Boston Scientific Corp.’s latest deal, a takeover of privately held Millipede Inc., is a good strategic fit that will help the company build out its franchise of heart-valve repair and replacement treatments, Needham analysts said Thursday.
Millipede is developing the IRIS Transcatheter Annuloplasty Ring System, a treatment for patients with severe mitral regurgitation (MR) who are unable to tolerate open-heart surgery. Mitral regurgitation is a condition in which a leaky valve doesn’t close the way it should, allowing some blood to flow backward into the left atrium, according to the Mayo Clinic. Left untreated, the disorder can cause heart failure or arrhythmia.
“Upon commercialization, we believe the IRIS system can meet the needs of a currently underserved patient population that requires physiological, less invasive options to treat functional mitral regurgitation in patients with progressive heart failure,” said Professor Ian Meredith, executive vice president and global chief medical officer at Boston Scientific BSX, +0.55% in a statement.
Needham analysts welcomed the deal despite the price tag.
“While there are still clinical, commercialization, and integration risks and BSX is paying a high price for Millipede, we believe this transaction could lay the foundation for the mitral leg of BSX’s Structural Heart franchise, particularly given Neovasc’s issues (a BSX TMVR investment) and we reiterate our Strong Buy rating,” Needham analysts Mike Matson and David Saxon wrote in a note.
Neovasc NVCN, +2.34% is also developing a device to treat mitral regurgitation.
Boston Scientific first invested in Millipede by purchasing $90 million of existing and new shares with the option to acquire the rest for $325 million at closing, with a $125 million milestone payment due upon reaching certain commercial goals. The deal is expected to close in the first quarter and to be dilutive to adjusted per-share earnings for each of the next several years, with the impact expected to be absorbed by internal trade-offs.
Needham analysts said the deal is the third leg of Boston Scientific’s structural heart franchise, along with its transcatheter aortic valve replacement and left atrial appendage closure. At the company’s 2017 investor day, management said they expect the structural heart end markets to reach $6.5 billion by 2021 and the mitral market alone to reach $3 billion by 2025.
“Management has commented that they intend to compete with a ‘toolbox’ approach in mitral and we wouldn’t be surprised to see BSX make more investments ……especially the mitral vertical given the large repair and replacement market potential,” said the note.
Separately Thursday, Stephens dropped Boston Scientific from its Best Ideas list.
Boston Scientific shares were last down 1.7%, but have gained 34% in 2018, while the S&P SPX, -0.12% as fallen 10%.
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