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St. Jude Acquires Endosense

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In an effort to expand its atrial fibrillation portfolio, St. Jude acquired Endosense SA for $170 million in cash. Geneva, Switzerland-based Endosense in the first to develop a force-sensing technology — TactiCath ablation catheter — to measure the amount of force applied to the heart wall during a catheter ablation procedure.

TactiCath is CE Marked for atrial fibrillation (AF) and supra ventricular tachycardia (SVT) ablation. Several studies like Toccata, Efficas I and II have authenticated the device’s safety and efficiency to reduce AF recurrence when contact force is applied. Further, following the recent completion of the Toccastar U.S. IDE trial, Endosense plans to submit its pre-market application for approval to the U.S. Food and Drug Administration (FDA) for paroxysmal AF indication before the end of 2013.

St. Jude plans to pay an additional amount of $161 million in cash on achievement of a regulatory milestone. Apart from incurring acquisition-related costs, the deal does not materially impact St. Jude’s bottom-line guidance.

Market Opportunity

The acquisition of Endosense should help St. Jude’s AF product portfolio expand its foothold in the $900 million global cardiac ablation catheter market. Management plans to integrate Endosense’s pioneering force-sensing technology with its proprietary technologies such as MediGuide-enabled ablation catheters and EnSite Velocity Mapping System to develop cutting-edge innovative products to treat complex cardiac arrhythmias.

St. Jude’s AF business is the only franchise with solid growth rate on a quarterly basis. In the second quarter of 2013, revenues from AF climbed 9% (up 12% in constant currency) year over year to $237 million. The strong year-over-year growth reflects strong momentum in product sales, which is likely to continue through 2013.

STJ recently won the U.S. FDA approval for its latest MediGuide-enabled ablation catheters, considered a potential growth driver for this segment. Further, we believe that the addition of the new patent-protected TactiCath should further enhance AF product offerings in both the international and U.S. markets.

St. Jude has a Zacks Rank #2 (Buy). Other medical stocks such as Alere , with a Zacks Rank #1 (Strong Buy), along with Hospira and Exactech , carrying a Zacks Rank #2 (Buy), are worth considering.

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