Medtronic Pays $800M for Total Ownership of Ardian

Medtronic Inc. Chairman and CEO William A. Hawkins certainly is true to his word.

Nearly three months after vowing to pursue “opportunistic” acquisitions to boost sales and plug the holes in its business, Hawkins and other company executives announced Medtronic’s merger with Ardian Inc., an emergent firm that is developing a device to treat hypertension (high blood pressure). Medtronic is paying $800 million in cash for Ardian plus milestones based on the company’s revenue through 2015, according to a joint news release from both firms.

Based in Mountain View, Calif., Ardian invented a catheter-based device that is inserted through the leg into an artery near the kidneys. The catheter emits high-frequency radio waves to destroy nerves near the kidney that have been linked to high blood pressure. Though it is available in a limited number of markets (only European and Australian regulators have given the device their approval), researchers already are touting the success of the nerve-destroying procedure and they point to recent study results as proof of its efficacy. In a study of 106 patients with hypertension, the researchers claim, those treated with the Symplicity Catheter System experienced a drop of systolic blood pressure from 178/96 to 146/84.

“These results are pretty dramatic,” said Anthony DeMaria, editor-in-chief of the Journal of the American College of Cardiology. “These are people in whom hypertension is hard to control and often impossible. We have an intervention that can substantially lower the blood pressure and in a substantial minority even normalize it.”

The promising study results as well as the market growth potential for hypertension treatment undoubtedly influenced Medtronic’s decision to acquire 7-year-old Ardian (already owning an 11 percent stake in the company didn’t hurt, either). Having struggled to achieve a profit amid the slowdown in demand for medical devices, Minneapolis, Minn.-based Medtronic has been searching for the “right strategic fit” with companies that have developed promising new technologies as sales of its core products – devices used for back surgery, pacemakers and defibrillators – have slowed.

Last week, Medtronic posted a second-quarter profit of 2 percent on $3.9 billion in revenue, a figure that was slightly ahead of analyst targets. However, the company’s main source of revenue – its cardiac rhythm disease management (CRDM) devices – lost money in the second quarter (ended Oct. 29), as the market for such products continued to cool. According to Medtronic’s latest earnings report, its CRDM revenue fell 2 percent, with implantable cardioverter defibrillator sales tumbling 1 percent compared with the second quarter of fiscal 2010 and pacing revenue dropping 5 percent. Overall, sales in the company’s Cardiac and Vascular Group inched up 1 percent to $2 billion (or 2 percent after adjusting for foreign currency).

Net income in the second quarter fell to $566 million, or 52 cents per share, compared with $868 million, or 78 cents per share, in the same period last year. Excluding special items, the company earned 82 cents per share. Analysts have expected Medtronic to earn an average 81 cents per share, according to Thomson Reuters. Nevertheless, the company trimmed its fiscal-year outlook for the second time, projecting earnings per share of $3.38 to $3.44, down from $3.40 to $3.48 in August.

Medtronic executives hope the Ardian acquisition will give the world’s largest medical device firm a platform for solid future growth. Sean Salmon, vice president and general manager of Medtronic’s Coronary and Peripheral Business, called Ardian’s technology “one of the most exciting growth markets in medical devices.” He also said the Symplicity Catheter System complements Medtronic’s expertise in ablation technologies.
“Hypertension is the leading attributable cause of death worldwide. It is a significant, escalating global healthcare problem affecting approximately 1.2 billion people and is associated with an increased risk of heart attack, stroke, heart failure, kidney disease and death,” Salmon said. “Ardian’s investigational catheter-based treatment for uncontrolled hypertension through renal nerve denervation complements Medtronic’s expertise in catheter design and ablation technologies, and augments Medtronic’s interventional therapies.”

The acquisition is expected to close in Medtronic’s third fiscal quarter of 2011.