Volcano to Buy AtheroMed - Analyst Blog

Precision guided therapy tools provider for diagnosis and treatment of coronary and peripheral vascular disease – Volcano Corporation VOLC has actively pursued acquisitions to drive growth. The company recently signed an agreement to acquire privately-held AtheroMed, Inc. – the developer of Phoenix Atherectomy System used in the treatment of peripheral artery disease (PAD), for $115.0 million in cash. The transaction is expected to close in the ongoing quarter.

Per the agreement, in addition to the cash payment, Volcano will pay a $15 million milestone payment if a Phoenix device currently under consideration by the U.S. Food and Drug Administration (FDA) receives clearance by Nov 15, 2014. The FDA application includes manufacturing improvements to the currently approved device. AtheroMed is also eligible to receive other milestone payments from Volcano.

Volcano expects a limited market release of the Phoenix by the end of 2014 and a full market release at the beginning of next year. Initially, this device will continue to be manufactured at AtheroMed's facility in Menlo Park, CA. Gradually, the set-up will be transited to Volcano's manufacturing facility in Costa Rica in late 2015.

The Phoenix device, which received 510(k) clearance last January and also enjoys a CE Mark, is a peripheral atherectomy system which provides physicians with a safe, versatile, user friendly primary therapy medium for treating PAD to restore blood flow to the ankle and foot. This system currently has reimbursement in the U.S. and in certain nations in Europe.

According to the company, the global atherectomy market is valued in the range of $350-$400 million with an annualized growth rate of 7%. Naturally, this impending acquisition is being treated as an important milestone for Volcano. It remains in line with the company's strategy to emerge as a provider of broad range of diagnostic and therapeutic solutions from a coronary and peripheral intravascular imaging and physiology major.

With the Phoenix System in the company's portfolio, Volcano will gain stronger presence in the growing peripheral market where it will be able to offer three highly differentiated therapeutic devices — the Phoenix, the Pioneer Re-Entry catheter and the Crux vena cava filter.

According to the company, apart from strengthening its market share position, the Phoenix will boost its revenue, gross margin and operating income expansion goals. However, Volcano expects this deal to be dilutive for two years after-closing.

Zacks Rank

Volcano currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the medical instruments industry include Edwards Lifesciences Corp. EW, Masimo Corporation MASI and Natus Medical Inc. BABY. All the three stocks carry a Zacks Rank #2 (Buy).

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