St. Jude Medical Inks $3.4B Deal to Buy Thoratec

July 24, 2015

The megamerger trend in the medical device industry continues unabated, with St. Jude Medical offering to acquire Thoratec in an all-cash transaction valued at about $3.4 billion.

The buy will strengthen St. Jude’s heart failure portfolio, as Pleasanton, Calif.-based Thoratec markets the HeartMate II left ventricular assist system and the paracorporeal ventricular assist device. In early July, Thoratec’s HeartMate percutaneous heart pump received CE mark approval, and the company has received an unconditional FDA nod for the IDE study of the device.

St. Jude’s heart failure options currently include the Quadripolar CRT-D and CRT-P technologies, multipoint pacing CRT technology, remote monitoring capabilities and CardioMEMS HF system.

In addition, St. Jude will gain access to markets totaling more than $1 billion, according to a statement announcing the deal.

Analysts React

In a note, Leerink analyst Danielle Antalffy sees the acquisition as positive, labeling it as highly strategic and making St. Jude a potential big player in a high-growth market.

Despite the positives, the merger agreement includes a 30-day “go-shop” period, during which Thoratec may seek alternative proposals from third parties. While the transaction is expected to close in the fourth quarter, some analysts see the potential for another suitor to come into the picture.

Analysts with Wells Fargo Securities say the go-shop period is not common, adding that Medtronic, Abbott and Johnson & Johnson could be possible bidders. They add that a potential bidder may wait as long as possible to make an offer to see how Thoratec rival HeartWare’s MVAD implant is progressing.

HeartWare announced July 20 that had started a CE mark clinical trial for the MVAD system. It also has submitted an IDE application to the FDA.

In 2009, the Federal Trade Commission scuttled plans for Thoratec’s proposed $282 million acquisition of HeartWare, saying it would reduce competition in the U.S. market for left ventricular devices.

Not everyone thinks that another company is waiting in the wings to make a higher offer. Ben Andrew of William Blair thinks the deal will go through.

Quarterly Numbers

Word of the deal came as St. Jude announced its second quarter results. The company, which had net sales of $1.410 billion, a 3 percent decrease compared with $1.448 billion during the prior year quarter, saw strength in its atrial fibrillation and neuromodulation areas, which came in at $279 million and $118 million, respectively.

However, it saw decline in total cardiac rhythm management sales — including implantable cardioverter defibrillators and pacemakers — which came in at $670 million, down 9 percent from the prior year quarter.

After adjusting for the impact of foreign currency, sales were down 1 percent.

The St. Jude-Thoratec deal comes after Becton, Dickinson & Co. closed its more $12 billion buyout of CareFusion in March and Medtronic wrapped its nearly $50 billion deal to acquire Covidien.

Last month, Zimmer completed its $14 billion buyout of Biomet following clearance from the FTC.

Pfizer’s proposed $17 billion buyout of Hospira is being scrutinized by EU and U.S. competition authorities, and Wright Medical is awaiting the FTC’s blessing for its Tornier buy. — Elizabeth Hollis