Done Deals and Denials

Big-name players in the medical device sector have been in an acquisitive mood lately. Companies such as Boston Scientific Inc., St. Jude Medical Inc. and Zimmer Holdings Inc. have had their checkbooks out in recent months—and for big bucks. Others seem to be ready to make the next big deal, but remain reticent.

Here’s a look at two of medtech’s most recent hits and one maybe that had the market’s undivided attention.

Stryker Interested in Buying Smith & Nephew—Just Not Yet

Officials at Kalamazoo, Mich.-based Stryker Corp. are denying they are planning a takeover offer for rival Smith & Nephew plc.
The rumor initially was published by the United Kingdom’s Financial Times newspaper. The news sent Smith & Nephew shares through the roof. The newspaper reported that Stryker had retained investment bankers and was trying to arrange financing for a bid, which drove shares of the London-based company up as much as 18 percent after the rumor became public.

The news garnered so much attention that the United Kingdom’s Panel on Takeovers and Mergers asked Stryker to clarify its intentions. Stryker officials said that under U.K. rules, the company can’t bid for Smith & Nephew for six months except in certain circumstances.

“At the request of the U.K. Takeover Panel, Stryker confirms that it does not intend to make an offer for Smith & Nephew,” company leadership released in a May 28 statement.

Those requirements could still be met, reviving the deal, said Lisa Bedell Clive, an analyst at Sanford C. Bernstein & Co.

“It does not preclude them from approaching the Smith & Nephew board if the board is willing to engage,” Clive said in a note to clients. “We continue to think that Smith & Nephew remains a viable target for Johnson & Johnson or Stryker as the orthopedic industry enters a new phase of consolidation.”

U.K. rules on takeovers are different and more structured than in the United States, according to Stephen Simpson, CFA, a financial and investment writer.

“With its denial, Stryker is basically prohibited from making an unsolicited bid for Smith & Nephew for six months and is reportedly not even supposed to move forward with additional internal due diligence—although how that can be prevented is a completely different subject,” Simpson wrote in a blog on the Motley Fool website and later confirmed in an interview with Medical Product Outsourcing.

There are some exceptions to that six-month ban, Simpson explained. Stryker can make a bid if another company announces a bid for Smith & Nephew and the two companies can announce a friendly mutual deal in three months.

Simpson told MPO that a deal between Stryker and Smith & Nephew in the next month or two “probably isn’t doable,” but that six months would “definitely” be doable. He noted that news of Stryker’s interest wouldn’t really change the playing field much as far as possible suitors for Smith & Nephew are concerned.

“Seeing as there cannot be that many other companies looking at Smith & Nephew, I don’t think it changes much or risks other timelines,” Simpson said. “Johnson & Johnson all but said they’re not interested, and Zimmer wants Biomet. That really only leaves Medtronic, and I think their shareholders would have a fit. So I believe Stryker can take its time.”

Shareholder fits or not, it seems that Medtronic may actually be eyeing a takeover, according to Bloomberg news on June 4. Medtronic officials declined to comment.

Stryker had been in the early stages of evaluating Smith & Nephew as a takeover target, Stryker’s Chief Executive Officer Kevin Lobo confirmed on Fox Business Network. Speculation about the acquisition and the movement of Smith & Nephew’s shares led government officials in London to contact him, according to Lobo.

Some industry experts claim the acquisition would allow Stryker to cut its tax bill by relocating to the United Kingdom, while expanding its portfolio to compete for hospitals’ business with larger rivals such as Johnson & Johnson and Medtronic Inc.
Even without the tax benefits, Stryker could be looking to grow as the orthopedic market consolidates, analysts said.

In April, Zimmer Holdings Inc. agreed to acquire Biomet Inc. for $13.4 billion, which puts it ahead of Stryker as the second-largest company in the orthopedic market.

St. Jude Medical Scoops Up Rest of CardioMEMS

St. Jude Medical Inc. has closed a deal to buy CardioMEMS—actually, to purchase the rest of  the company it didn’t already own.
The St. Paul, Minn.-based cardiovascular firm exercised its option to buy remaining shares of Atlanta, Ga.-based CardioMEMS for $375 million following a recent U.S. Food and Drug Administration (FDA) win.

CardioMEMS’ wireless implantable heart technology is designed to manage patients with heart failure. The company received the FDA’s blessing on May 28. The CardioMEMS HF (heart failure) System already has inpatient reimbursement from the Centers for Medicare and Medicaid Services.

The second time was a charm for CardioMEMS. The FDA had turned the company down the first time it sought approval for its technology. The device records pulmonary artery pressure and transmits it to physicians, who can monitor it remotely and manage the condition.

By being able to monitor a patient’s pulmonary artery pressure remotely, physicians can manage a patient’s medications and reduce the likelihood of hospitalization. Any technology that reduces healthcare costs in the short and long terms is a solid bet for future long-range profits, St. Jude is predicting. In September 2010, St. Jude paid $60 million for a 19 percent stake in CardioMEMS, with an exclusive option to buy the remaining 81 percent for $375 million.

“FDA approval is in line with our expectation and a positive for St. Jude,” Larry Biegelsen, an analyst at Wells Fargo Securities, said in a research note. He estimates CardioMEMS sales will reach $259 million annually by 2018. Michael Weinstein, an analyst at JP Morgan Chase & Co., said CardioMEMS “represents a key piece to the growth re-acceleration story at St. Jude.” He added that the CardioMEMS system “has the chance to be one of the more meaningful technological advances in heart failure management in recent memory.”

“The CardioMEMS HF System will not only improve the lives of patients but will also reduce the economic burden of this epidemic disease,” Eric Fain, M.D., group president of St. Jude, said in a statement.

CardioMEMS was founded by Jay Yadav, M.D., a cardiologist and entrepreneur and Mark Allen, a Georgia Tech nanotechnology professor. Yadav serves as the firm’s CEO.

Yadav said the company will remain headquartered in Atlanta.

Philip Adamson, M.D., director of the Heart Failure Institute at the Oklahoma Heart Institute and co-principal investigator of the Champion study, the data from which the FDA approval was granted, added: “The Champion trial illustrates how close monitoring of patients with chronic heart failure can reduce the need for costly and dangerous hospitalization while improving quality of life.
These results are the beginning of a new era of hope for patients suffering from chronic symptomatic heart failure complementing medical and device therapies. The ‘Hemodynamic Era’ is a major advancement with promise for profound long-term impact on heart failure morbidity.”

Takao Ohki, M.D., chief of vascular surgery at Jikei University in Tokyo, Japan, said, “The ability to get physiologic information wirelessly from patients with heart failure is a great breakthrough and represents the culmination of many years of basic and clinical research.”

Yadav noted that the research conducted in heart failure would not have been possible without Ohki’s pioneering work with the CardioMEMS wireless technology in aortic aneurysms.

BSX Inks Deal for Bayer’s Interventional Device Busines

Boston Scientific Corp. is buying the interventional device division of Germany’s Bayer AG for $415 million in a move that will expand the medical device maker’s portfolio of coronary and peripheral vascular disease treatment technologies. The sale will give Boston Scientific rights to AngioJet, a thrombectomy device; JetStream, an atherectomy technology; and Fetch 2, an aspiration catheter. Bayer Interventional reported $120 million in sales in the atherectomy and thrombectomy markets in 2013.

Berlin-based Bayer HealthCare CEO Olivier Brandicourt, M.D., said the transaction would allow Bayer to concentrate on its radiology and diabetes divisions. Alan Main, president of Bayer HealthCare’s Medical Care Division, called the addition of AngioJet, Jetstream and Fetch2 “a positive step for the long-term sustainability of these products.”

“We are confident the planned sale of AngioJet, Jetstream and Fetch2 is a positive step for the long-term sustainability of these products given Boston Scientific’s strong position in devices for peripheral and cardiovascular diseases,” said Main.

Boston Scientific is based in Natick, Mass. Bayer Interventional, which employs 350 people, is in Coon Rapids, Minn. The sale is expected to be completed in the second half of this year.

“We expect this acquisition will help fuel continued growth for the company and we are looking forward to welcoming the team from Bayer Interventional to Boston Scientific,” Boston Scientific President/CEO Mike Mahoney said. “These technologies help physicians save both limbs and lives, and we believe this transaction will enable us to reach more effectively the greater than 27 million patients worldwide who suffer from the debilitating effects of peripheral vascular disease.”

Upon completion of the transaction, Bayer Interventional will become part of the existing Boston Scientific Peripheral Interventions business.

“The addition of Bayer Interventional will expand our commercial footprint and enhance our ability to provide physicians and healthcare systems with a complete portfolio of solutions to treat challenging vascular conditions,” said Jeff Mirviss, president, Peripheral Interventions, Boston Scientific.  “We believe this acquisition will accelerate the growth of our Peripheral Interventions business and strengthen our position as a global leader in peripheral therapies.”

The agreement calls for an up-front payment of $415 million. The company currently expects the transaction to be immaterial to adjusted earnings per share in 2014, accretive by approximately 1 cent in 2015 and increasingly accretive thereafter. On a GAAP earnings-per-share basis, the company expects the transaction to be slightly dilutive in 2014, immaterial in 2015, and less accretive than on an adjusted earnings per share basis thereafter as a result of acquisition-related net charges and amortization, which will be determined following the closing.