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In an attempt to expand its international footprint, precision guided therapy tools provider for diagnosis and treatment of coronary and peripheral vascular disease, Volcano Corporation (VOLC - Analyst Report) recently signed a definitive agreement to acquire privately held Israeli medical imaging solutions company Sync-Rx Ltd. Financial terms of the deal were not disclosed. However, Volcano expects this acquisition to be completed within a month.

Sync-Rx, which develops advanced software for transcatheter cardiovascular interventions using automated online image processing, is currently focused on coronary catheterizations. Besides, the company is working to develop applications for physiology, peripheral and minimally invasive structural heart therapy. Volcano believes, apart from establishing its footprint in Israel, successful completion of this acquisition will also enable the company to progress further with its multi-modality platform. Sync-Rx is expected to offer Volcano a proper platform to develop advanced applications for clinical decision making.

In a difficult and changing healthcare system, Percutaneous Coronary Interventions (PCI) procedure is currently affected by increasing scrutiny of over-stenting of PCI patients and the health care costs. All these resulted in a need to validate treatment and outcome. Besides, records of suitability to stent and the results of the stenting are necessary for reimbursement support. As a result, Volcano is currently working on improving the delivery of minimally invasive therapies using visualization, physiology and other technologies to get a more personalized treatment option. The company believes that the technology of Sync-Rx will streamline this procedure further helping Volcano to better integrate and present a wide variety of data in a way that creates more meaningful information.

Volcano has witnessed some favorable trends in the industry in the form of greater clinical and economic pressure to prove the benefits of PCI procedures. At present clinicians and hospitals are facing increasing pressure to justify the medical necessity of the PCI therapy. An article published in the Journal of American Medical Association (JAMA) pointed to the concerns regarding the over usage of stents in patients. The data showed that 30% of PCI procedures are performed on stable patients who are suffering from mild or no symptoms and only half of those procedures were appropriate.

Moreover, as part of the affordable care act effective from October 2012, Medicare will be penalizing hospitals that have above average 30 day readmit rates for PCI. Volcano is confident that the favorable industry dynamics will provide strong momentum to its core offerings, particularly intravascular ultrasound (IVUS) and fractional flow reserve (FFR) products, and will mitigate any short-term variances in PCI activity. In addition, Volcano Corporation has high expectations from the next-generation IVUS technology called FACT (Focused Acoustic Computed Tomography), the commercial launch of which is slated in mid-2013 in the US and Europe, and a year later in Japan.

However, Volcano Corporation continues to face challenges in the form of tough macroeconomic environment, especially in Europe. Moreover, unfavorable currency movement continues to play as a major headwind for the company. For the IVUS range of products, the company faces tough competition from Boston Scientific Corporation (BSX - Analyst Report). We have a Neutral recommendation on Volcano Corporation. The stock retains a Zacks #3 Rank (Hold) in the short term.

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