Medical-Device Giants Snap Up Start-Ups as Biotech IPOs Fizzle

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Two leading medical-device makers announced separate deals to acquire start-ups to bolster their cardiovascular units, while biotech IPOs struggled in a sign that investor enthusiasm for high-risk companies remains anemic.

This article published with permission from The Burrill Report.

Medtronic Inc. (NYSE: MDT) and Boston Scientific Corp. (NYSE: BSX), two leading medical-device companies, recently announced separate deals to acquire cardiovascular medical-device start-ups in which they have already made significant venture investments.

Medtronic of Minneapolis will acquire Ardian Inc. for $800 million in upfront cash, plus commercial milestones equal to the annual revenue growth through the end of Medtronic’s fiscal year 2015. Medtronic already has an 11% stake in the company.

Mountain View, Calif.-based Ardian develops catheter-based therapies to treat hypertension and related conditions. It is developing a catheter-based treatment for uncontrolled hypertension that has been approved for sale in Australia but is not yet approved for sale in the U.S.

“We view renal denervation for the treatment of uncontrolled hypertension as one of the most exciting growth markets in medical devices,” says Sean Salmon, vice president and general manager of the coronary and peripheral business at Medtronic. “Ardian’s investigational catheter-based treatment for uncontrolled hypertension through renal nerve denervation complements Medtronic’s expertise in catheter design and ablation technologies, and augments Medtronic’s interventional therapies.”

Ardian is the eighth company created by The Foundry, a leading medical-device incubator based in Menlo Park, Calif. Ardian’s investors include Morgenthaler Ventures, Advanced Technology Ventures, Split Rock Partners, Medtronic and Emergent Medical Partners. The transaction is expected to close in Medtronic’s third fiscal quarter of 2011, and is subject to customary closing conditions, including U.S. and foreign regulatory clearances. At the close of trading Monday, Medtronic shares were at $33.90.

Boston Scientific is acquiring Sadra Medical Inc. for an upfront payment of $193 million plus additional potential payments of up to $193 million upon achievement of specified regulatory and revenue-based milestones through 2016. The purchase price assumes no cash or debt on Sadra’s balance sheet at closing. Boston Scientific already has a 14% ownership interest in Los Gatos, Calif.-based Sadra, valuing the company at $450 million.

Sadra recently completed a series of European feasibility studies of its Lotus Valve System, which consists of a stent-mounted tissue valve prosthesis and catheter delivery system for guidance and placement of the valve.

“This acquisition represents another critical step in the execution of our strategy to realign Boston Scientific's portfolio,” says Ray Elliott, president and CEO of Boston Scientific. “Percutaneous aortic valve replacement is a fast-growing market within structural heart therapies, and we expect it to be an important part of our growth plan. Sadra's innovative technology is a natural fit with Boston Scientific’s core competencies in stents and catheter-based delivery systems, allowing us to leverage our clinical expertise and existing sales channels.”

Boston Scientific has been a strategic investor in Sadra Medical since 2006. The company will use cash on hand for the acquisition which is expected to be completed in the fourth quarter of 2010 or first quarter of 2011. Boston Scientific’s shares closed at $6.50.

In other dealmaking, f-star Biotechnologische Forschungs-und Entwicklungsges mbH signed a drug discovery collaboration agreement with Germany’s Boehringer Ingelheim Gmbh that could potentially bring $1.6 billion to the Austrian biotech. F-star will use its Modular Antibody Technology platform against up to seven targets in a variety of therapeutic areas selected by Boehringer Ingelheim, which will then further develop and commercialize any discoveries either as Fcab therapeutic products in their own right or as modules for the generation of bispecific mAb2 products.

f-star will receive an initial technology access fee, research-based funding, and will be eligible to receive additional license fees, development, regulatory and commercial milestones that could reach up to $241 million per successfully commercialized therapeutic. It will also be eligible to receive undisclosed tiered royalties on sales.

Just as Big Pharma is moving into emerging countries like India, so too is an Indian pharma moving into developed countries, such as the Dr. Reddy’s Laboratories, one of the biggest Indian pharmaceuticals, is buying GlaxoSmithKline PLC’s oral penicillin franchise in the U.S. It includes a penicillin manufactiruing facility in Tennessee and U.S. rights for the Augmentin and Amoxil brands. GSK will retain the existing rights for these brands outside the U.S. This transaction is targeted to close within the first half of the calendar year 2011. Further financial terms and conditions of the agreement were not disclosed.

“We are excited about this acquisition, as it allows us to enter the United States penicillin-containing antibacterial market segment and serve the needs of our customers and patients through manufacturing capabilities that did not previously exist within Dr. Reddy's,” says Abhijit Mukherjee, president and head, Global Generics Business, Dr. Reddy's. “This acquisition is in line with our strategy to significantly scale up our generics business in North America while providing an opportunity to explore additional synergy with our other businesses.”

Finally, three biotechs went public in the short week before Thanksgiving. They all had to drop their offering price significantly after failing to entice investors the week before -- a sign that enthusiasm for high-risk companies remains anemic.

Danish biotech Zealand Pharma A/S priced at the low end of its expected range to raise $58 million in its offering, a third of what it had originally hoped to raise. The company is developing a diabetes drug in partnership with France’s Sanofi-Aventis S.A.

Zogenix Inc. (NASDAQ: ZGNX) ended up pricing its shares at $4, one third its initial target price of $12 to $14 a share, and more than doubled the number of shares offered. The San Diego biotech, which has one commercial product, raised $56 million to further development of its treatments for central nervous system disorders and pain. Zogenix’s shares closed Monday at $3.90.

Anacor Pharmaceuticals Inc. (NASDAQ: ANAC) raised $60 million in its initial public offering by reducing its share price to $5 from the $16 to $18 range it had planned to offer and increasing the offering to 12 million shares, up from the 6 million planned. Anacor has used its boron chemistry platform to develop five clinical anti-infective and anti-inflammatory compounds (See related story). The Palo Alto, Calif., company’s shares closed at $5.03.

In other market-moving news:

Healthcare stocks heading into the Thanksgiving holiday break, with investors encouraged about upbeat U.S. jobless claims, and consumer confidence and spending reports.

Among biotech's blue-chip stocks post9ing gains, Genzyme Corp. (NASDAQ: GENZ) rose on news the Cambridge, Mass., company had ended fill/finish operations within its Allston plant for products sold in the U.S., as required by a U.S. Food and Drug Administration consent decree. All fill/finish activities for Cerezyme, Myozyme, Fabrazyme, and Thyrogen for the U.S. market will now take place at their Waterford, Ireland plant, and at an external contract manufacturer. Genzyme shares closed Monday at $71.15.

Gilead Sciences Inc. (NASDAQ: GILD) reported that it had submitted a New Drug Application to the FDA for approval of the single-tablet regimen of Truvada and Tibotec Pharmaceuticals' investigational non-nucleoside reverse transcriptase inhibitor TMC278 (rilpivirine hydrochloride) for HIV-1 infection in adults. If approved, this would be the second product that contains a complete HIV treatment regimen in a single once-daily tablet. The TK company’s shares closed Monday at $37.06.

Amarin Corp. PLC (NASDAQ: AMRN) shares soared after a late-stage study found the Dublin company’s triglyceride-reducing drug was effective and is the first treatment of its kind to not raise “bad-cholesterol” levels. Its American depositary shares closed at $5.85.

And AMAG Pharmaceuticals Inc. (NASDAQ: AMAG) rose after the Cambridge, Mass., company agreed to change the labeling of its Feraheme injection treatment to include bolded warnings due to FDA safety concerns. Its shares closed at $15.91.