Deals and More Deals

Deals and More Deals

And the consolidation continues. Over the course of the past few weeks, medical device firms have inked a number of buyouts, mergers and partnerships. The following deals are among the most notable:

Zoll Medical Bought by Japanese Firm
“Irasshai,” Zoll Medical Corp.

Employees and executives of the Chelmsford, Mass.-based device manufacturer might hear that phrase (meaning Welcome!) much more frequently as their prospective new owner familiarizes itself with both the company and its potential to boost worldwide healthcare revenue.

Zoll’s new owner—diversified chemical maker Asahi Kasei Corp. of Tokyo, Japan—is prepared to pay handsomely for that potential, having offered the 32-year-old firm $2.2 billion for acquisition rights. The purchase price of $93 per share is 24 percent higher than Zoll’s closing price of $75.10 on March 9.
Announced on March 13, Asahi’s deal for Zoll is the year’s first big blockbuster purchase but the second in three months involving a Japanese company, reflecting a trend among Japanese firms to seek high-growth opportunities in the United States.

“It has been quite a while since Japanese companies were active acquirers of U.S. businesses, but many Japanese companies are now looking at healthcare as a future growth market,” financial analyst, investor and consultant Stephen Simpson wrote in a brief analysis of the Zoll-Asahi merger for Seeking Alpha, a website for stock market opinion and analysis. “Asahi Kasei may only be among the first in a long line of companies to look to build or enhance healthcare franchises around quality U.S. names. Should that prove to be the case, the next few years could be even more interesting for those smaller growth names.”

Simpson called the Zoll acquisition a “pretty strong deal” for the company. The price offered by Asahi Kasei is 26 percent higher than Zoll’s average closing price over 20 days through March 9, and lower than the 53 percent average premium for 19 similar-sized acquisitions of healthcare product firms during the past five years, according to Bloomberg data. Zoll’s net income soared 65 percent to $31 million for the year ended Oct. 2, 2011. Annual sales have grown an average of 16 percent for the last decade, Asahi executives claim.

Founded in 1980 by three people, including heart doctor Paul M. Zoll, the company manufactures and sells devices used in ambulances and hospitals to revive patients whose hearts have stopped. Its removable defibrillator vest generated $111 million in sales in fiscal 2011.

Asahi Kasei President Taketsugu Fujiwara said Zoll’s devices expand the kinds of products sold by his company in the United States and high-growth Asian markets.

“We are very excited to be joining forces with Zoll, with whom we have enjoyed a productive partnership over the past nine months. In the medical devices business, the U.S. market leads the world, not only in size and scope, but also in technological innovation, so establishing a strong infrastructure in the U.S. is an important step for Asahi Kasei. This transaction will allow us to build on Zoll’s strong U.S. business position and its technology leadership, with Zoll forming the cornerstone of our critical care business,” he said in a news release. “We look forward to working with the management and all the employees of Zoll to develop a critical care business renowned worldwide for its ability to turn technological advances into sophisticated medical tools that save lives and deliver invaluable improvements in the quality of life of patients and their families.”

Zoll CEO Richard Packer said he does not expect the deal to trigger a restructuring, management changes or layoffs. “Asahi Kasei needs all that Zoll has,” Packer wrote in a letter to employees. “No part of Zoll or person in Zoll is redundant to what Asahi Kasei already has. This fact means there will be minimum change or disruption.”

The acquisition, analysts claim, would accelerate Asahi Kasei’s plan to triple its healthcare business to approximately $6.1 billion by 2020. The global critical care market is estimated at $48 billion and growing at 7 percent annually. Asahi Kasei partnered with Zoll last August to sell its automated external defibrillator in Japan; that partnership led to the acquisition, though analysts claim there still may be time for another suitor to woo Zoll because the proposed purchase price does not include its temperature management system used after strokes and heart attacks.

Biomet Makes Play for DePuy’s Trauma Biz
Biomet Inc. agreed to buy the trauma division of Johnson & Johnson (J&J)-owned DePuy Orthopaedics for $280 million in cash. The move comes after J&J announced its intent to buy Switzerland-based orthopedic device company Synthes almost a year ago. J&J would fold Synthes into DePuy Orthopaedics to create, according to the company, possibly the largest orthopedics business in the world. The anticipated acquisition raised concerns with European antitrust authorities due to its size, which prompted Biomet’s agreement to acquire a portion of DePuy Orthopaedics.

The European Commission in Brussels said in November that it was concerned that the merger of J&J and Synthes would cause a rise in orthopedic device prices —in other words, it would create a monopoly. J&J had a hearing before European Union antitrust regulatory officials in February.
J&J currently is working with European antitrust authorities to finalize the acquisition of Synthes, while Biomet’s agreement will expire on June 1.

“We believe this divestiture will satisfy all regulatory concerns relating to the pending purchase of Synthes by Johnson & Johnson, but we will not know with certainty until the regulatory processes in the E.U. and U.S. are completed,” said Bill Price, vice president of media relations at J&J. The Biomet offer can be extended under certain circumstances.

With the DePuy purchase, Biomet expects expanded presence in the sports, extremities and trauma businesses, according to Jeffrey R. Binder, president and CEO of the Warsaw, Ind.-based firm.

Covidien Banks on Future of New Technology Covidien has agreed to buy Israel-based SuperDimension Ltd. for about $300 million initially plus possible future payments.

The privately held company develops minimally invasive interventional pulmonology devices. Its annual sales total about $30 million, according to Covidien.

The deal, which is subject to customary closing conditions and regulatory approvals, is expected to close in the second quarter of this year. The purchase also follows a continuing industry trend toward more cost-effective procedures to tackle declining patient volumes, as fewer Americans opt for expensive treatments in light of a weakening economy.

SuperDimension’s iLogic system uses electromagnetic navigation bronchoscopy to provide access to lesions deep in the lungs. By extending the reach of conventional bronchoscopes, the system makes it easier for doctors to evaluate lung lesions, potentially allowing safer, more effective tissue biopsies.

“Covidien’s strategy is to invest in clinically and economically relevant products and technologies which can meaningfully improve patient outcomes while reducing the overall cost of care,” said Bryan Hanson, president of Covidien’s Surgical Solutions division. “The acquisition of SuperDimension will position Covidien to continue its investment in meaningful innovation by delivering more comprehensive solutions in the evaluation and treatment of lung diseases.”

Covidien officials don’t expect the acquisition to have a significant impact on its fiscal 2012 sales, but the deal is expected to slightly lower its fiscal 2012 earnings per share.

Given that Covidien paid 10 times the amount of SuperDimension’s annual sales, the company is betting that this will be a good long-term move.

Gabelli & Co. analyst Jeff Jonas told Reuters that several other industry giants including Medtronic Inc. were interested in buying SuperDimension. According to rumor, a bidding war culminated in Covidien eventually agreeing to pay $300 million.

Though based in Ireland, most of Covidien’s operations are led out of Mansfield, Mass.
Partnership and Possible Purchase Target for AngioDynamics AngioDynamics has established a “strategic relationship” with Microsulis Medical in Denmead, England, according to press releases from both companies.

AngioDynamics has invested $5 million in Microsulis, establishing 14.3 percent ownership. The companies share common interests: AngioDynamics provides minimally invasive medical devices for vascular access, surgery, peripheral vascular disease and oncology, while Microsulis specializes in minimally invasive, microwave ablation technology for the coagulation of soft tissue. Moreover, Microsulis has a presence in more than 80 hospitals globally, according to the company.

Microsulis has minimal representation in the United States, with five sales representatives for all 50 states. Its partnership with AngioDynamics will expand its reach in North America. On the other hand,
AngioDynamics will benefit from Microsulis’ broader presence in Europe. AngioDynamics has been granted exclusive distribution rights to market and sell the Accu2i pMTA microwave ablation system in all markets outside the United States from May 2012 through December 2013. The company also has the exclusive option to purchase substantially all of the global assets of Microsulis, including the microwave ablation technology and its worldwide distribution rights until Sept. 22 this year.

The Accu2i pMTA microwave ablation system is Microsulis’ flagship product. The system is intended for percutaneous use, which means accessing internal organs with the use of a needle rather than cutting with, for instance, a scalpel. This particular system utilizes a single, high power, high frequency needle that is saline-cooled and was cleared by the U.S. Food and Drug Administration in August 2010.

Albany, N.Y.-based AngioDynamics is expecting to see a “modest” revenue influx from this partnership in fiscal year 2012, according to President and CEO Joe DeVivo.

Serious Deal for a Product with a Funny Name
French drugmaker Sanofi has agreed to buy a Woburn, Mass.-based medical device company to expand its presence in biosurgery.

Sanofi said it planned to commercialize LeGoo, manufactured by Pluromed Inc., a gel for temporarily controlling bleeding during surgical procedures. Details of the deal were not released.

Pluromed has developed a proprietary polymer technology, called Rapid Transition Polymers (RTP), that uses injectable plugs to improve the safety, efficacy and economics of medical interventions, according to the company. Sanofi will commercialize LeGoo, which is a U.S. Food and Drug Administration approved and CE marked gel for temporary endovascular occlusion of blood vessels during surgical procedures.

LeGoo is a thermo-sensitive biocompatible and non-toxic liquid gel that forms a plug when injected into a blood vessel to temporarily stop blood flow. The plug dissolves rapidly via cooling or spontaneously after several minutes. Once dissolved, the plug cannot reform because the concentration is too low. In a prospective, randomized study, LeGoo has been shown to provide better operating conditions than conventional occlusion techniques by limiting blood flow into a surgical field without causing damage to the vessels, according to the company. The study also showed a reduction in the time required to perform an anastomosis for beating heart surgery when using LeGoo. Time, of course, is critical to patient outcomes in these types of surgical interventions.

“The acquisition of Pluromed underscores Sanofi’s commitment to strengthen its Biosurgery portfolio,” said Alison Lawton, senior vice president and general manager of Sanofi’s Biosurgery business.
“LeGoo is a breakthrough technology with the potential to change the paradigm of vascular and cardiovascular surgical procedures, by providing fast, temporary control of blood flow while avoiding vessel trauma associated with standard of care.”

Jean-Marie Vogel, CEO of Pluromed said he was “confident” that Sanofi has the expertise and resources necessary to bring the product to market and “drive adoption.”

“LeGoo represents a major advancement in surgical technology because of its ability to control bleeding without clamps or snares that can injure delicate blood vessels,” said Dr. William E. Cohn, director, Minimally Invasive Surgical Technology at the Texas Heart Institute in Houston, Texas, and a member of Pluromed’s board of directors. “This breakthrough gives surgeons a way to temporarily stop blood flow into the surgical field which is imperative for clear visualization and accurate placement of sutures. I believe this technology will be widely adopted in cardiovascular surgery and perhaps in other fields in the future.”

Pluromed will become part of Sanofi’s Biosurgery unit, which develops and markets biologically based products for osteoarthritis relief, adhesion prevention, cartilage repair, and severe burn treatment.
Sanofi spent $20.1 billion last year to acquire Genzyme, which is based in Cambridge, Mass., and is the largest maker of medicines for rare genetic diseases. After the purchase, Genzyme’s biosurgery business was folded into Sanofi. The French drugmaker is ready to develop the businesses it acquired through Genzyme.

Study Examines Deaths Caused by Defibrillator Leads
A new study published by the Heart Rhythm Journal examines the details behind last year’s recall of leads used with St. Jude Medical’s Riata and Riata ST implantable cardioverter defibrillators.

Resurfacing the issue, the study found that the faulty wires directly caused 22 deaths. There were a total of 133 deaths—22 caused by Riata or Riata ST lead failures, five caused by Quattro Secure Lead failures (manufactured by Medtronic Inc.), and the rest caused by unspecified factors.

The U.S. Food and Drug Administration’s (FDA) recall on Dec. 21 was prompted by exposed wires from the protective lead casings. The study, however, shows that short-circuits between high voltage components rather than externalized conductors were the typical cause of death in the 22 fatalities associated with Riata. Author of the study, Robert Hauser, M.D., told The New York Times, “When I went in, I thought I would find more deaths related to externalized cables. But as it turned out, the externalized cables really didn’t factor in.”

There is some dissent from the St. Paul, Minn.-based company. St. Jude’s Chief Medical Officer Mark Carlson, M.D., claims that Hauser’s study contains errors, namely that two of the deaths had been counted twice, bringing the count to 20 rather than 22. Hauser’s peer-reviewed study gained their numbers from searching the FDA’s Manufacturer and User Device Facility Device Experience database, which aggregates reports of “adverse events involving medical devices.”

Riata and Riata ST leads had been on the market since 2000 and 2005 respectively, and in that time were estimated to have been implanted in a total of 128,000 patients worldwide. Patients who have these leads implanted with their defibrillator are at risk for short-circuits—but removing the wires is not recommended as that, too, is considered high-risk. Hauser recommends that physicians pay attention “to what are the electrical signs that might help … identify patients who are at risk” for lead shorts.