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Kyphon Inc. Announces Definitive Agreement To Acquire InnoSpine, Inc.


1/4/2006 1:14:29 PM

SUNNYVALE, Calif., Jan. 4 /PRNewswire-FirstCall/ -- Kyphon Inc. today announced it has entered into a definitive agreement to acquire InnoSpine, Inc., a privately held company focused on developing and marketing its proprietary technology platform for the diagnosis and potential treatment of axial low back pain due to disc degeneration. The transaction is expected to close in January 2006.

The terms of the acquisition call for an initial payment of approximately $2.5 million in cash to the shareholders of InnoSpine, plus the possibility of up to an additional $27.5 million in cash or stock, based on achievement of clinical and other milestones as well as royalties on future net sales. The Company anticipates there will be a one-time charge related to in-process research and development affecting earnings per share in its financial statements for the period ending December 31, 2005. The exact amount of the charge will only be known once the Company completes an analysis of the allocation of the purchase price.

InnoSpine's initial technology was developed with the aim of improving the results available from existing discography techniques through a novel diagnostic method known as Functional Anesthetic Discography (FAD), which involves a single-use disposable with no capital equipment requirements. In contrast to traditional provocative discography, FAD is a unique, minimally invasive procedure that utilizes a catheter-based system anchored in the disc space to deliver mild anesthetic to a candidate disc while the patient loads his or her spine in positions that cause pain. If the pain sensations from normal loading are relieved by anesthetic delivery to the degenerated disc, then the disc can be identified for further treatment.

In April 2005, the U.S. Food and Drug Administration cleared InnoSpine's FAD devices to deliver local anesthetic, radiopaque contrast or saline solution to the intradiscal space. Based on the outcome and effects of the injected anesthetics, the FAD technology can be used to provide diagnostic information to the physician. Existing ICD-9, APC and CPT codes can be used for facility and physician reimbursement.

Kyphon estimates that approximately 200,000 patients with persistent, severe axial back pain could be indicated for this diagnostic procedure each year in the U.S. alone, including the majority of patients undergoing spine fusion at one or more levels. Improving disc disease diagnosis has increasingly become important to assure proper identification and therapy delivery. The Company believes new technologies, such as the minimally invasive InnoSpine FAD device, have the potential to play a value-added role for clinicians in achieving this objective. Kyphon anticipates introducing the FAD product to orthopaedic spine surgeons, neurosurgeons, interventional radiologists and interventional neuroradiologists in the U.S. during the second quarter of 2006 through its existing direct sales force.

About Kyphon Inc.

Kyphon develops and markets medical devices designed to restore spinal function using minimally invasive technologies. The company's initial KyphX line of products is used in Balloon Kyphoplasty, a minimally invasive procedure to treat spinal fractures caused by osteoporosis or cancer. For more information, visit Kyphon's Web site at http://www.kyphon.com.

NOTE: Kyphon and KyphX are registered trademarks of Kyphon Inc.

This press release contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward looking statements include, but are not limited to, those that use words such as "believes," "expects," "anticipates," "targets," "intends," "plans," "projects," and words of similar effect, and specifically include the company's future financial projections and anticipated business direction and performance. Forward-looking statements are based on management's current preliminary expectations and are subject to risks, uncertainties and assumptions, which may cause the company's actual results to differ materially from the statements contained herein. Information on potential risk factors that could affect Kyphon, its business and its financial results are detailed in the company's periodic filings with the Securities and Exchange Commission (SEC), including, but not limited to, those risks and uncertainties listed in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations - Factors Affecting Future Operating Results," which can be found in Kyphon's quarterly report on Form 10-Q for the quarter ended September 30, 2005, filed with the SEC on November 2, 2005 and in Kyphon's annual report on Form 10-K for the year ended December 31, 2004 filed with the SEC on March 2, 2005. Kyphon undertakes no obligation to release publicly any revisions to any forward-looking statements contained herein to reflect events or circumstances after the date hereof.

KYPHG

Kyphon Inc.

CONTACT: Investors and Media, Julie D. Tracy, Vice President, InvestorRelations and Corporate Marketing of Kyphon Inc., +1-408-548-6500, orjtracy@kyphon.com



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