St. Jude pumps up heart failure offering with $3.4bn Thoratec buy

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St. Jude Medical’s $3.4bn all-cash move on heart pump maker Thoratec is the biggest pure medtech acquisition agreed this year so far, and it may be a good choice.

Buying the leading developer of left ventricular assist devices allows St Jude to pentrate the left ventricular assist device market, an estimated $1bn opportunity. But Thoratec has had troubles with its technology including thrombosis rates and a problematic controller. St Jude must hope its bet pays off.

Rumours have been swirling for a few days that St Jude might be interested in Thoratec, pushing its stock up accordingly – 18% yesterday. But the agreed price of $63.50 per share represents a 35% premium over Thoratec’s closing price on July 17, before the speculation began.

St Jude’s reasoning is clear enough: the LVAD market is expanding at around 10% annually, and sales of Thoratec’s devices could potentially offset the poor performance the company has seen recently in its biggest division, cardiac rhythm management.

The deal comes hot on the heels of European CE mark approval for Thoratec’s percutaneous heart pump, HeartMate PHP, a rival to Abiomed’s Impella 2.5.

HeartMate PHP, which is delivered via the femoral artery in the groin and used in high-risk percutaneous coronary intervention (PCI) procedures, is not yet approved in the US. Thoratec recently got the go-ahead to start the 425-patient Shield II trial, which will pit the PHP head-to-head against Impella 2.5.

While the market for Thoratec’s older products, including the HeartMate II LVAD, is already worth around $750m, the global percutaneous heart pump sector is forecast to exceed $300m in 2016, according to St Jude.

Thoratec’s revenues could also be expanded by strengthening its international presence, as only around 20% of sales currently come from outside the US.

Top five medtech M&A of 2015 so far
Announcement date Acquirer Target Value ($m)
May 13, 2015 Danaher Pall 13,800
July 22, 2015 St. Jude Medical Thoratec 3,400
June 17, 2015 Hill-Rom Welch Allyn 2,050
March 2, 2015 Cardinal Health Cordis business of Johnson & Johnson 1,944
March 2, 2015 Boston Scientific Men's Health and Prostate Health businesses of American Medical Systems 1,650

And on the horizon is the potential approval of Thoratec’s next-generation HeartMate III device, designed to simplify surgical placement and reduce adverse events. The device, which could be implanted via a less invasive procedure than HeartMate II, is currently being tested in both Europe and the US. Sales of HeartMate III could hit nearly $100m by 2020, according to EvaluateMedTech’s consensus forecasts.

The deal is slated to close in the fourth quarter, and includes a 30-day “go shop” period during which Thoratec can solicit offers from other companies.

HeartWare take heart

So who else might be interested in buying Thoratec? The obvious contenders are the other big three players in the cardiovascular sector: Medtronic, Boston Scientific and Abbott Laboratories.

Alternatively, these companies might instead be tempted to make a move for Thoratec’s smaller rival, number-two LVAD specialist HeartWare International, which could be for sale at a lower price.

HeartWare has been playing catch-up for some time, and appears to have been gaining market share: in 2014 the company posted revenue growth of 34% to $278m, while Thoratec’s sales shrank 5% to $478m.

But HeartWare’s HVAD pump is still not approved in the US as a destination therapy – a permanent implant in patients too sick to receive a heart transplant. HeartWare’s efforts in this indication hit a snag earlier this year when a head-to-head study found a higher-than-expected rate of stroke, despite showing that the HVAD was non-inferior to HeartMate II on two-year survival (Investors in HeartWare wary of stroke rates, April 17, 2015).

HeartWare also has a smaller follow-up device, MVAD, but it is some way behind Thoratec here, with the company only just having reported the first human implants in a trial to support CE marking.

HeartWare’s share price jumped 6% yesterday and is up another 4% so far today, perhaps thanks to a knock-on effect. And though the bigger company is perhaps the more solid bet, it would not be a surprise if one of St Jude’s rivals buys HeartWare in a bid to keep up.

To contact the writer of this story email Madeleine Armstrong in London at madeleinea@epvantage.com or follow @medtech_ma on Twitter

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