St. Jude Merges into Neuromodulation Market

In a $1.3 billion deal, St. Jude Medical Inc. (St. Paul, MN) has acquired Advanced Neuromodulation Systems Inc. (ANS; Plano, TX). Now a new division of St. Jude, ANS is a leader in the neuromodulation device market and reportedly holds the number two market spot in the spinal cord stimulation segment.

Starks: Seizing the opportunity.

“This is a compelling strategic opportunity for St. Jude Medical and is consistent with our efforts to create additional long-term growth drivers that diversify our business mix and deliver value to our shareholders,” said Daniel J. Starks, St. Jude Medical chairman, president, and CEO. “We welcome ANS’s employees to St. Jude Medical and expect them to be an important part of our continued success.”

In light of the added revenue from the ANS division, St. Jude now expects revenue growth of greater than 20% in 2006. “Clearly, adding ANS to our business brings an additional growth driver in a fast-growing and underpenetrated segment of the medical device market,” says John C. Heinmiller, executive vice president and chief financial officer of St. Jude. At least 5% of the company’s 20% growth will be contributed by the ANS transaction, he says.

Heinmiller: A clear growth driver.

For the nine-month period ended September 30, 2005, ANS reported net income of $69 million on net revenue of $110.4 million, compared with net income of $13 million on net revenue of $88.5 million in the year-ago period.

Chris Chavez, president and CEO of ANS, hailed the merger as a transaction that would strengthen his company’s competitive position on a global basis. Chavez and the executive management team of ANS are expected to remain with the company, which will continue to be headquartered in Plano, TX. Chavez will serve as president of the ANS division.

Chavez: Remaining as division president.

“It is important for me to emphasize that this proposed combination is not focused on opportunities to consolidate but rather on accelerating the growth of ANS’s business by bringing new resources to help us tap our incredible market opportunities,” Chavez says. “There is virtually no overlap in the markets served by St. Jude Medical and ANS, but our technologies are extremely complementary.”

According to St. Jude, the ANS acquisition is a natural expansion of its implantable microelectronics programs. The company also reports that ANS has applications under development that can leverage St. Jude’s experience in low-voltage stimulation design and manufacturing. “We believe technology crossover in microelectronics, batteries, leads, and programmers will benefit our flow of new products both in neuromodulation and in cardiac rhythm management,” Starks says.

Prior to being acquired, ANS sold its products in about 30 countries. The recently completed deal will provide it with access to the international distribution and regulatory infrastructure of St. Jude, which has a presence in more than 130 countries.

Neuromodulation, a treatment for chronic pain and nervous system disorders that entails the delivery of small doses of electricity or drugs directly to nerve sites, represents an estimated $1 billion market. According to Chavez, the market has experienced annual growth of greater than 20% in recent years, with strong continued growth expected.

ANS’s product offerings include an array of implantable spinal cord stimulation devices. The company has received FDA approval for clinical studies in indications such as Parkinson’s disease and essential tremor. ANS is reportedly also exploring therapies related to migraines, depression, obsessive-compulsive disorders, obesity, and angina.

The neuromodulation market has been increasingly drawing the attention of medtech’s biggest players in recent years. In 2004, Boston Scientific (Natick, MA) acquired implantable neuromodulation device manufacturer Advanced Bionics Corp. (Valencia, CA) in a $740 million deal. Add that to the established presence of market leader Medtronic Inc. (Minneapolis), and the competition in the neuromodulation sector starts to look fierce.

In addition to its move into the neuromodulation market, St. Jude is looking to further beef up its presence in the cardiac sector. In early December, the company announced that it had signed a definitive agreement to acquire Savacor Inc. (Los Angeles), a privately held device company that has various heart failure diagnostic and therapy guidance products under development and in clinical trials. St. Jude predicts the $50 million deal will close by the end of the year.

© 2005 Canon Communications LLC

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