Boston Scientific (NYSE: BSX) has agreed to buy Endochoice Holdings, an Alpharetta, Ga.-based company focused on endoscopy, in a deal valued at about $210 million.
Endochoice (NYSE: GI) develops single-use devices, such as resection and retrieval devices, needles, graspers and infection control kits. The company also is a player in pathology services and imaging technologies.
Upon the completion of the deal, Endochoice will become part of Marlborough, Mass.-based Boston Scientific's endoscopy business. The companies hope to wrap up the transaction before the end of the year.
"The addition of Endochoice products and services to our portfolio supports our strategy to provide comprehensive solutions to gastroenterology caregivers and the patients they serve," said Art Butcher, senior vice president and president, Boston Scientific, endoscopy. "We expect the acquisition to expand our leadership into new categories in the endoscopy market, and to drive strong, continued growth of our endoscopy business."
Word of the deal comes a couple of months after Stifel analyst Rick Wise identified Endochoice as one of several potentially attractive small cap assets. (See Medical Device Daily, July 15, 2016.)
In June 2015, the company went public, raising about $94.9 million in its offering.
Boston Scientific spokeperson Catherine Brady told Medical Device Daily the company looks forward to being able to expand its product offerings through the buyout. "Upon completion of the transaction, we will launch a joint integration team to evaluate and determine what plans make sense for the business including addressing the use of facilities and ongoing management," she added.
Larry Biegelsen, senior analyst at Wells Fargo, wrote in a note that the deal "makes sense given the strong strategic fit and reasonable price." He added that the buy should boost Boston Scientific's presence in the ambulatory surgery center market, as its existing endoscopy portfolio is more hospital-oriented.
William Blair analyst Margaret Kaczor added that the acquisition should benefit both sides. "For Boston Scientific, Endochoice's platform of Fuse and single-use products (with more than 2,500 customers) should be synergistic on the top and bottom line with Boston Scientific's endoscopy business, which currently sells ancillary gastrointestinal (GI) devices. For Endochoice, Boston Scientific can provide the necessary resources and capital to expand the reach of Endochoice's large single-use products business globally."
She added that Boston Scientific was probably eyeing access to Endochoice's single use product and pathology businesses in making the deal.
Founded in 2008, Endochoice, which saw about $75 million of total sales in the 12-month period ended June 30, has an imaging portfolio that includes the full spectrum endoscopy, or Fuse, colonoscope. The company said the device allows doctors to better see anatomy and find more lesions during colonoscopies.
Early last month, the company announced that the FDA had cleared its Lumos product with adaptive matrix imaging to use with the Generation 3 Fuse system.
However, as founder and CEO Mark Gilreath noted in a recent financial release, Fuse placements did not meet company expectations in the second quarter of the year. "[T]here was weakness in certain European markets and some domestic customers paused their purchase decisions to evaluate the new Gen 3 product," he added.
The company launched its Generation 3 Fuse product in May, ahead of expectations, a move that seems to have thrown a wrench into sales. Gilreath explained that the company saw an opportunity to launch during the Digestive Disease Week meeting, as thousands of gastrointestinal physicians would be on hand.
The debut came two-thirds of the way through the quarter, thereby not allowing enough time to deliver enough demo units to the company's sales team, Gilreath explained.
While touting his company's performance versus established competitors, Gilreath said it could take until the end of the third quarter to fully equip the company's salesforce with the Gen 3 product. That delay could affect Fuse sales for the rest of the year.
At the same time, Endochoice reported lower-than-expected second-quarter results, prompting management to lower 2016 revenue guidance to $80 million to $82 million, down from $86 million to $93 million.
Still, Gilreath remained optimistic. "Fuse continues to see strong win rates against key competitors in the GI space and during the second quarter, the majority of our system placements were head-to-head wins against Olympus," he said during the call.
While acknowledging that the Fuse system appeared to be "disruptive technology that can and should be a large player in the $3 billion endoscopy tower market over time," Kaczor wrote that recent quarterly results "suggest the process to convince physicians to switch from the large incumbent manufacturers is taking longer than expected."
In a statement on the Endochoice buy, Boston Scientific said it will evaluate strategic options related to the Fuse colonoscope and provide additional clarity when the transaction closes. 'Bullish' about its future
Endoscopy has been one of several strong spots for Boston Scientific this year. For the second quarter, the company reported net sales of $361 million in endoscopy, up 11 percent over 2Q15's total of $326 million.
Growth in this division was bolstered by the Spy Glass DX visualization system, the Axios stent system, and the launch of the next-generation Resolution 360 hemostasis clip.
While announcing its quarterly results, Boston Scientific upped its guidance for the year, estimating revenue in the range of $8.270 billion to $8.370 billion. It previously forecasted between $8.075 billion to $8.225 billion.
Earlier this month, CEO Mike Mahoney and CFO Dan Brennan spoke at the Morgan Stanley Global Healthcare Conference, during which they highlighted the successes Boston Scientific has experienced this year. Boston Scientific has grown "significantly faster than our peers," Mahoney said, adding that endoscopy is bright spot as it looks to make surgical procedures less invasive.
"[We're] really bullish about the future of this company," Mahoney added.