ADVERTISEMENT

SmartPill Corp., the financially strapped Buffalo medical device manufacturer that was acquired by an Israeli company earlier this month in a $6 million deal, is planning to move its manufacturing operations to its new owner’s factory in Israel by the end of the year.
The move will result in the loss of about 13 local jobs, all in SmartPill’s production and office operations, while David L. Barthel, SmartPill’s top executive and three salespeople will keep jobs with the new owner, Given Imaging, employees said.
“After a transition period, we will move SmartPill manufacturing operation to our existing manufacturing facility in Israel,” Shimon Vinter, Given Imaging’s global director of purchasing and logistics, said in a letter to suppliers that was obtained by The Buffalo News.
The move is a blow to the Buffalo Niagara Medical Campus, where SmartPill, with its prominent Main Street office and its decision to shift manufacturing to Buffalo from California four years ago, had assumed a visible role in the community’s efforts to build a hub for life sciences research and medical device manufacturing.
But behind the scenes, SmartPill had been struggling mightily.
Developing new medical devices is a long and costly process, forcing the company to constantly raise new cash to finance the development and testing, and then the sales and production, of its product. While SmartPill succeeded in raising more than $60 million in funds from investors since it was founded in 2003, the company had not disclosed any recent fundraising investments since investors pumped in $8.5 million during July 2010, and its efforts to drum up additional capital – or a buyer – late last year and into this year failed.
The company’s financial position had deteriorated badly since then, with SmartPill essentially becoming insolvent by the end of July, according to people familiar with the company’s operations, who spoke on condition of anonymity.
At that point, SmartPill executives concluded that the company would not be able to raise enough additional financing to keep the business afloat.
Given Imaging’s offer, which is expected to provide enough money to pay off the company’s creditors, likely will leave only a small amount to pay some of SmartPill’s preferred stock shareholders, the sources said.
The alternative, the sources said, was liquidating the company and selling off its assets. SmartPill and Given Imaging officials did not return calls seeking comment.
Given Imaging, in the letter and in its news release announcing the deal, said that it was drawn to SmartPill because both companies make pill-size diagnostic devices that can be swallowed by patients with digestive ailments.
“We now provide the broadest portfolio of world-class solutions to help diagnose and monitor diseases” in the digestive tract, Vinter said in the letter.
SmartPill’s ingestible wireless medical sensor is about the size of a large vitamin. It can be swallowed by a patient, allowing physicians to measure conditions such as acidity, pressure and how long it takes to pass through the digestive tract.
Given Imaging, which is based in Yokneam, Israel, makes an ingestible minicamera that can be used to diagnose digestive ailments, especially in the colon, by taking images of the gastrointestinal tract as it moves through the body.
Given Imaging had $179 million in sales last year, including nearly $2 million in revenues from its PillCam Colon capsule. The company said that it expects SmartPill to generate revenues in the “low single-digit” millions next year.
“This is a small deal [$6 million plus earn-outs] but fits in nicely with Given’s existing portfolio of minimally invasive GI diagnostic tools,” Cantor Fitzgerald analyst Jeremy Feffer wrote in a note to investors.

email: drobinson@buffnews.com