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Precision guided therapy tools provider for diagnosis and treatment of coronary and peripheral vascular disease, Volcano Corporation (VOLC - Analyst Report) has actively pursued acquisitions to drive growth. Following its declaration of signing a definitive agreement to acquire Israeli Sync-Rx Ltd. 2 weeks back, Volcano again came up with another acquisition agreement to purchase California based privately held Crux Biomedical, Inc. that develops advanced therapies for the human vasculature. The deal is expected to close by next week.

Per the deal, Volcano will pay $36.0 million in cash and an additional $3.1 million as transaction expenses. Besides, on submission of the FDA clearance of a 510(k) application within June 30, 2013, for a retrieval device of Crux, currently in process of development, there will be another payment of $3.0 million as potential post-closing cash milestone. Further, additional payment can also be made by Volcano based on the products’ performances of Crux, post commercialization. According to the company, the commercial sales of Crux products will begin at the end of 2013, once full-scale manufacturing is implemented at Volcano’s Rancho Cordova facility.

Volcano believes that the acquisition of Crux will expand the company’s portfolio with several advanced cardiovascular products. The acquisition will enable the company to access the Crux VCF System, an inferior vena cava (IVC) filter to treat the life threatening pulmonary embolisms (PE). Pulmonary embolismsoccur when large blood clots, travelling from other parts of the body, block lung arteries.

However, this problem is far worse than most peopleknow. Currently, there is an alarming increase in the number of people suffering from this disease in the U.S., affecting 600,000 patients with an estimated 200,000 deaths a year. Therefore, Volcano is optimistic about the prospects of the IVC filter in reducing PE risk for patients. According to the company, the IVC filter market in the U.S. is estimated at approximately $300 million. The company also expects to seek regulatory approval for the commercialization of the Crux VCF System in combination with its IVUS (Intravascular Imaging) technology.

Volcano’s acquisition-driven growth strategy has served it well in the high-growth markets of the US. The company is also making its presence felt when it comes to clients in the emerging economies. These acquisitions have also helped Volcano diversify its portfolio.

On November 23, 2012, Volcano signed an agreement to acquire Israeli medical imaging solutions company Sync-Rx Ltd. that develops advanced software for transcatheter cardiovascular interventions using automated online image processing and is currently focused on coronary catheterizations. Volcano believes that apart from establishing its footprint in Israel, the successful completion of this acquisition will also enable the company to progress further with its multi-modality platform.

Volcano continues to believe that the IVUS market remains under-penetrated. In the next few years, the penetration rate of integrated consoles in cath labs is expected to reach 80% or more from the current level of just over 30%. Banking on its ability to expand its product offering and continuously upgrade technology, the company is confident of reaping maximum advantage from this lucrative market. In addition, Volcano 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 U.S. and Europe, and a year later in Japan.

However, Volcano continues to face a 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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