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Covidien Buys VNUS Medical for $440M

Covidien has inked a deal to purchase VNUS Medical Technologies Inc., a San Jose, Calif.-based firm that manufactures devices for the minimally invasive treatment of venous reflux disease, for approximately $440 million.

VNUS had 2008 revenues of $101 million. Both companies’ boards unanimously approved the move. Covidien will pay $29 in cash for each share of VNUS stock—a 36 percent premium compared to the closing price of the stock on the day the deal was announced. The deal is expected to close by the end of June.

“The acquisition of VNUS will allow Covidien to expand its presence in the vascular market and is in line with our strategy of becoming a leading partner with vascular surgeons and interventional radiologists,” said Joe Almeida, president of Covidien’s Medical Devices division. “The VNUS product line will be an important addition to our innovative portfolio of vascular intervention products.”

Brian Farley, president and CEO of VNUS, said the merger would help his company gain access to greater global resources.

Venous reflux disease is an underlying cause of varicose veins that can result in symptoms including leg pain, swelling, fatigue and skin ulcers. VNUS’ primary product is the VNUS Closure system, which uses a disposable radiofrequency catheter that controllably heats and closes diseased veins. According to the company, a randomized clinical trial proved the system was as effective as vein stripping, an open surgical procedure that has been the standard of care for treatment for venous reflux disease. VNUS claims its device offers fewer side effects and faster recovery.

The Closure system consists of a proprietary radiofrequency (RF) generator and proprietary disposable endovenous catheters and devices to treat diseased veins through the application of temperature-controlled RF energy.

Once the transaction has been completed, the VNUS business will be part of Covidien’s Vascular product line in the medical devices segment. Covidien, based in Dublin, Ireland (U.S. headquarters are in Mansfield, Mass.), has product lines in four segments: medical devices, imaging solutions, pharmaceutical products and medical supplies.

Philips Adds Traxtal to Healthcare Unit

In other buyout news, Netherlands-based Royal Philips Electronics acquired Toronto, Canada-based Traxtal Inc., a medical technology company in the field of minimally invasive instruments and software for image-guided intervention and therapy.

The purchase is a move to grow Philips’ healthcare business. The company’s product line includes imaging systems, diagnostics, resuscitation devices such as external defibrillators, radiation, healthcare informatics and patient monitoring. The worldwide market for image-guided systems is expected to grow to $600 million by 2015, according to Philips.

Financial terms of the deal, announced in early May, were not disclosed. Privately held Traxtal has approximately 45 employees. The company has been in partnership with Philips to provide integrated soft tissue therapeutic and diagnostic navigation solutions since 2006.

Traxtal’s navigation device functions much like a global positioning system for medical instruments, designed to make interventional radiology procedures more accurate while reducing contrast, radiation dose and interventional time. For example, Traxtal’s navigation solution displays, during the procedure, an instrument’s position, orientation and trajectory on medical images such as ultrasound or CT.

“Image-guided procedures are one of the most important breakthroughs in the healthcare industry in decades. This acquisition allows Philips to significantly enhance its abilities in this rapidly emerging field, and will help us further realize our ambition to offer the best quality of care in the most efficient way possible,” said Steve Rusckowski, CEO of Philips’ Healthcare division.

Rusckowski added that the purchase “opens up great opportunities” for the company to expand its product line.

Since 2005, Philips has spent more than $13.3 billion on acquisitions to bolster its medical and lighting units. Philips expects the global market for image-guided navigation to reach $600 million by 2015. Philips’ imaging systems business competes with industry powerhouses such as General Electric and Munich,Germany-based Siemens AG.

GE Unveils Plan for Lower-Cost Healthcare

General Electric Co.’s healthcare division plans to invest $6 billion by 2015 for lower-cost medical equipment and care around the world, at the same time increasing earnings at its medical systems and bioscience division. The program rivals GE’s “ecoimagination” marketing campaign and product development initiative into green technologies.

The company calls it “healthymagination.” GE’s healthcare division—a $17 billion revenue generator last year—sells diagnostic and imaging equipment to hospital systems. The new program will focus on rural and emerging markets, developing low-cost equipment, as well as helping hospitals become more efficient and reduce costs.

Roughly $3 billion will be spent in the next six years on healthcare innovation that will help deliver improved care at lower cost. In addition, the company plans $2 billion of financing and $1 billion in related GE technology and content to drive healthcare information technology and health in rural and underserved areas.

According to GE officials, the company will launch at least 50 basic products tailored to rural or emerging markets, such as the lightweight portable electrocardiograph machines the company has developed for India. According to industry analysts, it’s unlikely that such low-cost products will boost the company’s lackluster earnings in the near term. GE executives, however, believe the strategy will position them to benefit from healthcare-related stimulus spending and global population trends over the long haul.

Hospitals are slashing costs and budgeting fewer purchases of GE’s core products, such as MRI machines and CT scanners. In the first quarter, revenues for the healthcare unit were down 9 percent from the year before, with profits down 22 percent. During a recent earnings call to discuss the company’s first quarter results, Chairman and CEO Jeffrey Immelt said: “We had real headwind in healthcare, as that market is proving to be very difficult, particularly in the U.S.”

Of the new initiative, Immelt was more bullish: “Healthcare is an important industry that is challenged by rising costs, inequality of access and persistent quality issues,” he said. “Healthcare needs new solutions. We must innovate with smarter processes and technologies that help doctors and hospitals deliver better healthcare to more people at a lower cost.

The program is in response to new opportunities the company has recognized in healthcare, he said.

“Our newest innovations—low-cost digital X-ray machines, portable ultrasounds, more affordable cardiac equipment—will save costs for doctors, hospitals, the government, families and businesses. This will help level the playing field in healthcare. With our technology, rural and urban areas and developing countries can have access to the best technology, affordably,” he said.

The company recognized a “tipping point” a few years ago when it launched its “ecomagination” initiative, according to Immelt.

“We learned that technical innovation can drive solutions and value for customers, investors, employees and the public. We will bring the same integrated approach to healthcare, focusing all of our expertise, labor and imagination on its success,” he added.

John Dineen, president and CEO of Waukesha, Wis.-based GE Healthcare said, it was the “right time to reposition” the business given the changes and challenges in the industry.

Former U.S. Sen. Tom Daschle, who will serve on GE’s healthymagination advisory board, said: “We can only find real solutions in healthcare when business, government and their partners work together. The commitments GE made on access, cost and quality are a great start toward demonstrating their leadership in this debate.

GE officials hope the healthcare business will grow two to three times as fast as U.S. gross domestic product over the long term. Besides building low-cost digital X-ray machines or more affordable cardiac equipment, GE is joining Microsoft, Google and other tech titans in the land rush created by the spending in President Barack Obama’s stimulus package for healthcare IT. In conjunction with Intermountain Healthcare, a Salt Lake City, Utah, hospital system, and the Rochester, Minn.-based Mayo Clinic, GE plans next year to commercialize technology that helps physicians make clinical decisions. And with financing from GE Capital, it will focus on lending to hospitals and doctors who want to take advantage of new federal financial incentives for electronic medical records.

New Study Bolsters Medical Device Industry’s Preemption Argument

According to a white paper published by researchers at the Massachusetts Institute of Technology (MIT) in Cambridge, Mass., eliminating FDA’s preemption protection would decrease patients’ access to life-enhancing medical devices, increase healthcare costs and reduce medical device industry employment.

This is one of the latest volleys in the back-and-forth debate between the medical device industry and Democratic lawmakers. The debate revolves around the possible repeal of the U.S. Food and Drug Administration’s (FDA) preemption authority through recently proposed legislation called the Medical Device Safety Act of 2009. FDA preemption exempts product manufacturers from tort claims regarding FDA-approved products. Last year, in Riegel v. Medtronic Inc., the U.S. Supreme Court ruled that manufacturers of FDA-approved medical devices that successfully undergo the FDA’s premarket approval process are protected from liability under state laws.

The new legislation would reverse such protections. Supporters of preemption argue the proposed legislation would stifle innovation and slow the delivery of life-saving technology. Proponents of the bill, however, argue that patients need an outlet to ensure their safety should they be harmed by a medical device.

The white paper published by MIT researchers—and sponsored by the Washington, D.C.—based Advanced Medical Technology Association—is titled “The Economic Impact of Eliminating Federal Preemption for Medical Devices on Patients, Innovation and Jobs.” It highlights what the authors call “the damaging economic, health and societal impacts” the legislation would have on patients, medical device industry innovation and employees, and the public health.

“As economic and healthcare researchers, we felt it was important to examine how this regulatory change could harm innovation, and ultimately impact the patients who rely on these treatments and the people who are employed by the device industry,” said co-author Ernst Berndt, Ph.D., Louis E. Seley Professor in Applied Economics at MIT’s Sloan School of Management. “Congress should carefully weigh any policies that could increase healthcare costs and reduce high-paying jobs, particularly during an economic downturn.”

The outcome of the legislation, according to the white paper’s authors could include the following results:

• Patients’ access to medical devices and the benefits they provide would be reduced; as prices increase, products may be withdrawn, and fewer new products will be developed.

• Physicians will increasingly practice defensive medicine to avoid litigation and expose patients to added risks of otherwise unnecessary procedures.

• For those employed by the medical device industry, the increased manufacturers’ costs would discourage investment in medical device development, reducing the R&D pipeline of innovative new products created and brought to market, and lead to layoffs of high-paying jobs.

• Medical innovation would be affected, as decisions about healthcare products shift from expert, science-based regulators to untrained, non-expert juries, creating a duplicative, fragmented and inconsistent national framework administered by state and federal courts.

• The government would experience increased costs, as Medicare and Medicaid spend more than they otherwise would due to fewer new product innovations, and government pays for increasing judicial system, tort and duplicative state regulatory costs.

The question is not whether eliminating preemption will reduce innovation, but rather by how much and how rapidly,” said co-author Mark Trusheim, visiting scientist at the MIT Sloan School of Management in Cambridge, Mass.

“High levels of tort risk discourage investment in new technology. Eliminating preemption substantially alters the benefit/risk ratio of complex medical devices, increases the costs for all stakeholders, and negatively affects patients’ future access to treatment options. Given these findings, and current economic circumstances, Congress should carefully consider any change to current law as the ramifications could substantially harm patient choice and health,”  Trusheim concluded.

The New England Journal of Medicine recently came out in favor of repealing FDA preemption. In mid-May, the U.S. House of Representatives Energy and Commerce Health Subcommittee held a hearing to explore the issue.