Medtronic Plans $370 Million ATS Medical Buyout

Expansion through strategic acquisition is the name of the game for Medtronic Inc. The company’s most recent target is Plymouth, Minn.-based ATS Medical Inc., for a price tag of $370 million in cash and debt.

The purchase is part of a calculated market growth plan, increasing the medical device giant’s reach into products for structural heart disease.

Minneapolis, Minn.-based Medtronic will pay $4 for each share of ATS Medical. The company’s per-share price hasn’t risen much above $4 during the last five years. The 52-week range as of press time was $2.25-$4.13.

“The acquisition of ATS Medical will further strengthen our cardiovascular business,” Scott Ward, Medtronic senior vice president and president of the firm’s cardiovascular business, said in a statement. “ATS is an innovative and successful company that is well respected by cardiac surgeons throughout the world.”

In February last year, Medtronic spent more than $1 billion to acquire CoreValve Inc. of Irvine, Calif., and Ventor Technologies Ltd. of Israel. Both companies develop methods to implant replacement heart valves via catheter rather than open-heart surgery. In 2008, Medtronic acquired
CryoCath Technologies Inc. for about $380 million, a Canadian firm that also makes catheter-based cardiovascular technology.

ATS Medical will add its Open Pivot bi-leaflet mechanical and 3f pericardial valve technology, in addition to its CryoMaze line of ablation products (similar to CryoCath products) to Medtronic’s device roster.

Medtronic officials claim the combined market size for heart valves and atrial fibrillation to be $4 billion.

Last year, ATS Medical’s revenue from heart valve therapies grew 17.7 percent to $56 million. Revenue from its cryo-ablation products increased 11.8 percent to $18.9 million. Despite the growth, however, the company has struggled to generate profits. It was $6.3 million in the red last year, which is an improvement compared to 2008 when it lost $19.3 million. ATS Medical officials expect 2010 sales will grow 7-8 percent, roughly half its growth rate from last year.

Cardiovascular technology, including replacement heart valves and atrial fibrillation therapies, have performed well for Medtronic. In fiscal 2009, cardiovascular revenue rose 15 percent to $2.44 billion from the previous year.

“Medtronic’s complementary mission and leadership in treatments for structural heart disease represents the best possible opportunity for bringing ATS Medical’s innovative cardiac surgery technologies to more surgeons and patients,” said Michael Dale, chairman, president and CEO of ATS Medical.“We are very proud of the business that ATS Medical’s past and present employees have built while maintaining an unwavering focus on innovation and, above all, delivering products that provide superior clinical outcomes.”

New PMA Advisory Panel Procedures Enacted by the FDA

The U.S. Food and Drug Administration (FDA) has changed its medical device premarket review process. According to officials in the FDA’s Center for Devices and Radiological Health (CDRH), the move follows a growing number of medical device advisory panel meetings in the past several years.

In 2008, there were 10 panel meetings covering 14 major topics. In 2009, there were 17 meetings on 20 topics, and 2010 is on track to surpass those numbers, according to CDRH officials.

The FDA hoped that the changes, which went into effect on May 1, allow review panels to use their time more effectively.

Under the new system, the panel no longer will vote on a device’s approvability or conditions of approval but rather on the safety and effectiveness of a device and its risk versus its benefit. The change is aimed at allowing panel members to address areas of scientific expertise, rather than regulatory issues with which they might not be familiar.

The mode of the deliberation is new as well. Panelists will be instructed to present their scientific opinions and recommendations without interruption during an hour-long deliberation, during which the panel may ask questions of both the medical device firm’s representatives and the FDA.

“We believe focusing the amount of time the sponsor may respond to questions to the panel will allow for a more robust discussion among the experts and provide CDRH with information needed to reach a decision regarding the issue before the panel,” according to CDRH officials.

The method of voting also changed. Experts now will vote using an electronic ballot instead of raising their hands simultaneously, according to the FDA statement.

“The ballot process allows each panel member to cast their vote without immediate influence by other votes,” according to a statement released by the agency.

In addition, unlike in the past when CDRH reviewers presented a unified, consensus analysis of supporting data, they now will present that data and analysis in addition to the range of scientific opinion of group members. This move will allow more in-depth discussion on safety and effectiveness and risk versus benefit of the device under consideration, officials said.

“By taking a broader view of the data that is supplied and the opinions of different reviewers and offices within CDRH, we will provide the panel the ability to have a more in-depth discussion on safety and effectiveness and risk versus benefit of the device at issue,” CDRH Director Jeffrey Shuren said in a statement.

The FDA and CDRH will continue to evaluate panel procedures and make changes when necessary.
In addition to these specific changes to the advisory committee procedures, the FDA also issued draft guidance for disclosing and minimizing financial conflicts for advisory committee members.

Lawmaker Proposes Repealing Controversial Device Tax

Rep. Erik Paulsen (R-Minn.) has introduced the Defend Medical Innovation Act, legislation that immediately would repeal the 2.3 percent excise tax included in healthcare reform, which would take effect in 2013.

“The medical technology industry is an American success story, responsible for life-saving technologies and tens of thousands of jobs in Minnesota alone,” said Paulsen, who is co-chairman of the U.S. House of Representatives’ Medical Technology Caucus. “Once it takes effect, this tax will harm job growth, slow innovation and raise costs. The right thing to do is stop this tax now, before its negative impact takes hold.”

In a statement, Paulsen stressed the importance of keeping the medical device industry in the United States healthy and competitive, noting that medical U.S. firms employ more than 350,000 people. In addition, the average salary for workers in this sector is $70,000, or 49 percent more than the average private sector job, and 18 percent more than the average manufacturing job.

While a total repeal of the tax would be a significant load off the industry’s back, many see a complete reversal of the tax unlikely.In the meantime, industry advocacy groups have indicated that a “carve out” to the tax could be a more realistic possibility.Aside from the bottom-line burden the tax imposes on device firms, critics argue that the law doesn’t distinguish between the percentage of tax paid by small and large firms—and that this tax is particularly burdensome on small and midsize medtech companies. Industry insiders say that innovation would be significantly stymied by the law—especially because most of the innovation comes from small, cutting edge firms with fewer than 50 employees.

For example, legislation to amend the currently approved version could exempt the first $150 million of a company’s revenue from the new tax, giving nascent companies the chance to grow their business before being hit. A graduated scale would kick in as company revenues increased. That would be similar to a tax structure in place now for pharmaceutical firms. Such a system was included in previous versions of proposed healthcare reform legislation, but was not included in the current law.

According to the Washington, D.C.-based Advanced Medical Technology Association (AdvaMed), there are more than 6,000 medical device companies in the United States and fewer than 5 percent have annual sales of more than $100 million. According to AdvaMed officials, the tax impacts smaller companies especially hard, since some have no profits and almost all rely entirely on domestic sales for their revenues (the excise tax is levied against domestic sales only).

Defibrillators Back on the Market for Boston Scientific; Judge Rejects Plea Deal

Boston Scientific Corp. has resumed selling two implantable heart defibrillators that were pulled from the market in March.

The U.S. Food and Drug Administration (FDA) cleared two manufacturing changes to the Cognis and Teligen implants, which treat irregular heartbeats by delivering electric shocks to the heart. The company took all its defibrillator implants off the market a month ago because it had failed to notify regulators of changes in the way it makes the devices. Medical device companies are required to inform the FDA immediately regarding significant changes to the design and manufacture of life-sustaining devices.

“We are very pleased that the FDA has cleared the manufacturing changes,” Ray Elliott, the company’s president and chief executive, said in a statement. “We are committed to doing the right thing every time, and we acted voluntarily, swiftly and appropriately to ensure compliance with all regulatory requirements.”

Cognis and Teligen account for nearly all of Boston Scientific’s implantable defibrillator revenue in the United States. Company officials claimed that the firm would be able to meet customer demand within 24 hours. The suspension of sales and the recall did not affect other markets.

Boston Scientific’s business has had a string of problems over the last four years, including safety warnings and multiple product recalls. The company entered the business in 2006 through the acquisition of Guidant Corp. for $28 billion.

Teligen is an implantable cardioverter defibrillator (ICD) that is designed to shock the heart to restore a regular heartbeat. Cognis has a defibrillator and contains a second component called a resynchronization device that is designed to coordinate the pumping action of the heart.

The Natick, Mass.-based firm reported finding other instances in which it did not submit appropriate documentation for manufacturing changes for older devices. Those changes now have been reported to the FDA, according to company officials. The changes involve the Confient, Livian, Prizm, Renewal, and Vitality devices. In a press release dated April 15, Boston Scientific officials said they were working closely with the FDA to secure clearances to return the other product lines to the U.S. market as soon as possible. The company’s pacemakers and other product lines were not affected by the recent recall and shipping hold.

“Boston Scientific’s reputation has been damaged, but not destroyed, by the recall,” Derrick Sung, a New York, N.Y.-based analyst at Sanford C. Bernstein & Co., said in an e-mail to investors on April 14. “It appears that it will remain a viable competitor in the market.” This move will restart the sale of products that brought in $1.79 billion, or 22 percent, of Boston Scientific revenue in 2009.

As a result of the halt in defibrillator sales, the company lowered its projected full-year sales guidance by $500 million, below Wall Street forecasts. In addition, its defibrillator sales fell 21 percent to $312 million in the first quarter (ended March 31). The company posted a first-quarter loss of $1.59 billion, or $1.05 a share, compared with a year-earlier loss of $13 million, or a penny a share. Net sales declined 2.5 percent to $1.96 billion. Excluding currency translation and sales from divested businesses, sales were down 6 percent. Overall ICD sales declined 12 percent to $390 million, but international sales grew 9 percent to $144, suggesting that domestic issues haven’t affected overseas markets.

Boston Scientific also announced that Fredericus Colen, who had been in charge of the heart-rhythm business but was promoted in February to the role of chief technology officer, is retiring at the end of June for family reasons.

In related Boston Scientific news, in late April, a Minnesota judge rejected a plea deal between Boston Scientific and the U.S. Department of Justice (DOJ). In a surprise move, Judge Donovan Frank at U.S. District Court in St. Paul ordered the deal be revised.

The new ruling called on the government to put Boston Scientific on probation for actions by the firm’s Guidant unit, which concealed safety defects in defibrillators. Executives at Guidant learned as early as 2002 that some of its devices short-circuited and could cause deaths but didn’t disclose its findings to regulators for three years, according to prosecutors in the case.

Under a proposed agreement reached last fall, Boston Scientific agreed to plead guilty to a pair of misdemeanors and pay a $296 million fine to settle the investigation into Guidant’s actions, though prosecutors stopped short of recommending that Guidant be placed on probation, suggesting that would be difficult because Guidant was no longer a standalone unit under parent Boston Scientific’s new structure.

Frank took issue with that, contending that the interests of justice were not served by permitting a company to avoid probation by changing its corporate form. The judge suggested that Boston Scientific itself could be put on probation, ordered to perform community service, and required to establish charitable, compliance, and ethics programs in addition to paying a fine in the case. “At a minimum,’’ the judge wrote in his 37-page opinion, “the public’s interest in accountability would be served by Guidant and Boston Scientific being placed on probation, regardless of the fact that Boston Scientific acquired Guidant after the events in question. And, the court believes that a period of probation would likely benefit, rather than harm, Guidant’s and Boston Scientific’s public image.’’

In a statement, Boston Scientific noted that although the court proposed possible additional measures, it didn’t suggest revisions to other terms the two sides had negotiated in the plea agreement. The company said it planned to work with the DOJ“to develop a modified plea agreement that is acceptable’’ to all parties. DOJ officials said they would review the court ruling.

Smith & Nephew Takes Aim at “Lifetime” Implant

A 30-year knee replacement? Longer-lasting implants are one of the primary goals of artificial joint manufacturers. With its recent 510(k) clearance, Smith & Nephew is, in theory at least, a little closer to that objective.

The company received 510(k) clearance from the U.S. Food & Drug Administration to label its Legion knee implant as good for 30 years of use. Smith & Nephew’s orthopedic division ran tests simulating 30 years of physical activity on the implant, which includes the firm’s Verilast technology.

The clearance was based on the agency’s findings that the implant would “provide wear performance sufficient for 30 years of actual use under typical conditions.” Most knee implants are expected to last 10 to 15 years. The key words are “under typical conditions.” Numerous other factors, such as infection, can shorten the life of an implant. According to the company, Verilast technology produced an 81 percent reduction in wear, which is the leading cause of knee replacement failure. When knee implants fail, patients most often require revision surgery to replace the original implant, increasing the risk of infection and bone loss.

“Physically active patients want to end their knee pain for good,” Joe DeVivo, president of Memphis, Tenn.-based Smith & Nephew Orthopaedics noted in a press statement. “We’re working to make knee implants that last a lifetime—that’s our goal, and we’ve validated Verilast technology out to 30 years for a market that views 10 to 15 years as the gold standard. This is not an incremental improvement; it’s a generational leap forward for active patients.”

Verilast technology is a combination of the company’s Oxinium material and highly cross-linked polyethylene. According to company officials, the pairing yields “virtually indiscernible wear.” Oxinium is used on the femoral side of the joint, and the polyethylene is implanted on the tibial side. The company performed wear simulator testing of the knee replacements during three continuous years. Oxinium oxidized zirconium is a proprietary material that, according to the company, has been used in more than 200,000 knee procedures. Smith & Nephew officials claim it also is the only hypoallergenic metal-bearing surface since it contains no detectable amounts of nickel, the element commonly associated with metal allergies.

“If we’re successful in our drive to make knee replacements that last a lifetime, that could mean significant cost savings to the healthcare system,” DeVivo added. “And patients may avoid the pain and the downtime associated with revision surgery.”