Covidien to Acquire CV Ingenuity

Large-cap medical technologies company, Covidien plc. ( COV - Analyst Report ) has entered into a definitive agreement to acquire Fremont, California-based medical device company, CV Ingenuity. Financial details of the deal were not disclosed by both the parties.

Privately-held CV Ingenuity specializes in the production of devices used for the treatment of peripheral arterial disease (PAD). Its offerings are utilized to heal natural vessels, clear vascular blockages and prevent restenosis. The key product, a Drug Coated Balloon (DCB) platform with a unique tunable, rapid-release system is still in the investigational phase.

Covidien plans to integrate the acquired entity in its Vascular business, under the core Medical Device segment. The inclusion of CV Ingenuity’s strong product pipeline should boost Covidien’s vascular products portfolio and reinforce its leading position in providing innovative vascular solutions. The deal is expected to close in the first quarter of 2013.

Covidien plans to invest in research and development (R&D) to develop CV Ingenuity’s product pipeline. Management is hopeful that by fiscal 2017 the company will receive U.S. Food and Drug Administration (FDA) approval for a DCB product using the CV Ingenuity technology.

Covidien expects R&D expenses to increase by more than $20 million in the second half of fiscal 2013 and above $30 million in fiscal 2014. However, despite these higher R&D expenses along with acquisition-related costs, the company reiterated its previous fiscal 2013 guidance. Management forecasts adjusted operating margin in the range of 22%–23% for fiscal 2013.

Earlier, in October 2012, Covidien’s Pharmaceuticals business, Mallinckrodt acquired CNS Therapeutics Inc., a St. Paul Minnesota-based specialty pharmaceutical company, for roughly $100 million. Covidien plans to spin off its Pharmaceutical business by mid-2013 to focus on its high-margin surgical products portfolio.

Covidien, with a market-cap of $26.88 billion, is a leading global health care products company with an impressive history of developing and manufacturing high-quality products in a cost-effective manner.

However, Covidien's larger Medical Device unit overlaps the business of its competitors like Johnson & Johnson ( JNJ - Analyst Report ) , Becton, Dickinson and Company ( BDX - Analyst Report ) and C.R. Bard Inc. ( BCR - Analyst Report ) .

We currently have a long-term ‘Neutral’ recommendation on the stock, which carries a short-term Zacks #3 Rank (Hold).