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Covidien Snaps Up BARRX Medical - Analyst Blog
11/23/2011 11:45:00 AM
Leading health care products maker Covidien ( COV ) is buying California-based privately held BARRX Medical in a bid to bolster its presence in gastrointestinal diseases therapy space.
The Ireland-based company has cut a definitive deal to acquire all the outstanding shares of BARRX Medical for $325 million. The agreement also calls for future milestone payments.
BARRX Medical makes devices (ablation catheters/systems) for treating gastrointestinal diseases and Barrett's esophagus syndrome, a pre-cancerous condition of the lining of the esophagus (tube which carries food from the throat to the stomach).
Barrett's esophagus syndrome affects about 1% of the American adults, generally with gastroesophageal reflux disease (GERD). If n ot treated, the condition can lead to esophageal adenocarcinoma, which is associated with a five-year survival rate of below 15%.
BARRX's devices (offered under the HALO moniker), which use bipolar radiofrequency ( RF ) waves, provide a uniform and controlled ablation that removes the diseased tissue and stimulates re-growth of normal cells.
The acquisition, which is subject to regulatory clearances and other customary closing conditions, is expected to consummate by January 31, 2012. Covidien said that the deal complements its energy-based product portfolio and is in tandem with its strategy to invest in products that can offer global competitive advantage.
The transaction is not expected to have a material impact on Covidien's sales, operating margin and earnings in fiscal 2012. Following the deal closure, BARRX Medical will become a part of the company's Energy product line in its larger Medical Devices division.
Covidien is a leading global health care products company with a rich history of developing high-quality products in a cost-effective manner. It competes with Johnson & Johnson ( JNJ ), Becton Dickinson ( BDX ) and C.R. Bard ( BCR ), among others.
The company exited fiscal 2011 strongly, powered by solid performance by its core Medical Devices division. Both revenues and adjusted earnings for fourth-quarter fiscal 2011 beat the Zacks Consensus Estimates, benefiting from an extra selling week.
Covidien remains committed to rolling out new products and technologies, focusing on emerging markets, and boosting market share in core segments through investments in sales and marketing infrastructure. Moreover, the company is expanding its portfolio through acquisitions and strategic collaborations.
However, pricing/procedure volume pressure and rising raw material costs remain headwinds. We are currently Neutral on Covidien, supported by a short-term Zacks #3 Rank (Hold).
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