Medtronic Continue M&A Trend in Biotech

Brittney Barrett  |

The biotech sector was abuzz during trading today with Medical-device maker Medtronic (MDT) announcing plans to purchase the remaining stake in two surgical-product companies for a total of $585 million on Thursday. The Medtronic decision is the latest in a series of major mergers in the sector this year that include, Johnson and Johnson (JNJ) acquiring Synthes (SYST), Valeant (VRX) and Cephalon (CEPH) as well as Amgen (AMGN) paying 1 billion to acquire BioVex for its OncoVex cancer vaccine in Phase III. Sanofi Aventis also made a hostile bid that resulted in takeover of Genzyme for 20 billion dollars in 2011. A majority of the successful mergers and acquisitions this year have indicated a trend toward consolidating medical device, generic and consumer health segment of the healthcare industry.

Medtronic’s purchase is also aimed at diversifying their offerings and inhabiting more subsets of the industry. The final deal will require Medtronic to spend $480 million on Salient Surgical Technologies Inc. and $105 million on PEAK Surgical Inc. The changing landscape in implantable defibrillators and spinal devices will take some adjusting to, and Medtronic’s latest actions could be seen as an attempt to regains its bearings. The most recent fourth-quarter earnings indicated a decline, a result of pricy restructuring costs and soft sales in select segments.

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Salient's role in that will be the contribution of sales of their products which are intended to aid in sealing soft tissue and bone during surgical procedures. Salient currently bring in around $100 million in yearly revenue. PEAK for its part offers disposable cutting tools that fuse a scalpel with the bleeding control of traditional electrosurgery and makes around $20 million in annual revenue.

Shares of Medtronic were up, but only marginally in today’s trading.

While Medtronic merged, Pfizer Inc. (PFE) made the decision to shell some of its assets. As a part of a previously-announced strategic review, the pharmaceutical company announced that it is looking to sell its animal health-care and nutritional products units.  The division brought in $3.6 billion in revenue compares to the nutrition divisions $1.9 billion, but the company nonetheless is looking to shed the weight. They have hired J.P. Morgan (JPM) to evaluate options and hope to complete the deal within the next 12 months. Shares of Pfizer dipped initially but ended marginally higher.

Overall, biotech has been slow as of late as many worry the ongoing anxiety regarding the Greek debt pushing up commodities and the natural decline of the stock market in the summer months make the already risky sector even more dangerous.  One company that bucked the trend; however was Zalicus Inc. (ZLCS), up 12 percent in what could be the beginning of a longer rally for the company. Rodman and Renshaw initiated market coverage on the biopharmaceutical company, which specializes in developing drug candidates with a focus on the treatment of pain and inflammation, with an outperform rating.

Shares of Affymetrix Inc. (AFFX) were on the opposite trajectory after plummeting  nearly 18 percent following yesterday’s preliminary quarterly-earnings report. The company predicted second-quarter revenue of between $64 and $65 million against analyst expectations of $74 million.


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