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Irvine Medical Device Maker Plans Unorthodox IPO

Hancock Jaffe Laboratories Inc. quietly filed for an initial public offering last month, an unusual move for a developmental-stage company. It intends to raise $15 million.

The Irvine-based medical device maker has three products in its research and development pipeline. It hopes to secure Food and Drug Administration approval for them, as its business “presently depends entirely on our ability to obtain regulatory approval for and to successfully commercialize each of our product candidates in a timely manner,” according to filings.

Hancock still has quite a ways to go to attain that approval—all three products are in preclinical stage with no studies on humans conducted.

The company is also strapped for cash. Hancock said it’s incurred “significant losses since our inception,” according to its IPO filing. It reported net losses of $3.4 million last year and $1.6 million in 2015. It had a $30 million deficit as of June 30, including net losses of $2.4 million for the six-month period. Losses came from costs related to research and development.

The company didn’t respond to calls and emails seeking comment.

Number

Hancock isn’t a textbook IPO. It has limited revenue and a limited FDA track record. It did succeed in developing and securing FDA approval for ProCol Vascular Bioprosthesis. It sold the product in March 2016 to LeMaitre Vascular Inc. in Burlington, Mass. for $665,000 and a three-year royalty of up to $5 million.

Hancock makes tissue products used by vascular and cardiothoracic surgeons to address coronary, vascular, end-stage renal disease—the last stage of chronic kidney disease—and peripheral arterial diseases.

ProCol is a bovine graft designed for vascular access—a surgically created vein used to remove and return blood during hemodialysis. It received FDA approval in 2003, and U.S. sales were approximately $1.3 million in 2015.

Hemodialysis is a treatment for patients with kidney failure. Machines send the patient’s blood through a dialyzer, which filters out waste and removes extra fluid. The filtered blood is returned to the patient.

The transaction also included an exclusive supply agreement for Hancock to provide manufacturing transition services to LeMaitre from its 14,507-squre-foot manufacturing facility in Irvine for up to five years.

The agreement provides the sole source of Hancock’s revenue. The company reported $219,000 in revenue for the six months ended June 30. It generated about $700,000 last year.

Products

Hancock’s three remaining products are Bioprosthetic Heart Valve (BHV), CoreoGraft and VenoValve.

BHV is designed to improve aortic and mitral valve performance, CoreoGraft for coronary artery bypass surgeries, and VenoValve to treat lower limb chronic venous insufficiency—patients develop the condition when leg veins fail to effectively pump blood back to the heart from the legs, causing blood to collect in the veins.

The company said it believes BHV could be suitable for pediatric patients. That could be a game changer for the company if proven—pediatric patients would likely require reoperations as they grow older, whether related to wear and tear or growing out of original sizes.

Seeking Liquidity

Hancock said it hopes to obtain additional funding through the offering. It doesn’t rule out future equity or debt financing, or strategic third-party alliances. It employed nine people as of August, according to the IPO filing.

The company said that if it fails “to raise adequate funds, [it] may have to liquidate some or all of our assets or delay, reduce the scope of or eliminate some or all of our development program.”

The company said it remains confident in growing value if products are approved and launched. It’s equipped with design, processing, manufacturing and sterilization capabilities.

Hancock has two co-chief executives: Benedict Broennimann and Steven Cantor. Broennimann, who started at the company in 2009 to help with its effort to gain European regulatory approval, was named chief executive last September and co-chief executive in August. Cantor was at the same time promoted from business development manager to co-chief executive. Previously, Cantor founded and was chief executive of Vasomedical Inc. in Westbury, N.Y., which develops an external counterpulsation device for cardiovascular disease.

Yury Zhivilo, chairman of the company’s board of directors, is president of Leman Cardiovascular SA, chief executive and president of Dante-Lido Financial Ltd., and managing director of Biodyne, all three based in Morges, Switzerland. Biodyne invests in medical device technology companies, including Hancock.

Hancock said that “under the completion of this offering, Biodyne will continue to control a majority of the voting power of our outstanding common stock. As a result, we will be a ‘controlled company’ under the Nasdaq marketplace rules.”

Network 1 Financial Securities Inc. in Red Bank, N.J., underwrote the offering.

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