Medtronic to buy Twelve for $408M+, joining Abbott and Edwards on the transcatheter mitral valve bandwagon

The run on independent transcatheter mitral valve replacement companies is now resembling a stampede thanks to Medtronic's ($MDT) decision to purchase Twelve, a portfolio company of medical device incubator The Foundry, for up to $458 million.

The blockbuster success of transaortic valve replacements has generated enthusiasm for the TMVR arena, which aims to extend the minimally invasive, transcatheter-based approached to the replacement of the mitral valve.

Medtronic says Twelve's devices is designed for patients with mitral valve regurgitation in whom standard open surgery is not recommended, analogous to the use of TAVRs in patients who are too frail for open heart surgery. Mitral valve regurgitation is a condition that occurs when the mitral valve doesn't close properly, causing blood to flow backward when the heart contracts.

"We have followed the transcatheter mitral valve space closely and firmly believe that Twelve has the most novel technology along with a strong, proven team. The combined strengths of our organizations will significantly accelerate our ability to deliver an exciting and differentiated therapy to patients, physicians and healthcare systems around the world," said Sean Salmon, president of Medtronic's coronary and structural heart unit, in a statement.

In a statement, Medtronic said "it expects the net impact from this transaction to be earnings neutral as the company intends to offset the dilutive impact of the transaction." The cash- and debt-free deal includes a $408 million payment at the closing, expected in October, as well as a $50 million milestone payment upon the device's CE mark approval.

In fact, Twelve's clinical trial posting on ClinicalTrials.Gov is one of the few footprints left behind by the secretive company, which does not even have its own website. As of April, the 10-person trial had a primary completion date of September 2016, meaning final data collection for the primary outcome measure (the number of adverse events), is due by then.

Twelve CEO Andrew Cleeland

An SEC filing revealed that the company had raised $70 million in equity financing by April, from The Foundry, Morgenthaler Ventures, Split Rock Partners, Domain Associates and Dr. Thomas Fogarty of the medical device incubator Fogarty Institute for Innovation.

"Twelve's technology is a truly creative solution that brings together valve technology with a unique and highly differentiated dual-stent fixation design," said Twelve CEO Andrew Cleeland, in a statement. "Our acquisition by Medtronic will create a tremendous opportunity to leverage Medtronic's expertise and proven success in the structural heart space to advance the treatment of mitral regurgitation."

Bank of America analysts praised Twelve's device from a technical perspective, writing, "Of all the mitral replacement designs we have seen, Twelve strikes us as the most likely to succeed, and in our view this deal propels MDT to a leadership position in what could ultimately be a multi-billion dollar market." 

The biggest technical challenge of mitral valve replacements is figuring out how to make the artificial valve attach to the heart and then stay in place, according to the analysts. 

"Twelve uses a unique stent in stent design with a proprietary adaptation of nitinol that allows for the valve to be held in place via a corking mechanism (similar to a bottle of wine). This eliminates the need for paddles or a tether to hold the device in place, which we think increases the risk associated with the devices that EW and ABT have recently purchased. The stent in stent design from Twelve has potential advantages as well in that the inner stent never changes sizes, which should help from a FDA approval perspective," the analysts continued.

The Bank of America analysts write that Twelve has only worked on a transapical approach so far, meaning the TMVR is inserted into the body via a small incision in the chest directly under the heart. In general, the transapical approach is the most prominent among TMVRs, but some companies are experimenting with a transfemoral delivery route (through the arteries in thigh) to the mitral valve.

The transfemoral approach is predominant when it comes to the delivery of TAVRs.   

Medtronic's move comes on the heels of Abbott's ($ABT) move to acquire TMVR player Tendyne for up to $250 million, with $225 million paid up front. It also invested in and gained an option to purchase Cephea Valve Technologies, though financial details were undisclosed.

Abbott is the leader in the transcatheter mitral valve space, thanks to its FDA-approved MitraClip device for transcather aortic valve repair (not replacement), which posted double digit sales growth in Q2 2015, according to the company's earnings call. The MitraClip was also originally developed by a company that came out of The Foundry, Evalve, which Abbott acquired in 2009 for up to $410 million.

Meanwhile, Edwards Lifesciences ($EW) started the run on TMVR companies in July, when it bought CardiAQ Valve Technologies for $350 million in cash, with an additional $50 million payable based on achieving a European regulatory milestone.

Equity analysts at Jefferies said Edwards is "hoping lightning strikes twice" following the ongoing boom caused by its successful Sapien transcatheter aortic valve replacement device, which has caused the company's share price share to more than double since the beginning of 2014, and given it a valuation of about $16 billion.

Edwards CEO Michael Mussallem said the acquisition is intended to complement internal efforts at developing a TMVR device dubbed Fortis, but development was paused in May, after safety concerns were detected in an early feasibility studies of about 20 patients.

With Medtronic's pending acquisition of Twelve, Neovasc ($NVCN) becomes the most prominent independent TMVR company remaining; it was singled out as a possible acquisition target by Jefferies analysts following the Edwards deal.

In case all of the acquisitions aren't a big enough sign of the arena's significance (barring big snafus in clinical trials), the head of the FDA's device arm (CDRH), Dr. Jeffrey Shuren, is also focused on the TMVR space. At the Medical Device Manufacturers Association conference in May, he acknowledged that the FDA approved the first TAVR 5 years after it received a CE mark, but said the agency isn't behind when it comes to their emerging counterparts for mitral valve repair, boasting, "We have now approved three early feasibility studies for transcutaneous (or transcatheter) mitral valve replacement. The first patient just got an implant last week, and the rest of the world is in exactly the same place.'"

- read the release

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