Medtronic’s acquisitiveness was conspicuous in 2015, with the company pursuing 10 deals. This year has been quieter, and the purchase of Smith & Nephew’s gynaecology business for $350m is only Medtronic’s second acquisition of 2016.
It could be a smart one. The flagship products of the unit are S&N’s Truclear range of power morcellators. Laparoscopic morcellators have been associated with the spread of undetected cancer cells, prompting fears of falling sales – but the S&N devices work differently, being hysteroscopic rather than laparoscopic, and as such do not pose the same risk. Medtronic’s new devices are safer than some of the competition.
Do less with morcellators
In April 2014 the US FDA issued a warning stating that if laparoscopic power morcellators are used to treat women with unsuspected uterine sarcoma there is a risk that the procedure will spread the cancer within the abdomen and pelvis, “significantly worsening the patient’s likelihood of long-term survival”. It said it “discouraged” their use, but stopped short of banning them (FDA to re-evaluate women’s health devices, May 1, 2014).
Johnson & Johnson pulled its morcellators from the market, but companies including Olympus are still offering laparoscopic devices for use in hysterectomy or fibroid removal. These products carry a black box warning stating that doctors must tell patients of the risks of spreading unsuspected cancer.
But S&N has not been caught in this net. The Truclear devices are indicated for the removal of tissue such as fibroids, endometrial polyps and retained products of conception – foetal or embryonic tissue that remains in the uterus after childbirth, abortion or miscarriage. Crucially, they are introduced transvaginally rather than through an incision in the abdominal wall and operate entirely within the uterus.
In its guidance mandating the black box warnings on laparoscopic devices, the FDA wrote that hysteroscopic morcellators such as Truclear did not pose the same risk as their laparoscopic equivalents “because any sarcomatous tissue present does not enter the peritoneal cavity”.
Smith & Nephew does not break out sales of its morcellators, but analysts at Bernstein wrote that the group’s gynaecology franchise contributed $56m in sales last year, or 1% of its total revenues.
Evercore ISI analysts state that the unit “likely enjoys a double-digit CAGR”; with many alternative morcellators being either taken off the market or offered to patients with a major caveat of cancer risk, this does not seem implausible.
S&N came by the devices when it bought ArthroCare in early 2014. They were not part of ArthroCare’s core business, which focused on radiofrequency surgical technology for use in shoulders and knee repair – far closer to S&N’s strengths.
So it will not be a wrench for S&N to sell the unit. It will return the proceeds to investors through a $300m share buyback, which Bernstein analysts said did not preclude future acquisitions.
Perhaps more acquisitions from Medtronic will be forthcoming too. It has been uncharacteristically quiet.