. As the developmental work was underway, the company forged an immensely important strategic relationship with another company, American Home Products Corporation (AHP). The partnership with AHP was struck in 1991 after Kensey Nash had spent three years developing the Angio-Seal in-house. The terms of the partnership included five agreements between the two companies that included licensing agreements for the United States and abroad, a research and development agreement, and a credit agreement. The relationship with AHP represented a lifeblood for Kensey Nash, giving the company essential funding for the research and development of the Angio-Seal, vital help in gaining regulatory approval in Europe (where the company's puncture closure device first appeared), and the financial wherewithal to conduct clinical trials that were mandatory for FDA approval. Without the partnership with AHP, Kensey Nash would have lacked the financial backing to bring the Angio-Seal to market.

Even with the licensing and milestone payments coming from AHP, Kensey Nash endured bleak financial times during the first half of the 1990s. In 1992, the company collected $4.7 million in revenue, nearly all from licensing and milestone payments. The company posted a profit for the year, netting $65,000, but it would be the last time it recorded net income for several years. Between 1993 and 1996, Kensey Nash racked up more than $17 million in losses. A vastly more promising financial future presented itself when the company celebrated a seminal achievement in its history. In September 1995, the company was granted regulatory approval to sell its Angio-Seal in Europe, a product introduction that revealed the remarkable engineering behind Kensey Nash's puncture closure device.

An Angio-Seal relied on biomedical material, a strength of Kensey Nash. When the catheter was removed from the femoral artery following angioplasty, a special polymer anchor was inserted into the artery that sealed the hole within minutes, thereby eliminating the need for physical pressure on the wound as well as an overnight stay in the hospital. The Angio-Seal also inserted collagen, a protein that induced clotting along the arterial wall to create a biological seal. Adding further to the device's appeal among doctors, patients, and insurance companies, the entire implant was absorbed into the body within two or three months.

Kensey Nash's management celebrated the debut of Angio-Seal in Europe, as did management at AHP. The device sold for between $165 and $205 in a global market that counted more than 6.5 million cardiac catheterizations being performed each year. Officials at Kensey Nash, eagerly awaiting FDA approval, took their European debut as an opportunity to let the investing public share in the company's potential success. Kensey Nash completed its initial public offering in December 1995, debuting on the NASDAQ. Only three weeks after this defining moment, with the company's stock offering sandwiched between its European debut and its eagerly anticipated U.S. debut, disaster struck. A record snowfall in Kensey Nash's hometown of Exton, Pennsylvania, caused the roof of the company's manufacturing facility to collapse. Only a few short months after finally having a market demand to fulfill, the company could not oblige. Production of the Angio-Seal was shut down for four months, as company officials scurried to get the company back up and running.

FDA Approval in 1996

After its winter misfortune, Kensey Nash received news that wiped away the memory of the January snowfall. In September 1996, one year after winning regulatory approval from the European Economic Community, the company won approval from the FDA. The FDA's approval gave Kensey Nash full access to the roughly 6.5 million cardiovascular catheterizations performed each year worldwide, greatly increasing the company's chance to dominate the market. The company was not alone in the vascular puncture closure market. Two other publicly traded companies were vying for market share. New Jersey-based Datascope received FDA approval for its Vaso-Seal in September 1995, the same month Kensey Nash began selling its Angio-Seal device in Europe. Another company, California-based Perclose, was hoping to receive approval for its vascular puncture closure device in 1997. Up for grabs was a worldwide market estimated to be as high as $1.3 billion. From an investment perspective, some Wall Street analysts preferred Kensey Nash because the company represented a "pure play" in an emerging market. Datascope was an established company deriving substantial revenue from other businesses, thereby preventing an investor to invest solely in vascular closure devices. Perclose, without FDA approval, remained a question mark, perceived by the investment community as too great a risk because it lacked a marketable device. Kensey Nash's esteem within the investment community increased in mid-1997 when the FDA ruled that Angio-Seal devices could be administered by hospital professionals other than doctors, such as medical residents, fellows, and nurses. News of the FDA's approval for expanded use caused Kensey Nash's stock price to increase 33 percent in one day.

Company Perspectives:

In this time of unparalleled development of sophisticated medical technology, to be recognized as a leader requires a commitment to ingenuity and excellence that is as much curiosity as it is dedication. A willingness to try new ideas is the basis behind Kensey Nash Corporation's development of unique and innovative medical products.

As the late 1990s progressed, Angio-Seal proved to be the market winner. By the end of the 1990s, the company controlled 35 percent of the vascular puncture closure market, holding sway as the leader. In March 1999, St. Jude Medical, Inc. acquired the worldwide license for Angio-Seal, becoming Kensey Nash's new partner in the success of the device. Under the terms of the agreement, St. Jude was responsible for manufacturing, marketing, selling, and distributing Angio-Seal on a global basis. Kensey Nash, for its part, received a royalty payment (initially 12 percent) for each Angio-Seal sold, an arrangement that made Angio-Seal a pure-profit business for Kensey Nash.

In the wake of the successful worldwide launch of Angio-Seal, the company began developing new products and entering new businesses. In 2000, the company acquired a privately held company named THM Biomedical Inc., paying $11.1 million for the Duluth, Minnesota-based firm. THM, with an 11-patent portfolio, produced a porous, biodegradable plastic that absorbed liquid, which the FDA approved for use in dental work in 1996. After receiving a $1.2 million grant from the U.S. Department of Commerce's Advanced Technology Program, THM began experimenting with the plastic as a device to replace damaged cartilage. In the tests, the absorbent plastic acted as a small container, which carried two special proteins capable of directing cell development. After being implanted in a patient, one of the proteins in the plastic vessel induced cells to emerge as bones while the other protein promoted the growth of cartilage. Once both proteins began fulfilling their respective tasks, the plastic gradually disintegrated into lactic acid, a natural, physiological substance.

Kensey Nash at the Dawn of the 21st Century

As Kensey Nash entered the 21st century, much effort was being directed to the development of a new medical device. Called the TriActiv Balloon Protected Flush Extraction System, the device was designed to provide protection against blockage of a diseased blood vessel undergoing treatment. Use of the TriActiv device entailed inserting a tiny balloon in a diseased blood vessel and positioning it to block debris from floating into the bloodstream. The debris, through the use of a tube, was flushed out of the patient's body. As developmental work on the TriActiv device neared conclusion, the company established a subsidiary to sell and to market the device in Europe. In January 2002, the company formed Kensey Nash Europe GmbH in Eschorn, Germany. In May 2002, the company received regulatory approval to begin selling TriActiv in Europe, prompting it to form distribution agreements for sales in the United Kingdom, Ireland, Switzerland, Austria, and Italy.

As Kensey Nash observed its 20th year in business, the company had cause to celebrate. Its Angio-Seal device controlled approximately 60 percent of the global market for vascular closure devices, generating $20.9 million in royalty income for Kensey Nash in 2004 (St. Jude collected $251 million in revenue from Angio-Seal devices in 2004). The launch of the device in Japan in late 2003 helped the company sell its four millionth unit in early 2004, a milestone that, under the terms of the agreement with St. Jude, reduced Kensey Nash's royalty payment to 6 percent. Looking ahead, the company was gearing up for the launch of TriActiv in the United States. The company concluded clinical trials in 2004 and received FDA approval in March 2005. As Kensey Nash plotted its future course, it was hoped the success of TriActiv would match the success of Angio-Seal and confirm the company's reputation as a pioneer in the medical devices industry.

Principal Subsidiaries

Kensey Nash Holding Company; Kensey Nash Europe GmbH (Germany).

Principal Competitors

Datascope Corporation; C.R. Bard, Inc.; Bascular Solutions, Inc.

Key Dates:

1984:

Dr. Kenneth R. Kensey and John E. Nash establish Kensey Nash Corporation.

1987:

The first patent is filed for the Angio-Seal device.

1991:

Kensey Nash enters a strategic relationship with American Home Products Corp.

1995:

Regulatory approval to sell Angio-Seal devices in Europe is granted.

1996:

Regulatory approval is granted to begin selling Angio-Seal in the United States.

1999:

St. Jude Medical acquires the worldwide license for Angio-Seal.

2000:

THM Biomedical Inc. is acquired.

2002:

TriActiv is approved for sale in Europe.

2004:

Sales of the Angio-Seal device eclipse four million units.

2005:

The FDA approves TriActiv for sale in the United States.

Further Reading

Alva, Marilyn, "Kensey Nash Corp.," Investor's Business Daily, September 18, 2001, p. A11.

"Duluth, Minn., Biomedical Firm Is Sold to a Medical Device Company," Knight Ridder/Tribune Business News, September 5, 2000.

Egan, Mary Ellen, "The Plot Thickens," Forbes, September 16, 2002, p. 166.

George, John, "Artery-Clearing Device to Get Wider Testing," Philadelphia Business Journal, October 20, 2000, p. 3.

Gianturco, Michael, "A Play on Catheterization," Forbes, December 30, 1996, p. 146.

"Kensey Nash Gets FDA OK for TriActiv System," America's Intelligence Wire, March 24, 2005, p. 34.

Lau, Gloria, "Kensey Nash Corp.," Investor's Business Daily, May 2, 2003, p. A7.

Shaw, Craig, "Artery Seal Developer Tops '98 All-Time High," Investor's Business Daily, June 12, 2003, p. B8.

Stark, Karl, "FDA Approves Pennsylvania Firm's Artery-Repairing Tool for Wide Use," Knight Ridder/Tribune Business News, August 12, 1997.

"Warnings of Lower Profits Trim Kensey Nash," Atlanta Journal-Constitution, June 13, 1998, p. E5.

—Jeffrey L. Covell