Last week, Boston Scientific announced that it was acquiring Cameron Health, a maker of a novel implanted cardioverter defibrillator system for $150 million upfront and the potential of up to $1.2 billion in milestone payments, including an approval from U.S. regulators.
The maturity of the startup is likely a foreshadowing of a trend in the medical technology mergers and acquisitions space.
In announcing the intent to buy the California company, Boston Scientific stressed that Cameron has already submitted a premarket approval application to the U.S. Food and Drug Administration, with an expected approval in the first half of next year. Cameron’s S-ICD system, which is the world’s only commercially available subcutaneous ICD that does not require leads in the heart, already bears the CE Mark in Europe and is available in a few locations. It has been implanted in more than 1,000 patients worldwide, Boston Scientific said. The deal is expected to close in the second or third quarter.
It appears that the days of a larger player buying a startup with a a novel technology in its infancy and then shepherding it through expensive, lengthy clinical trials and regulatory submissions may be over. Medical devices companies already stressed by a variety of headwinds are looking for substantial proof of concept to mitigate any risks involved with buying a company with a new technology, however revolutionary it may be.
In response to a question about the guiding philosophy behind Cameron’s acquisition, Boston Scietific’s president of the Cardiac Rhythm Division said as much.
“It’s important to point out that this product is approved in EU today and we expect FDA approval in the first half of 2013. So, this is very different from some projects that will be four, five years before an FDA approval and several years before an EU approval,” said Joe Fitzgerald, in a phone interview. “This presents much nearer term revenue and market-share opportunity for Boston Scientific, and it fits very nicely with our deal model of when and what it will return to our shareholders.”
A Deep-dive Into Specialty Pharma
A specialty drug is a class of prescription medications used to treat complex, chronic or rare medical conditions. Although this classification was originally intended to define the treatment of rare, also termed “orphan” diseases, affecting fewer than 200,000 people in the US, more recently, specialty drugs have emerged as the cornerstone of treatment for chronic and complex diseases such as cancer, autoimmune conditions, diabetes, hepatitis C, and HIV/AIDS.
He added, look “how many risks [the Cameron team has] taken out of the broad marketability for the product. Some risks remain — for instance FDA has not approved the product yet, but we are thoroughly impressed with Cameron’s progress in the last 18 months.”
Fitzgerald noted that Cameron’s acquisition is similar to that of the transaction involving Atritech that was announced in January 2011, in that it too had European approval for its product.
But actually the acquisition of Cameron goes a step further. When Boston Scientific announced that acquisition in the structural hearts space, Atritech’s Watchman Left Atrial Appendage Closure Technology was approved in Europe, but it was enrolling patients in a confirmatory clinical study to help gain FDA approval.
By contrast, Cameron Health has completed its FDA application.
Boston Scientific is not alone in this approach.
Its rival — Medtronic — has not made an acquisition under new CEO Omar Ishrak, but he has made it very clear that he will adopt a strict approach when it comes to acquisitions. In fact, Ishrak “will only consider purchases that trigger little or no reduction in earnings per share,” according to Bloomberg. And if it does, it will cut costs elsewhere.
In other words, startups looking to get bought out by the big dogs will need to prove themselves and wait longer for payday.
