Endo International is selling most of its remaining medtech unit – and selling it at what looks to be a loss. The company had bought American Medical Systems in 2011 for $2.9bn, but today accepted Boston Scientific’s offer of just $1.65bn for much of the division.
The deal covers technologies for treating male genito-urinary conditions, but excludes AMS’s women's health business. This is a smart move on Boston’s part; Endo was forced to pay out nearly $1bn in settlements over AMS’s defective vaginal mesh implants last year.
Boston says the men’s health product lines it has bought will complement its existing urology and women’s health business. AMS technologies to treat benign prostatic hyperplasia, male stress urinary incontinence and erectile dysfunction will fit with Boston’s existing kidney stone, pelvic organ prolapse and female stress urinary incontinence portfolios.
Boston will pay a further $50m to Endo if 2016 sales targets are met. The combined business will have annual sales of nearly $1bn, according to Boston, and will enable “significant synergies”.
This is the first large acquisition for Boston Scientific for nearly 10 years. It bought the cardiovascular specialist Guidant in 2006 for $27bn in what turned out to be little short of a disaster; it only put the resultant litigation to bed last month, paying Johnson & Johnson $600m to settle a claim that it had broken a deal J&J had signed in 2005 to buy Guidant.
The acquisition had left Boston in debt and facing several recalls of Guidant products. So damaging was the acquisition that Boston argued in court that J&J should not receive any damages because it was better off for losing the bidding war.
Boston has learned its lesson, and will not be buying the troubled women’s health part of AMS, which includes female stress urinary incontinence and pelvic organ prolapse products. In April 2014 Endo paid $830m to settle 20,000 product liability lawsuits over AMS vaginal meshes.
Sell devices, buy drugs
So Endo is stuck with the women’s health segment, though it is “evaluating strategic alternatives” for it. Apart from these devices the company will be devoted to pharma when the Boston deal closes in six months or so.
In 2014 Endo’s pharma operations brought in $2.4bn, according to EvaluateMedTech’s consensus data, and this is set to grow at 9% annually from 2013 to 2020. AMS’s revenues of $496m and forecast growth of just 3% show why it was such an obvious candidate for divestment – and why Endo has been adding to its pharma operations, most recently through its acquisition of Auxilium.
Endo’s shares were up 3% in early trading on Nasdaq, though this is likely more a result of its fourth-quarter results than the AMS selloff.
|Endo International's American Medical Systems unit|
|Global sales ($m)|
|Segment||Type of products||2014||2016e||2018e||2020e||CAGR 2013-20|
|Men's Health||Erectile dysfunction devices, implanted urinary incontinence devices and surgical meshes||276||299||325||353||+4%|
|BPH Therapy/Prostate||Surgical lasers, prostatic devices and urethral stents||120||128||138||148||+4%|
|Women's Health*||Implanted urinary incontinence devices and surgical meshes||99||96||96||95||(2%)|
|*Excluded from sale to Boston Scientific. Data according to EvaluateMedtech.|