Leading medical devices maker C.R. Bard (BCR) has scooped up Minnesota-based Lutonix, Inc. for roughly $225 million. The deal also calls for an additional milestone payment of $100 million, to be paid upon the U.S. premarket approval (“PMA”) of Lutonix’s drug-coated percutaneous transluminal angioplasty (“PTA”) balloon.
Lutonix is currently conducting an FDA-approved investigational device exemption (“IDE”) study (“LEVANT 2”) using drug-coated balloons for treating peripheral arterial disease, a condition affecting roughly 8 to 12 million people in the U.S.
The trial is comparing Lutonix’s drug-coated balloon (dubbed Moxy) with standard balloon angioplasty. The multi-center pivotal study will enroll 476 patients with significant stenosis (narrowing of a blood vessel) in previously unstented superficial femoral artery or popliteal artery lesions (up to 150 mm in length) across 55 sites in the U.S. and Europe.
These patients will be monitored for five years, following which, a PMA application will be filled with the FDA after a year, which Lutonix currently expects to occur in 2014. The company has already received European CE Mark for its drug-coated balloon. C.R. Bard expects to commence selling the device in Europe in second-half 2012.
Drug-coated balloons are gaining attention recently as surgeons look for effective means to treat diseased arteries without having to leave a permanent implant. Similar to the drug-eluting stents (“DES”) used in the heart, the drug-coated balloon delivers a powerful restenosis (reoccurrence of stenosis)-fighting drug to the artery. However, unlike DES, it is removed from the body after use.
The worldwide peripheral vascular market for drug-coated balloons is forecast to hit roughly $1 billion annually over the next ten years. Currently, there are no approved drug-coated balloons available for use in the U.S.
The acquisition is a strategic fit for C.R. Bard, enabling it to expand into a large and lucrative market. The company, however, envisions the transaction to dilute its adjusted earnings per share for 2012 by roughly 25 cents.
C.R. Bard’s well-diversified end-markets and vast product portfolio insulate it from fluctuations in any single therapeutic category. The company’s resource depth and focused innovation are its major competitive advantages.
We expect new products to drive organic revenue growth and help C.R. Bard to meet its sales objective. However, heightened competition and pricing/procedure volume pressure remain areas of concern. C.R. Bard faces tough competition from larger players such as Boston Scientific (BSX) and Johnson & Johnson (JNJ). Our Neutral recommendation on the stock is in tandem with a short-term Zacks #3 Rank (Hold).
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