Recently, Haemonetics (HAE - Analyst Report) completed the acquisition of Hemerus Medical, a Minn.-based company that develops technologies for the collection of whole blood, and processing and storage of blood components. Notably, Haemonetics earlier paid $1 million in this regard and waited for Hemerus to receive approval from the US Food and Drug Administration (FDA) for SOLX red cell storage solution.
According to its plan, following the recent FDA approval for Hemerus' New Drug Application for the SOLX’ whole blood collection system for 8-hour storage, the company closed the deal paying another $23 million. Haemonetics is going to pay another $3 million upon further FDA approval of the SOLX solution for 24-hour whole blood storage prior to processing. In addition, it has also committed to pay an additional $14 million on future sales of SOLX-based products. We note that Hemerus’ solutions are largely accepted in the European Union markets as the company previously received CE Mark for SOLX as the world's first 56-day red blood cell storage solution.
Haemonetics is optimistic about this acquisition and expects successful integration of the Hemerus' SOLX collection system. The company believes SOLX to complement the portfolio of its newly added whole blood collection; filtration and processing product lines. Earlier in Aug 2012, Haemonetics acquired the transfusion medicine business of Pall Corporation (PLL - Analyst Report), which includes blood collection, filtration and processing product lines.
With the acquisition of the transfusion medicine business of Pall Corporation, Haemonetics forayed into the $1.2 billion whole blood collection market. With the integration process on track, performance of this business during the last reported quarter has been satisfactory. The company reported $55 million of revenues from this acquired whole blood business in the quarter.
Manual whole blood collection accounts for the vast majority of the nearly 60 million red blood cells collection procedures performed annually worldwide. The entry into the whole blood market precedes the planned launch of its automated whole blood product. Automated whole blood collection is considered an important growth driver for the company.
Low global penetration and demand outstripping supply provide a positive long-term thesis for investing in the blood processing and supply chain management industry. A stable cash balance coupled with strong free cash flow generation has enabled Haemonetics to target acquisitions. We are also encouraged by the recovery in the Plasma business and the company’s focus on emerging markets to drive growth. However, the uncertain economic scenario continues to pose challenges for Haemonetics. Moreover, competition from rivals is on a rise. Haemonetics currently retains a Zacks Rank #3 (Hold).
Other Stocks to Consider
While we prefer to remain on the sideline on Haemonetics, other medical device stocks worth a look are HEALTHSOUTH Corp. (HLS - Snapshot Report) and Nuvasive Inc. (NUVA - Snapshot Report). Both these stocks carry a Zacks Rank #1 (Strong Buy).