‘Tis the season to make big deals, at least that seems to be the case for St. Jude Medical (St. Paul, Minnesota). The company reported two acquisitions back to back this week – Radi Medical Systems for $250 million cash and MediGuide (Haifa, Israel) for $283 million in cash plus $17 million net liabilities. The deals were reported Sunday and Monday, respectively.
For 2008, Radi is expected to generate roughly $80 million in sales, a 19% increase over last year, according to St. Jude. The company’s pressure measurement guidewire, PressureWire Certus, comprises about a 70% share of the global market for physiological assessment of coronary lesions. Radi’s FemoStop and RadiStop product lines comprise about a 60% share of the global market for manual compression-assist products for vascular closure. This market totaled nearly $45 million in 2008 and is projected to continue to grow at least at a mid single-digit rate, according to St. Jude. The FemoStop and RadiStop product lines, together with St. Jude’s Angio-Seal line of active vascular closure products, will be part of an expanded program by St. Jude Medical to fully develop the potential of a global vascular closure device market that is only about 27% penetrated, the company said.
“This acquisition [of Radi] immediately makes St. Jude Medical the leader in two new cardiology product categories that have good growth potential,” Dan Starks, chairman, pres/CEO of St. Jude said during a conference call yesterday, during which he discussed both deals. “Both product lines can benefit from more field support and more investment in market development than Radi has been able to provide as a standalone company. The cardiology programs of Radi and of St. Jude Medical both are stronger together than either program is separately.”
For example, Starks noted that Radi’s products are already approved for market release and for reimbursement in Japan. Although Japan is the second largest medical device market in the world, he said, Radi is small enough that its organization in Japan totals only nine employees. In comparison, St. Jude has more than 400 direct employees in Japan, including a “strong cardiology group that is hungry for more products,” he said.
For MediGuide, St. Jude paid $138 million this month, will pay $111 million in November 2009, and up to $34 million in April 2010. St. Jude said it has acquired all of the outstanding shares of MediGuide, including the 41.3% interest (on a fully-diluted basis) owned by Elbit Systems (Tel Aviv, Israel). MediGuide has developed a navigation system, the Medical Positioning System (gMPS) that uses technology for real-time tracking of sub-millimeter sized sensors. These sensors can be mounted on needles, guidewires, catheters, and other devices used for minimally-invasive intra-body navigation, St. Jude said. The 3-D position and orientation of the sensors can be calculated in real time and projected graphically on a fluoroscope, CT, MRI, ultrasound, or 3-D reconstructed image of the anatomy.
Starks said MediGuide brings St. Jude a new platform technology that it believes may benefit almost all of its major growth programs.
“MediGuides’ navigation technology is the result of 30 years of intense development in Israel for jet fighter pilot applications,” Starks said. “MediGuide has devoted the last eight years full time, under exclusive license, to apply this technology to intrabody navigation in the context of catheter and other minimally invasive medical procedures. All of this technology for medical applications now belongs to St. Jude Medical.”
Starks said St. Jude expects to use the new navigation technology in the electrophysiology catheter lab, the cardiology catheter lab, in deep brain stimulation, and in the operating room. He said the technology can be attached to a conventional X-ray C-arm and be used in a way that can improve visualization of intrabody anatomy, improve accuracy of information regarding device location and orientation in relation to that anatomy, and potentially reduce exposure to radiation.
St. Jude expects to integrate the MediGuide technology with CT images, MRI images, ultrasound images and its own Insight images, as well as with fluoroscopic images, Starks noted.
“It will take time and ongoing investment in R&D, but we can envision a future where a cath lab staff does not have to wear lead, where medical careers are not shortened by back injuries or radiation exposure, and where catheterization and other minimally invasive procedures can be completed more quickly, more safely and more cost effectively, due in part to our MediGuide navigation technology.”
Both acquisitions were funded with cash on hand outside the U.S. and the proceeds of a new three-year term loan; and both transactions have closed.
During the question and answer session of the call, one listener asked Starks if St. Jude would have done both of these deals if they were U.S. entities.
“Philosophically, these deals both stood on their own strategically, regardless of their location,” Starks responded. “I think the ability to put our [outside U.S.] cash to work was really just a bonus.”
MediGuide’s gMPS technology and its gMPS Enabled Guided Measurement Catheter (GMC) are European CE Mark certified and are currently limited to investigational use only in the U.S., St. Jude noted. Also, Starks said that MediGuide currently does not bring in revenue.
Gera Strommer, president/CEO, and Uzi Eichler, VP of technology for MediGuide, are expected to join St. Jude.
“We look forward to working with the St. Jude Medical team,” Strommer said. “With their support, we will have the resources to more fully capitalize on MediGuide’s innovations and successfully move through the next stage of our development plans.”
Joanne Wuensch of BMO Capital Markets (New York) said in a research note the acquisitions appear to follow St. Jude’s pattern of building its franchise through small, technology-based companies that could broaden the long-term growth potential of the company.
MediGuide will become part of the St. Jude Medical Atrial Fibrillation Division. In connection with the transaction, St. Jude said it would record a special charge of about $300 million for in-process R&D in the fourth quarter of 2008. This acquisition does not change the company’s outlook for 2008 or 2009 consolidated earnings per share, exclusive of the special charge, St. Jude noted. MediGuide was originally spun off from Elbit Systems, a global defense electronics company.
Radi will become part of the St. Jude Medical Cardiovascular Division. The transaction is expected to be neutral to St. Jude Medical’s consolidated earnings per share in 2009 and is expected to be positive to consolidated earnings per share beginning in 2010.