Philips to Buy Volcano for $1.2 Billion

Royal Philips NV is either ending 2014 with a bang or beginning 2015 with a trumpet blast. Either way, the company’s healthcare unit’s most recent purcahse is big news.

Netherlands-based Philips will acquire Volcano Corp. for $1.2 billion. Volcano makes catheter-based imaging and measurement solutions for cardiovascular uses. The acquisition—for $18 per share—is intended to boost Philips’ image-guided therapy business, which is part of the company’s healthcare division. The purchase price is a 57 percent premium compared to Volcano’s closing price the day before the deal was announced (Dec. 17).

In the last few years, Philips has created an image-guided therapy business through strategic investments in R&D, partnerships and technology licenses. Philips officials claim that one out of every three interventional X-ray systems sold globally is one of its systems, which provide visual maps that allow the clinician to guide thin catheters through the body and perform the minimally invasive treatment.

In image-guided treatments of the heart and blood vessels, there is an increasing trend to use advanced catheters that are capable of producing ultrasound images of the interior of blood vessels (intravascular ultrasound or IVUS) or perform blood flow measurements (fractional flow reserve or FFR). There is a growing body of clinical evidence that the use of such technologies in conjunction with interventional X-ray helps improve procedural outcomes.

With 2013 sales of approximately $400 million, San Diego, Calif.-based Volcano has a strong market position in both IVUS imaging and FFR.

According to executives from Philips, the combination of the companies will create new sources of recurring revenue streams and increase sales growth for Philips in the approximately $5 billion image-guided therapy market. Sales growth will be accelerated through Volcano’s close customer relationships associated with its disposable products and channel synergies that will create cross-selling opportunities between both companies’ existing customer bases, officials said. In addition, the combination of Volcano’s proven clinical development and commercialization capabilities with Philips’ next generation of imaging and measurement technologies, will allow Philips to introduce new solutions in higher-growth segments such as the minimally invasive treatment of heart rhythm disorders and structural heart diseases.

“The agreement to acquire Volcano significantly advances our strategy to become the leading systems integrator in image-guided therapies,” said Frans van Houten, CEO of Royal Philips. “Volcano’s impressive and unique product portfolio is highly complementary to our strong offering in live image-guidance solutions, creating an opportunity to accelerate the revenue growth for our image-guided therapy business to a high single-digit rate by 2017. Our combined sales forces will be able to capture immediate cross selling opportunities, while our joint R&D teams will be able to develop new solutions to address significant unmet needs in the minimally invasive treatment of cardiovascular diseases.”

Van Houten added: “Image-guided therapies provide significant benefits for healthcare systems and patients, including reduced patient trauma, shorter recovery times and hospital stays, and lower costs. As a result, our clinical partners and customers are asking for a tighter integration of imaging and measurement technologies to enable such therapies. This transaction allows us to provide our customers with an integrated solution to improve procedural outcomes at a decisive stage in the health continuum.”

“I am very excited that Volcano will become part of Philips and join forces with its leading image guided therapy business,” said Scott Huennekens, Volcano’s president and CEO. “This transaction will be beneficial for our shareholders, customers, partners and employees. There is a large and growing global market opportunity for image-guided therapies, and as part of Philips, we gain the scale and resources needed to accelerate our goals of improving patient outcomes on a global basis, lowering cost and delivering innovative diagnostics and therapies in the coronary and peripheral markets. In addition, our shared expertise in the image-guided therapy market will allow us to further globalize our leading IVUS and FFR product offerings and enter new product areas.  We look forward to working closely with Philips and ensuring a smooth transition and closing.”

Upon completion of the transaction, the Volcano business and its 1,800 employees will be part of a dedicated, new image-guided therapy business group within Philips, which will be led by Philips executive Bert van Meurs.