SJM Acquires Endosense To Expand Electrophysiology Offering
Espicom View : This acquisition provides St Jude Medical with a force-sensing cardiac ablation catheter, one of the two that are currently on the market in countries that recognise the CE mark. St Jude Medical will now go head-to-head with Johnson & Johnson, the current market leader, to get their catheters on the US market; both companies are heading for an approval in H213. The addition of this force-sensing technology will allow St Jude Medical to add to its current portfolio of ablation catheters, enabling to company to potentially gain market share from Johnson & Johnson. The increased electrophysiology portfolio will be a bonus for St Jude Medical, which has been facing declining cardiovascular rhythm management revenues. The increased interest in the electrophysiology market, with companies such as Boston Scientific and St Jude Medical acquiring to boost portfolios, may result in more acquisitions of smaller electrophysiology companies taking place.
St Jude Medical (SJM) has acquired Endosense, a Switzerland-based company that has pioneered contact-force measurement in catheter ablation, in a deal worth up to CHF 309mn (US$331mn). The acquisition adds to SJM's electrophysiology portfolio and provides a robust platform for future product development.
SJM has made an initial payment of approximately CHF 159mn (US$170mn) and acquired 100% of the outstanding equity of Endosense. The terms of the transaction also provide for an additional cash payment of up to CHF 150mn (US$161mn), which is contingent upon both the achievement and timing of a regulatory milestone. The company funded the initial payment using available cash from outside of the US and expects to make any future payments using these same cash balances. Except for acquisition-related expenses, this acquisition does not impact SJM's outlook for 2013 consolidated EPS.
Endosense developed the TactiCath irrigated ablation catheter to give physicians a real-time, objective measure of the force they apply to the heart wall during a catheter ablation procedure. Without contact-force data, physicians have to estimate the amount of force applied to the heart wall during an ablation. There is a growing body of evidence to support the safety and effectiveness of contact-force ablation technology, including Endosense's TOCCATA, EFFICAS I and EFFICAS II studies, which have collectively demonstrated safety and reduced rate of atrial fibrillation (AF) recurrence when contact force was used. TactiCath is CE mark approved for AF and supraventricular tachycardia ablation. In addition, Endosense recently completed its US IDE trial, the TOCCASTAR trial, and plans to submit its PMA application to the FDA in support of a paroxysmal AF indication before the end of 2013.
The acquisition of Endosense is highly complementary to SJM. The Endosense force-sensing technology provides a strong, patent-protected platform for future product development. Immediate opportunities to integrate this technology into other proprietary SJM technologies include the potential to offer a MediGuide-enabled force-sensing ablation catheter and to incorporate force-sensing data into the company's EnSite Velocity mapping system. MediGuide technology is a 3D navigation system intended for the evaluation of vascular and cardiac anatomy on a recorded fluoroscopic image instead of live fluoroscopy. The EnSite Velocity cardiac mapping system is designed to visualise multiple catheters and electrodes. Additionally, EnSite Velocity is an open platform, which means that it is compatible with essentially all diagnostic and ablation catheters, recording systems and energy sources used for ablation procedures.
This transaction significantly accelerates SJM's timeline to providing an irrigated ablation catheter that incorporates force sensing in both international and US markets. SJM has its own force-sensing ablation catheter in development and has stated that it was planning for US and EU approval in H213. It is unclear if SJM will still pursue this with the addition of the TactiCath technology. SJM may even add Endosense's force-sensing technology to some of its catheters that are already available. We believe that the company will most likely add its MediGuide technology to Endosense's catheter.
The acquisition of Endosense strengthens SJM's portfolio of products to treat patients with cardiac arrhythmias, and provides an opportunity to accelerate its market share in the US$900mn global cardiac ablation catheter market, a market that a number of cardiovascular companies are entering or are increasing their presence in. Of note, Boston Scientific has been active in acquiring to boost its electrophysiology portfolio. Most recently, in July, Boston Scientific acquired CR Bard's electrophysiology business. Boston Scientific also acquired Rhythmia Medical in October 2012, in a bid to further its electrophysiology business. When sales for companies such as SJM and Boston Scientific remain flat, mainly due to declining cardiovascular rhythm management sales, these companies are looking to rapid growth areas to increase revenues. According to Boston Scientific, the global electrophysiology market grew by around 10% in 2012 and is worth around US$2.5bn, making this a lucrative market for these two companies to tap into. Biosense Webster (Johnson & Johnson) claims to be the electrophysiology market leader, but with more companies entering the market, it may not be able to hold onto its market share. Now some of the larger medical technology companies are buying the smaller electrophysiology companies, J&J will have a tougher market to compete in.