Medtronic extends lead in brain stimulation with Sapiens buy

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At $200m, Medtronic’s purchase of Sapiens Steering Brain Stimulation is not the largest medtech deal announced this year – in fact it does not make the top 20. But it points to Medtronic’s desire to expand in many different directions at once. The Covidien megamerger, still in the works, will grow its cardiovascular and surgical operations, but Covidien has no neurostimulation technologies.

Medtronic’s existing neuromodulation devices brought in over $1bn in sales last year, EvaluateMedTech data show, and the company is already the biggest player in this field. The Minnesota group must have seen something vital in Sapiens’s technology to consider it worth having.

It is true that neuromodulation is growing faster than Medtronic’s overall operations. Sales of its spinal cord stimulation devices are expanding at an annual rate of 7% and are forecast to be worth over $1bn alone by 2020. Its deep brain stimulation products are showing 5% annual growth, compared with 4% for the overall company (see table below).

Shocking growth: Medtronic's implantable neuromodulation technologies
Global sales ($m)
Segment
Number of devices 2013 2020 CAGR
Spinal cord stimulation  10 640 1,029 +7%
Deep brain stimulation  7 456 634 +5%

The technology developed by Sapiens Steering Brain Stimulation will, as the name suggests, fall into this latter category. Medtronic said the system has 40 stimulation points, thereby allowing more precise stimulation of intended targets in a patient's brain. It is intended for the classical brain stimulation indications: Parkinson’s disease, essential tremor and depression.

Small

The deal is also a testament to the golden touch of Sapiens’s CEO, Jan Keltjens. Just over a year ago, as CEO of Endosense, Mr Keltjens oversaw the catheter company’s sale to St. Jude Medical for $170m up front (Ablation wars heat up as St. Jude buys Endosense, August 23, 2013). The deal included a possible further $161m in milestones, one of which may have been hit when the pivotal US trial of Endosense’s lead product TactiCath succeeded in May.

Earlier still, Mr Keltjens was president and CEO of CryoCath Technologies, which was acquired by Medtronic for $380m in November 2008.

Medtronic has not stated whether the $200m it paid for Sapiens includes milestones or not. With Sapiens’s technology at the clinical stage it would seem wise to backend-load the deal. But perhaps the all-cash move is small enough, and the data the buyer has seen good enough, to be worth the risk. Certainly Medtronic has said that the deal will not affect its earnings guidance for fiscal 2015.

It might be unwise to read too much into the smaller deals conducted by the very largest medtech companies; after all, this is how the sector operates. Medtronic has completed two relatively tiny cash deals this year already, buying the surgical laser developer Visualase for $105m and anti-infective firm TYRX for $160m.

Even the largest merger in medtech history cannot stop Medtronic going after the small fish.

To contact the writer of this story email Elizabeth Cairns in London at elizabethc@epvantage.com or follow @LizEPVantage on Twitter

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