By Thomas Lee
Medtronic Inc. (NYSE:MDT) plans to acquire ATS Medical Inc. (NSDQ:ATSI) for $370 million in cash and debt, a move that further expands the medical device giant’s foray into the fast-growing market for products that treat structural heart disease.
Fridley, Minn.-based Medtronic will pay $4 for each share of ATS Medical, headquartered in Plymouth, Minn.
“The acquisition of ATS Medical will further strengthen our CardioVascular business,” Scott Ward, Medtronic senior vice president who runs the company’s cardiovascular business, said in a statement. “ATS is an innovative and successful company that is well respected by cardiac surgeons throughout the world.”
Cardiovascular technology, including replacement heart valves and atrial fibrillation therapies, is one of Medtronic’s fastest growing units. In fiscal 2009, cardiovascular revenue jumped 15 percent to $2.44 billion from the previous year.
The company has also aggressively pursued the market through acquisitions. Last year, Medtronic spent more than $1 billion to acquire CoreValve Inc. of Irvine, Calif., and Ventor Technologies Ltd. in Israel. Both companies are developing ways to implant replacement heart valves through catheters snaked up the groin instead of via open-heart surgery.
In 2008, Medtronic acquired CryoCath Technologies Inc. for about $380 million. The Canadian company makes catheters that can deliver sub-zero temperatures to the heart. The technology restores normal electrical signals by freezing the tissue or pathways behind the irregular quivering. Last month, Medtronic said the first results from its clinical trials of CryoCath technology showed the therapy was far more effective at treating atrial fibrillation than drugs.
The companies estimates the combined market size for heart valves and atrial fibrillation to be $4 billion.
With ATS Medical, Medtronic will inherit the Open Pivot bi-leaflet mechanical and 3f pericardial valve technology, along with its CryoMaze family of ablation products, which is similar to CryoCath’s products. Last year, the company’s revenue from heart valve therapies grew 17.7 percent, to $56 million from $47.6 million in 2008. Revenue from its CryoMaze cryo-ablation products increased 11.8 percent to $18.9 million.
ATS Medical, however, has struggled to generate profits. The company lost $6.3 million last year, a significant improvement over 2008 when it lost $19.3 million. ATS Medical said 2010 sales will grow seven to eight percent, about half its growth rate last year. The company’s stock hasn’t hit the $4-a-share mark in more than five years.
“Medtronics’ 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,” ATS Medical chairman, president and CEO Michael Dale said in prepared remarks. “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.”