St. Jude Medical, Inc. STJ recently announced its plans to acquire Spinal Modulation, Inc. – developer of the Axium Neurostimulator System. The Axium system, through stimulation of the dorsal root ganglion (DRG), is effective in treating patients with chronic pain. It is especially useful for treating focal pain areas that cannot always be addressed by traditional spinal cord stimulation (SCS).
The system received marketing approval from European regulators in 2011. In Dec 2014, Spinal Modulation submitted an application to the FDA for a similar approval in the U.S.
In Jun 2013, St. Jude Medical had entered into a series of agreements with regard to an investment worth $40 million in Spinal Modulation. The agreements allowed the company to sell the Axium Neurostimulator System in international markets. In addition, the deals also granted St. Jude Medical an exclusive option to acquire Spinal Modulation.
St. Jude Medical is expecting to complete the acquisition by the second quarter of 2015. The company will reportedly pay approximately $175 million post closure of the deal. Once the Axium system gets the nod from FDA and helps St. Jude Medical achieve specific revenue targets, the company is expected to make additional payments to Spinal Modulation.
Per management, this takeover, excluding acquisition related expenses, will be dilutive to the company’s adjusted earnings per share (EPS) by 5 cents for the remainder of 2015. However, management is optimistic on countering it with additional operational efficiency. The company is expected to provide an update on its 2015 EPS projection at the time of announcing its first quarter results.
St. Jude Medical, along with other major medical-device makers, has already developed spinal cord stimulation devices that treat chronic pain. However, the addition of the Axium Neurostimulator System is an important one, given the system’s ability to treat specific areas such as the foot, lower leg and groin.
We believe this acquisition will significantly help St. Jude Medical successfully expand its chronic pain product portfolio, making it the first medical device manufacturer to offer radiofrequency ablation (RFA), spinal cord stimulation (SCS) and dorsal root ganglion (DRG) stimulation therapy solutions. This will help the company gain significant market traction, going forward, which will eventually drive better top-line growth.
Also, the current market dynamics for pain management devices is quite lucrative. North America dominates the global market for pain management devices given a large chunk of aging population. St. Jude Medical is also expected to benefit largely from its presence in the Asian market, as China and India are expected to be the fastest growing pain management devices markets, going forward.
Zacks Rank
Currently, St. Jude Medical has a Zacks Rank #3 (Hold). Better-ranked stocks in the medical sector are LeMaitre Vascular LMAT, SurModics SRDX and Capricor Therapeutics CAPR. While LeMaitre Vascular and SurModics sport a Zacks Rank #1 (Strong Buy), Capricor Therapeutics holds a Zacks Rank #2 (Buy).
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