Hillrom (NYSE:HRC) says closing conditions have not been met when it comes to the company’s previously planned $375 million acquisition of Bardy Diagnostics and its Carnation Ambulatory Monitor, or CAM patch.
In response, BardyDx has sued Hillrom in the Delaware Court of Chancery, asking the court to order the merger to proceed because Hillrom’s argument is based on pretense.
The move comes more than a month after the regional Medicare administrative contractor Novitas Solutions published significant rate cuts for external EKG monitoring — a setback for a technology that could prove an improvement over traditional Holter monitors.
BardyDx’s CAM patch, for example, is worn along the sternum – over the heart – to optimize P-wave signal capture. Its extended battery and memory with long-term adhesive enable 14-day wear. In contrast, a person would wear a traditional Holter monitor for one to two days.
Hillrom said in its news release: “As a result of the unexpected Novitas reimbursement rate reduction, Hillrom has asserted that a ‘company material adverse effect’ has occurred, and therefore the closing conditions have not been satisfied.”
Another major company in the external EKG monitoring space — iRhythm Technologies (NASDAQ: IRTC) — has been meeting with Novitas officials. “We believe the evidence we presented was compelling but can provide no assurances as to if and when Novitas will change the proposed rates,” iRhythm CEO Mike Coyle said during a recent earnings call.
Other big medtech companies have moved forward on acquisitions in the space. Boston Scientific (NYSE:BSX) closed March 1 on its acquisition of Preventice Solutions and its remote monitoring services for patients with cardiac arrhythmias, and Philips (NYSE:PHG) in February completed its purchase of BioTelemetry.
“While Hill-Rom has changed its mind on BardyDx, both Philips and Boston have both committed and now closed deals with exposure to the space, and we think having multiple strong advocates for reimbursement in this market will also help to ensure the right value is assigned to these products,” Truist analyst Kaila Krum said in an email to MassDevice.
BardyDx in its legal complaint said Hillrom is “excusing its failure to close” by citing the Novitas reduction.
“Throughout the parties’ negotiations leading up to the merger agreement, they were aware of and regularly discussed the likelihood of changes in reimbursement rates,” BardyDx’s lawyers said in the complaint.
BardyDx’s lawyers later added that the change in reimbursement rates equally affects BardyDx and the three other leading U.S. providers of AECG diagnostic tests. “Therefore, Hill-Rom cannot show that the change has had a materially disproportionate impact on BardyDx compared to other similarly situated companies.”