Covidien (NYSE:COV), seeking to appease anti-trust regulators on its pending $43 billion merger with Medtronic (NYSE:MDT), said it agreed to a $30 million deal for its Stellarex drug-coated balloon with Spectranetics (NSDQ:SPNC).
The deal, slated to close once the Covidien-Medtronic union closes in early 2015, covers the Stellarex angioplasty platform, a drug-eluting balloon used to treat peripheral artery disease. Spectranetics said it expects to launch the Stellarex device as soon as it wins CE Mark approval in the European Union, expected in late 2014 or early 2015.
The Stellarex platform, which uses a drug coating called EnduraCoat designed to prevent drug loss during the procedure, could hit the U.S. market in 2017, according to a press release.
"This acquisition advances SPNC’s objective to provide comprehensive solutions to cross, prepare and treat the most complex vascular conditions," Spectranetics president & CEO Scott Drake said in prepared remarks. "Drug coated balloons are and will be an integral part of the vascular landscape for many years to come. Global thought leaders believe that primary patency is the most important clinical metric, and Stellarex’s feasibility data stands apart. We believe this technology will meaningfully add to our near-term revenue growth and expand operating leverage over time."
"The Stellarex team has made significant progress developing this advanced technology and we are confident that Spectranetics is the right organization to advance the program," Covidien peripheral vascular president Brian Verrier said in prepared remarks. "Pending completion of the Medtronic transaction, Covidien looks forward to collaborating with Spectranetics to transfer this technology as well as ensure investigators of the Illumenate trial series are transitioned appropriately."
Spectranetics said the Stellarex device could contribute as much as $100 million in annual sales within 2 to 3 years of FDA approval in the U.S. The buyout is expected to dilute earnings per share next year to the tune of $28.0 million to $32.0 million, or 65¢ to 75¢ per share, "driven primarily by research & development costs associated with the ongoing Stellarex clinical trial program," according to the release.
Drake and Spectranetics CFO Guy Childs told analysts during a conference call today that the company expects the R&D costs for Stellarex to run to $75 million over the next 3 years. The deal will be funded using cash and projected cash flow, Childs said.
Once it hits the market with Stellarex, Spectranetics will compete with Medtronic and C.R. Bard (NYSE:BCR) in the drug-eluting balloon arena, which Drake today estimated could be worth $700 million to $1 billion over the next 3 years.
Bard won pre-market approval from the FDA earlier this month for its Lutonix peripheral DEB, well ahead of the company’s expectation for approval early next year. Medtronic last month unveiled 1-year data for its DEB platform, the In.Pact Admiral, showing a 2.4% rate of clinically-driven target lesion revascularization at 12 months, compared with a 20.6% rate for patients treated with standard percutaneous transluminal angioplasty.
In June, Spectranetics paid $230 million to acquire AngioScore and its AngioSculpt scoring balloon technology.