Medtronic buys surgical tech startup for up to $105M, adds to Covidien strength

During a Visualase surgery, a small, flexible laser probe is guided to the intended target area.--Courtesy of Visualase

With the acquisition of surgical technology company Visualase, Medtronic ($MDT) is further bolstering one of its own fastest growing segments--as well as a large and fast growing group for Covidien ($COV). Medtronic expects to complete its $42.9 billion acquisition of Covidien by early 2015.

Medtronic will pay $70 million upfront, plus up to $35 million on undisclosed milestones, for Visualase. The startup has an FDA-approved, MRI-guided laser and image guided system for minimally invasive neurosurgeries, including surgical thermal ablation. The system is used to destroy, through tiny drill holes, tissue that would otherwise be removed through invasive craniotomies. It's been used on more than 800 patients. The deal has already closed.

Medtronic plans to add the Visualase technology to its Surgical Technologies business, which recorded $438 million during its most recent fiscal quarter ending April 25. That was a gain of 9% over the same quarter a year prior with constant currency. For Medtronic, that makes surgical tech one of its smaller businesses, but also one of its faster growing; the company had a total of $4.6 billion in revenues during that quarter, a gain of 3% over the same quarter a year prior.

Medtronic likes the surgical segment and seeks to capitalize on Covidien's strength there and gain an additional edge in minimally invasive surgery.

Medtronic CFO Gary Ellis

"The Surgical Technologies business is a very fast growing part of our business overall and we have seen how leveraging those tools with the implant itself really helps benefit the physician, the customer and obviously the hospitals actually be more effective and efficient. Covidien really helps us to expand on that," Medtronic CFO Garry Ellis said at the Wells Fargo Healthcare Conference on June 17.

For Covidien, surgical technology is its largest and fastest growing group. For its quarter ending on June 27, its Surgical Solutions unit had $1.3 billion in sales, up 8% from the same quarter a year prior. That's almost half of its total $2.7 billion in sales for that quarter, which was a gain of 4%.

Visualase was founded in 2005. Medtronic is an investor; taking that ownership stake into account, the net upfront payment will be about $64 million. Eventi Capital Partners also invested in the Houston, TX-based startup, first in 2009 and then again in 2012. Medtronic expects the net impact from this transaction to be neutral to fiscal year 2015 earnings and accretive thereafter.

"The Visualase laser ablation technology gives neurosurgeons a minimally invasive option to precisely target and treat small areas of tissues," Medtronic SVP and President Mark Fletcher said in a statement. "This acquisition broadens our strong and growing portfolio of innovative surgical products and represents entries into new areas such as surgical thermal ablation."

- see the acquisition announcement

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