Boston Scientific Corp. has agreed to acquire Preventice Solutions Inc. for $925 million up front and up to an additional $300 million in a potential commercial milestone payment. The former has been an investor in Preventice since 2015 and currently holds an equity stake of about 22%, which is expected to result in a net payment of about $720 million upon closing and a milestone payment of up to roughly $230 million. The acquisition is projected to close by the middle of the year.
Preventice, of Minneapolis, offers a portfolio of mobile cardiac health solutions and services, ranging from ambulatory cardiac monitors to cardiac event monitors and mobile cardiac telemetry. The company had 2020 net sales of $158 million, a 30% growth rate from the previous year.
Its portfolio includes the Bodyguardian family of remote, wearable cardiac monitors for adult and pediatric patients. The monitors use a cloud-based platform supported by an independent diagnostic testing facility, where clinical technicians and artificial intelligence algorithms provide insights that may lead to improved clinical diagnoses and outcomes.
A focus on at-risk patients
Preventice is tackling a big problem, as cardiovascular disease accounts for nearly 17.9 million annual global deaths. Physicians may ask at-risk patients to wear an external cardiac monitor to assess how their heart is functioning, which may lead to the diagnosis of a potential arrhythmia. The recordings taken by the monitor then can help physicians develop an optimal and personalized treatment plan.
Scott Olson, senior vice president and president, rhythm management at Marlborough, Mass.-based Boston Scientific, noted that the buy will give his company a boost in the high-growth ambulatory electrocardiography space. In addition, it “strongly complements our recent entrance into the implantable cardiac monitor market and will serve as an important component of our category leadership strategy in cardiac diagnostics and services – a nearly $2 billion market anticipated to grow double digits annually,” he added.
“We will evaluate the needs of the combined organizations during the integration process,” Boston Scientific told BioWorld when asked about whether all Preventice locations will remain open and all employees will come on board. “Preventice products and services will become part of the broader Rhythm Management business unit, but their operations and sales will remain largely independent.”
Other companies making moves
The deal caps off a flurry of activity in this space. Cowen analysts noted that Royal Philips’ recent acquisition of Biotelemetry Inc. is the closest comparable deal, involving an enterprise value of $2.8 billion, or roughly 5.5 times Biotelemetry’s expected 2021 sales. “The Preventice deal involves a lower multiple on a price-to-forward sales basis, and thus we consider the deal premium to be fair for what BSX is getting,” Cowen’s Josh Jennings wrote.
Biotelemetry, of Malvern, Pa., offers a line of wearable heart monitors, artificial intelligence-based data analytics and services. The company remotely monitors more than a million cardiac patients a year. In 2019, it reported sales of $439 million.
Intriguingly, last summer, Biotelemetry reported a sales agent agreement with Boston Scientific. With this agreement, Biotelemetry became a sales agent in the U.S. for the Boston Scientific Lux-Dx insertable cardiac monitor system to an agreed upon subset of customers. After the deal was revealed, Brooks O'Neil with Lake Street Capital Markets asked Biotelemetry management why it was chosen over Preventice. “I cannot speak to why, but I will just take it as another endorsement of the quality of our service as a best-in-class provider,” replied Joseph Capper, Biotelemetry’s CEO.
With the Preventice buy, Cowen’s Josh Jennings noted that the company’s products are complementary with Boston Scientific’s Lux-Dx insertable cardiac monitor. In addition, the monitoring space is adjacent to Boston Scientific’s cardiac rhythm management and electrophysiology businesses. “BSX adds significant commercial reach to Preventice, which was founded in 2004 as eCardio Solutions,” he continued.
Meanwhile, Wells Fargo’s Larry Biegelsen agreed that the company appears to be a good fit for Boston Scientific and comes at a reasonable price.
“Given the prices recently paid for competitors of Preventice (BEAT [Biotelemetry] and Bardy) and the valuation of IRTC [Irhythm Technologies Inc], we think the price BSX is paying for Preventice (7.8x 2020 sales) is very reasonable.”
In terms of Seattle-based Bardy Diagnostics Inc., Hillrom reported earlier this week that it had reached a definitive agreement to acquire Bardy Diagnostics, Inc., a provider of ambulatory cardiac monitoring technologies. Under the terms of the agreement, Hillrom will purchase the company for a cash consideration of $375 million and future potential payments based on the achievement of certain commercial milestones. Hillrom is also acquiring net operating losses valued at more than $20 million that are expected to result in future tax benefits.
Biegelsen added that Boston Scientific could leverage its broader portfolio of Cardiac Rhythm Management, atrial fibrillation and implantable cardiac monitoring devices (Lux) to take share from larger monitoring competitors, such as Irhythm and Biotelemetry.
Previous M&A hints
During the company’s third-quarter earnings call last October, Robbie Marcus of JPMorgan asked about the company’s M&A plans, particularly as its balance sheet looked better than in the past. CFO Dan Brennan noted that the M&A environment represented a challenge.
"So, within our VC portfolio, we've seen some of the companies go public and with some pretty lofty valuations. We weren't able to acquire those companies.” Still, the company has more than 40 entities in its portfolio, so there are opportunities there. "[W]e have the cash ready and available to be opportunistic relative to M&A in general. So still optimistic that we're going to get some good, solid M&A done over time and be able to add to the top line story that we have.”
When asked if it had additional M&A plans for the year in the wake of the comments made last year, the company told BioWorld that it did not have updates beyond what was shared at that time.