Devices Lead Medtech Deals in Second Quarter

The device sector accounted for the greatest number of medical technology deals in the second quarter of 2005, according to The Medical Technology Acquisition Record, published by Irving Levin Associates Inc. (Norwalk, CT). The 38 transactions represented a gain of 9% over the 35 deals reported in the year-ago quarter, but were down 12% from the 43 deals in the first quarter of 2005. The number of second-quarter 2005 transactions represents approximately 27% of the 143 medical device deals announced during the past four quarters (see Figure 1).

Medical device mergers and acquisitions from the second quarter of 2004 through the second quarter of 2005, by quarter. Source: Irving Levin Associates Inc.

In addition to covering medical devices, The Medical Technology Acquisition Record tracks transactions in the biotechnology, pharmaceutical, and e-health sectors. For the second quarter, biotech followed the device sector with 26 deals, while pharmaceutical had 25, and e-health had 11.

Financing of $2.8 billion was committed in the 38 device transactions posted during the second quarter, compared with $6.5 billion for the 43 deals that were structured in the first quarter, and $4.6 billion for the 35 deals in the year-ago quarter (see Table I).

Of the current 38 deals, 32 were made by 28 publicly traded corporations, while six privately held firms each announced one deal. Thirty-one of the targeted firms were privately held, whereas seven were public. Eight of the targets were foreign companies acquired by U.S. firms, while four of the acquirers were foreign firms buying an American-listed company. In terms of the U.S. geographical distribution of the buyers, California, Massachusetts, and Pennsylvania accounted for the lion’s share of the deals with eight, seven, and five respectively.

The largest medical device deals of the quarter were the following.

• Medtronic Inc (Minneapolis) paid $1.36 billion to Karlin Technology Inc. and Gary Karlin Michelson, MD, its founder, to settle a lawsuit over rights to a spinal implant technology portfolio. Of this, $800 million was allocated for buying 100 U.S.-issued patents, more than110 pending U.S. patent applications, and about 500 foreign counterparts. The settlement deal also included $400 million in punitive damages from a court case, $110 million in compensatory damages, and $50 million in royalties. The deal provides Medtronic with clear title to the patent portfolio and removes the threat of further litigation.

• Medtronic also structured the second-largest deal of the second quarter, paying $260 million to buy Transneuronix Inc. (Mt. Arlington, NJ), a privately held start-up company that is focused on the treatment of obesity by stimulation of the stomach with an implantable pacemaker-like device. Milestone payments may also be made on achieving significant revenue objectives.

• The third-largest deal of the quarter was the $155.4 million acquisition of Rubicon Medical Corp. (Salt Lake City) by Boston Scientific Corp. (Natick, MA).Rubicon manufactures a device that removes clots and blood-borne debris from veins and arteries. The device was recently approved for use in Europe, but has yet to receive FDA approval for the U.S. market. Of the total price, $71.7 million was for the remaining shares that Boston Scientific did not already own, and $83.7 million was for various production and performance milestone payments.

The Medical Technology Acquisition Record notes that companies that manufacture devices for surgical implantation tend to command the highest acquisition multiples within the medical device sector, in large part because of the high levels of revenue these devices generate. The top three deals of the second quarter involve the acquisition of technology and devices for implants, as do the top three deals of the past 12 months (see Table II).

The report provides detailed data on the acquirer and target companies for all 38 medical device deals consummated in the second quarter of 2005.

Canon Communications LLC

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