Sale of Assets of AirXpanders, Inc.
Gerbsman Partners (www.gerbsmanpartners.com) has been retained by AirXpanders Assets Liquidation Company, LLC (“Seller”) to solicit interest for the acquisition of all, or substantially all of, AirXpanders’ assets (the “AirXpanders Assets”). Seller recently stepped into a loan (the “AirXpanders Loan”) originally made by Oxford Finance LLC (“Oxford”) to AirXpanders, Inc. (“AirXpanders”), the repayment of which was secured by a pledge of substantially all of AirXpanders’ Assets. Subsequent to the acquisition of the AirXpanders Loan, Seller is completing a UCC foreclosure with respect to the AirXpanders Assets in order to sell the AirXpanders Assets, free and clear of all liens, claims and interests, in accordance with the sale process outlined herein.
Headquartered in San Jose, California, AirXpanders was a U.S. based medical device company whose principal business was to design, manufacture, sell and distribute medical devices used in two-stage breast reconstruction procedures following mastectomy. The first application of this technology, commercialized in the US and Australia, was tissue expansion for post-mastectomy breast reconstruction. Other applications of the technology may include tissue expansion in various parts of the body, including breasts, buttocks, thighs, etc.
AirXpanders sought to engage in a sale of its assets or other restructuring during the first half of 2019. It became clear that bidders would require a sale process through Section 363 of Chapter 11 of the United States Bankruptcy Code. AirXpanders determined that it had insufficient resources to complete a Chapter 11 process, and accordingly filed a proceeding under Chapter 7 of the United States Bankruptcy Code on July 24, 2019. A Trustee was appointed by the Bankruptcy Court who elected not to market AirXpanders’ assets. Oxford then filed a motion for relief from the automatic stay, which motion has been granted. Oxford thereafter is transferring its notes owed by AirXpanders to Seller, who is foreclosing on the AirXpanders Assets for the purpose of selling them on an “as is, where is” basis.
AirXpanders was incorporated in Delaware in 2005 and was headquartered in San Jose, California. AirXpanders has been publicly traded on the Australian stock exchange since 2015 (ASX: AXP). Nearly $130 million has been invested in the technology and products of AirXpanders.
Seller has retained key past employees on a consulting basis (“Consultants”) who will endeavor to make themselves available to assist potential purchasers with due diligence and assist with a prompt and efficient transition at a mutually convenient time.
IMPORTANT LEGAL NOTICE:
The information in this memorandum does not constitute the whole or any part of an offer or a contract.
The information contained in this memorandum relating to AirXpanders’ Assets has been supplied by former employees of AirXpanders who are now engaged in as Consultants to Seller. Nothing contained herein has been independently investigated or verified by Seller, Gerbsman Partners, Oxford Finance, or their respective agents.
Potential purchasers should not rely on any information contained in this memorandum or provided by Seller or Gerbsman Partners (or their respective staff, agents, and attorneys) in connection herewith, whether transmitted orally or in writing as a statement, opinion, or representation of fact. Interested parties should satisfy themselves through independent investigations as they or their legal and financial advisors see fit.
Seller, Oxford Finance, and Gerbsman Partners, and their respective staff, agents, and attorneys, (i) disclaim any and all implied warranties concerning the truth, accuracy, and completeness of any information provided in connection herewith and (ii) do not accept liability for the information, including that contained in this memorandum, whether that liability arises by reasons of Seller’s or Gerbsman Partners’ negligence or otherwise. Consultants, and their respective staff, agents, and attorneys, (i) disclaim any and all implied warranties concerning the truth, accuracy, and completeness of any information provided in connection herewith and (ii) do not accept liability for the information, including that contained in this memorandum, whether that liability arises by reasons of Seller’s, Consultants’ or Gerbsman Partners’ negligence or otherwise.
Any sale of the AirXpanders Assets will be made on an “as-is,” “where-is,” and “with all faults” basis, without any warranties, representations, or guarantees, either expressed or implied, of any kind, nature, or type whatsoever from, or on behalf of Seller, Consultants and Gerbsman Partners. Without limiting the generality of the foregoing, Seller, Consultants and Gerbsman Partners and their respective staff, agents, and attorneys, hereby expressly disclaim any and all implied warranties concerning the condition of the AirXpanders Assets and any portions thereof, including, but not limited to, environmental conditions, compliance with any government regulations or requirements, the implied warranties of habitability, merchantability, or fitness for a particular purpose.
This memorandum contains confidential information and is not to be supplied to any person without Gerbsman Partners’ prior consent. This memorandum and the information contained herein are subject to the Non-Disclosure Agreement attached hereto as Appendix A.
Company Profile
AirXpanders was a U.S. based medical device company whose principal business was to design, manufacture, sell and distribute medical devices used in two-stage breast reconstruction procedures following mastectomy. The primary product, the AeroForm Tissue Expander System (AeroForm), is a needle-free, patient-controlled tissue expander used in patients undergoing two-stage breast reconstruction following mastectomy prior to the insertion of a breast implant. AirXpanders’ mission was to be the global leader in reconstructive surgery products and to become the standard of care in two-stage breast reconstruction.
AeroForm was granted its first CE mark in Europe in October 2012, was approved by Australia’s Therapeutic Goods Administration, or TGA, in Australia in October 2013, and initial marketing release of AeroForm was in Australia in January 2015. U.S. Food and Drug Administration, or FDA, granted AeroForm de novo marketing authorization in December 2016 (as a Class II medical device), and initial marketing release of AeroForm in the U.S. started in January 2017. After FDA de novo clearance for AeroForm, AirXpanders submitted a 510(k) application for a product change related to enhanced film material. This 510(k) was cleared by the FDA in April 2017. The product covered in this clearance, internally referred to as AeroForm 3.0, is the primary product marketed in the US until AirXpanders filed for Chapter 7 in July 2019. In Australia, AeroForm achieved approximately 20% market share during the third year of commercialization. In the US, market share was in the single digits, due to the short time period the product was available in the US. Worldwide revenue reached approximately $2mm per quarter, with over 90% of sales in the US in the most recent quarters.
The AeroForm Tissue Expander System is the primary product and the core technology of AirXpanders. The device kit consists of an implant and a remote controller. The implant is a two-layer balloon system which contains a cartridge of CO2. The remote controller is used to open the magnetic valve in the CO2 cartridge, enabling the controlled release of CO2 into the balloon. Unlike a conventional saline tissue expander, the patient can do the expansion entirely on her own, with no need to go back to the doctor every week or so for the saline injections necessary to fill a saline based tissue expander. The patient has full control over the pace of her expansion and avoids the inconvenience and pain of repeated saline injections. Plastic surgeons also prefer to avoid the repeated saline injections, as they are not reimbursed for this activity.
The product is packaged and delivered sterilized via ethylene oxide sterilization. The remote control is “paired” with a single implant at the time of the surgery and will work only with that paired implant. The system has proven to be an effective, easy-to-learn, and easy-to-use product for patients who choose two stage breast reconstruction post-mastectomy.
AirXpanders was incorporated in Delaware in 2005 and was headquartered in San Jose, California. AirXpanders has been publicly traded on the Australian stock exchange since 2015 (ASX: AXP). Nearly $130 million has been invested in the technology and products of AirXpanders. To date, AeroForm has been approved for marketing and sales in the United States, Australia and Europe, although commercialization has been limited to Australia and the United States, given more favorable pricing and reimbursement in those countries.
As a public company headquartered in the United States, AirXpanders was also an SEC filing company, although shares of AirXpanders were only traded in Australia. More information, including recent 10-Q and 10-k filings, can be found at the SEC web site, https://www.sec.gov/edgar/searchedgar/companysearch.html
AirXpanders, Inc. believes its assets are attractive for a number of reasons:
- AirXpanders’ intellectual property and its license covers an implantable device with inflatable chamber, compressed gas source and antenna. This includes claims related to an external device in wireless communication with an antenna to control the incremental release of gas from the gas source and inflate the chamber.
- These patents include five (5) issued U.S. patents, 45 issued OUS patents, three (3) pending U.S. patent applications, and nine(9) pending foreign applications in Australia, Canada, and Europe.
- US FDA clearances include the initial 510(k) de novo clearance in 2016 (DEN150055); a subsequent 510(k) clearance for a material change cleared in April 2017 (K170075) and an additional clearance for the Smooth Shell version of the AeroForm implant in July 2019 (K191138). The AeroForm Tissue Expander System is indicated for use in soft tissue expansion in breast reconstruction following mastectomy, for the treatment of underdeveloped breasts, and for the treatment of soft tissue deformities in the breast. The AeroForm Tissue Expander is intended for temporary subcutaneous or submuscular implantation and is not intended for use beyond six months.
- The AeroForm Tissue Expander System is CE marked, however, the newer smooth shell version has not yet been reviewed by a notified body for CE. AirXpanders notified body was BSI.
- AirXpanders executed an extensive series of clinical trials, including the largest trial ever done for tissue expanders in the US. The XPAND trial was a pivotal IDE trial in the US. It was a prospective, multi-center, randomized (2:1) controlled, open label study, which enrolled a total of 150 patients for 256 implants. Results included significantly shorter time to expansion and time to reconstruction for AeroForm versus saline expanders.
- AeroForm was sold in the US and in Australia. A direct sales force was in place in Australia until June of 2018, when AirXpanders transitioned to a distributor. AeroForm has very strong surgeon support in Australia and is estimated to have 20% market share.
- Over 4,500 AeroForm devices have been implanted.
- Over 160 hospitals ordered AeroForm in the twelve months ending July 2019. Average price in the US was approximately $2,600 per unit (a unit refers to an implant and a remote controller).
- AeroForm, like other tissue expanders, is fully reimbursed as a supply cost under the tissue expansion DRG system. In fact, the Women’s Health and Cancer Rights Act of 1998 requires any insurance company which covers mastectomy procedures to also cover post-mastectomy breast reconstruction. To further encourage doctors to discuss reconstruction efforts with their patients, Congress passed the Breast Cancer Education Act in 2015, requiring doctors to inform women undergoing a mastectomy of their reconstruction options.
- AirXpanders developed an economic calculator and information kit for use with hospital Value Analysis Committee’s (“VAC’S”) in the US.
- AirXpanders achieved ISO 13485 certification.
- AirXpanders received California FDB (Food and Drug Branch) approval.
- AirXpanders was vertically integrated with significant manufacturing capacity. Manufacturing capability was located in San Jose, CA and in San José, Costa Rica. While the contract manufacturer in San José, Costa Rica could be re-engaged, AirXpanders also maintained a full production line, with limited capacity, and the ability to further expand.
Intellectual Property Summary
- AirXpanders intellectual property covers an Implantable device with inflatable chamber, compressed gas source and antenna. This includes claims related to an external device in wireless communication with an antenna to control the incremental release of gas from the gas source and inflate the chamber.
- These patents include five (5) issued U.S. patents, 45 issued OUS patents, three (3) pending U.S. patent applications, and nine (9) pending foreign applications in Australia, Canada, and Europe. In the US, AirXpander owns, or co-owns with Shalon Ventures, all currently issued patents. Additional US patents, based upon early disclosures of Shalon Ventures, may be available. A royalty of 3% of net sales of the licensed inventions is paid to Shalon Ventures with respect to licensed patents and patent applications under an exclusive license entered into with Shalon Ventures on March 9, 2005, amended on March 9, 2009, January 9, 2012, and January 15, 2014, collectively referred to as the License Agreement. The License Agreement provides AirXpanders with certain rights to OUS patents owned by Shalon Ventures, exclusive rights to the co-owned US patents, and patent prosecution rights for patents owned or co-owned by Shalon Ventures and licensed to AirXpanders. The License Agreement with Shalon Ventures is currently in dispute – Shalon Ventures sent a termination notice on July 18, 2019 due to non-payment of certain nominal royalties, but that license is not terminable due to the pendency of the Chapter 7 proceeding. In addition, there is a 90 day cure period post termination notice to bring the payment of royalties current.
AirXpanders’ Assets
AirXpanders has developed a unique, FDA cleared product that meets the needs of physicians and patients alike. The concept is unique, well protected by patents, and well recognized by plastic surgeons throughout the US and Australia. Key assets fall into a variety of categories, including:
- Patents, patent applications, and trademarks
- Regulatory approvals in US, Australia, and Europe
- Established customers, accounts, surgeon advocates and satisfied patients
- Established hospital reimbursement, and a track record of success with GPO accounts and hospital VAC’s
- The only needle free tissue expander available
- Positive long-term clinical feedback from top surgeons and their patients
- Next generation product designs, including significant cost reduction and design simplification
- Manufacturing and equipment developed internally and easily scalable
The AirXpanders Assets will be sold, in whole or in part, to the highest bidder. The sale of these assets is being conducted by Seller, who has secured an interest in the secured loans provided by Oxford Finance, LLC. Certain former employees of AirXpanders will be available to assist purchasers with due diligence and a prompt, efficient transition to new ownership. Notwithstanding the foregoing, AirXpanders former employees should not be contacted directly without the prior consent of Gerbsman Partners.
Previous Management
Frank Grillo — President & CEO, and Executive Director
Mark Payne – Vice President, Research and Development
The Bidding Process for Interested Buyers
Interested and qualified parties will be expected to sign the Non-Disclosure Agreement (attached hereto as Appendix A) to have access to the due diligence data room documentation (“Due Diligence Access”), and the AirXpanders Video. Each interested party, as a consequence of the Due Diligence Access granted to it, shall be deemed to acknowledge and represent (i) that it is bound by the bidding procedures described herein; (ii) that it has had an opportunity to inspect and examine the AirXpanders Assets and to review all pertinent documents and information with respect thereto; (iii) that it is not relying upon any written or oral statements, representations, or warranties of Seller or Gerbsman Partners, or their respective staff, agents, or attorneys; and (iv) all such documents and reports have been provided solely for the convenience of the interested party, and Seller and Gerbsman Partners (and their respective staff, agents, or attorneys) do not make any representations as to the accuracy or completeness of the same.
Following an initial round of due diligence, interested parties will be invited to participate with a sealed bid, for the acquisition of the AirXpanders Assets. Each sealed bid must be submitted so that it is received by Gerbsman Partners no later than Wednesday, October 2, 2019 at 2:00pm Pacific Daylight Time (the “Bid Deadline”) at Gerbsman Partners office, located at 211 Laurel Grove Avenue, Kentfield, CA 94904. Please also email steve@gerbsmanpartners.com with any bid.
Bids should identify those assets being tendered for in a specific and identifiable way. In particular, please identify separately certain equipment or other fixed assets. The attached AirXpanders fixed asset list may not be complete and bidders interested in the AirXpanders equipment must submit a separate bid for such assets.
Any person or other entity making a bid must be prepared to provide independent confirmation that they possess the financial resources to complete the purchase. All bids must be accompanied by a refundable deposit in the amount of $200,000 payable to AirXpanders Liquidation Company, LLC. Refundable deposit wiring instructions will be provided at a later date. The winning bidder will be notified within three (3) business days of the Bid Deadline. Unsuccessful bidders will have their deposit returned to them within three (3) business days of notification that they are an unsuccessful bidder.
Seller reserves the right to, in its sole discretion, accept or reject any bid, or withdraw any or all assets from sale. Interested parties should understand that it is expected that the highest and best bid submitted will be chosen as the winning bidder and bidders may not have the opportunity to improve their bids after submission.
Seller will require the successful bidder to close within seven (7) days following acceptance of such party’s bid. Any or all of the AirXpanders Assets will be sold on an “as is, where is” basis, with no representation or warranties whatsoever.
All sales, transfer, and recording taxes, stamp taxes, or similar taxes, if any, relating to the sale of the AirXpanders Assets shall be the sole responsibility of the successful bidder and shall be paid to Seller at the closing of each transaction.
For additional information, please see below and/or contact:
Steven R. Gerbsman
Kenneth Hardesty
Blog of Intellectual Capital 
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