Medical Devices Weekly Notes: Medtronic and Boston Scientific

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Last week was eventful for Medtronic (NYSE:MDT) and Boston Scientific (NYSE:BSX) within the medical device sector. Medtronic is likely to expand its market presence in the Neuromodulation division as it acquired a privately held company, Advanced Uro-solutions. It was also successful in receiving FDA approval for its VenaSeal system.

On the other hand Boston Scientific settled an 8 year old lawsuit filed by Johnson & Johnson (NYSE:JNJ), for $600 million regarding the former’s acquisition of Guidant. Boston Scientific is also likely to acquire Endo International’s medical device unit, American Medical Systems (AMS). [1] On that note, we will discuss some key developments within these two companies that has taken place in the past one week or so.

Medtronic

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The U.S. Food and Drug Administration (FDA) approved Medtronic PLC’s VenaSeal system that cures diseases such venous reflux disease, by sealing them with an adhesive. Venous reflux disease results in enlarged veins that can cause lower leg pain and swelling. VenaSeal is developed by Sapheon Inc, which was acquired by Covidien last year. VenaSeal has already received regulatory approval in Europe in 2011. Additionally, it is also approved in Australia, Canada and Hong Kong. [2]

Medtronic also added Advanced Uro-Solutions, a private firm that develops neurostimulation products to treat bladder related issues, to its Neuromodulation portfolio. However, the acquisition price was not disclosed. The leading product of Advanced Uro-solutions -NURO(TM) percutaneous tibial nerve stimulation system which treats health issues such as overactive bladder (OAB) and urinary incontinence – recently received FDA approval and the firm plans to launch the product in the U.S. in the next 12 months. The company is optimistic about this deal as the market for the product is quite large, with approximately 37 million adults in the U.S. suffering from OAB.

We currently have a stock price estimate of $70 for Medtronic, approximately 10% below its current market price.

See our full analysis for Medtronic

Boston Scientific

There was significant activity by Boston Scientific in the last week as it finally settled its 8-year old lawsuit with J & J for $600 million. In 2004, Johnson & Johnson agreed to acquire Guidant for $25.4 billion. Before the completion of the deal, Guidant was required to recall some of its faulty Implantable Cardioverter-Defibrillator (ICD) products, which led to the acquisition price dropping to $21.5 billion and a re-negotiation of the agreement under which Guidant could not seek a higher offer from another company. Boston Scientific stepped in with a higher offer of $25 billion to acquire Guidant. Consequently, J&J sued Guidant in 2006 for breach of contract and filed a lawsuit to claim $7.2 billion in damages from Guidant, now a subsidiary of Boston Scientific. [3]

The $600 million dollars in damages paid is a much smaller amount than the lawsuit was seeking. Since its acquisition, Guidant has consistently paid significant litigation expenses related to product defects and recalls. The merger was considered a failure for Boston Scientific, though the settlement of the lawsuit is likely to boost investor confidence in the coming quarters.  ((Boston Scientific Corporation (NYSE:BSX) reached a settlement with Johnson & Johnson, Inside Trade))

Last week the company also announced that it is in talks to take over Endo’s Medical device unit, American Medical Systems (AMS), for around $2 billion. If the deal goes through, the company is likely to increase its presence in the Urology and Women’s Health market.

– Boston Scientific’s stock price increased by about 10% after the settlement of the lawsuit. We have a price estimate of $15 for Boston Scientific, which is slightly below the current market price.

See our full analysis for Boston Scientific

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Notes:
  1. Boston Scientific near deal to buy Endo’s device unit, Reuters []
  2. FDA Clears Medtronic’s VenaSeal for Varicose Veins, Wall Street Journal []
  3. Boston Scientific settles $7.2B lawsuit brought by Johnson & Johnson for $600M, Boston Business Journal []