Mindray's Latest Acquisition

Chinese medical devices major Mindray Medical International Limited (MR - Analyst Report) recently revealed a definitive agreement to take a dominating stake in Wuhan Dragonbio Surgical Implant Co., Ltd. ("Dragonbio").

As per the terms of the deal, Mindray is expected to pay about $35.5 million for the acquisition. The company will avail of funds from its cash reserves. It expects the transaction to close in July 2012 and the deal to have a minor impact on its earnings results for 2012. Consequently, Mindray retains its guidance for 2012.

Based in Wuhan, China, Dragonbio sells orthopedic offerings, such as joint, spine and trauma products, in its domestic market. The company had sales of about $7.7 million in 2011.

Mindray is a bellwether in the Chinese MedTech industry with a solid international presence. A key distinction with domestic competitors is that the majority of Mindray’s products have CE Mark and/or Food and Drug Administration (“FDA”) clearance.

Mindray maintains a decent product pipeline and brings out several new products each year. New products contribute in a major way to Mindray’s revenues. In fiscal 2011, the company launched 13 new products.

The company has entered the premium segment globally, where its competitive advantage is still unclear. Also, on the negative side, health care reform, in China and the U.S., may reduce demand for Mindray’s products. Competition is fierce and leads to price erosion over time.

Mindray’s competitors, in different niche segments, include GE Healthcare, a part of General Electric (GE - Analyst Report), Philips (PHG - Analyst Report) and Siemens (SI - Analyst Report). Our Neutral recommendation is supported by a short-term Zacks #3 Rank (Hold).