UPDATED: Medtronic to pick up troubled HeartWare for $1.1B

HeartWare's Ventricular Assist System

Medtronic ($MDT) will add a heart failure implant and pipeline products in its $1.1 billion acquisition of HeartWare ($HTWR). The deal will accelerate the development of HeartWare's products and round out Medtronic's Cardiac Rhythm & Heart Failure division.

The deal will close in Q2 2016, which ends October 28. Medtronic does not expect to alter its earnings outlook for FY2017 and forecasts the acquisition to be earnings accretive in its third year, the company said in a statement. As for HeartWare, it will get a much-needed boost as its flagship Ventricular Assist System (HVAD) product and in-development MVAD implant have seen some turbulence.

"Combining the unique capabilities of the HeartWare team, which has been entirely focused on mechanical support technologies, with the broad strength of the Medtronic organization provides a unique opportunity to enhance growth in the mechanical circulatory support market," said Doug Godshall, HeartWare CEO, in the statement.

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HeartWare's HVAD is a small yet powerful pump for the treatment of congestive heart failure, in which the heart does not pump enough blood for the body's needs. It needs a less invasive procedure and is the first pump designed for implantation in the pericardial space, eliminating the need for a pump pocket. It is powered by an external battery pack and operated using an external controller.

While the HVAD is the smallest pump in a two-player market, it has been beset by problems. HeartWare made three Class I recalls of the device between April 2014 and May 2015. Most recently, it recalled the device because the kit used to repair electrical breaks in the pump's external cable could fail if put under excessive force. It made earlier recalls because an older version of the external controller was susceptible to stopping due to electrostatic discharge and batteries running out more quickly than expected. In December 2013, the FDA deemed Class I the company's recall of the HVAD because its locking mechanism failed, which could lead to the pump stopping.

The MVAD is the world's smallest heart failure pump. It is half the size of the HVAD and has an updated system controller and battery unit. However, its CE mark trial was halted in September 2015 in response to adverse events. The company is also working on improving its electronics and controller technologies, with a focus on a fully implantable system.

In October, HeartWare reported that it may not be able to resume the European trial, sending shares down 30%. It had planned to take over Israeli cardio implant player Valtech for $929 million, but the deal fell through thanks to pressure from activist investors.

Despite HeartWare's troubles, Leerink analyst Danielle Antalffy wrote that Medtronic is picking up a product that addresses a market with "sustainable high-single-digit growth," with the potential for faster growth in 2017 and 2018. And if the MVAD trial resumes, it opens up the door for further gains in the future.

- here's the statement

Special Report: The top companies in med tech: 2015 revenue results - Medtronic

Editor's note: This story was updated with analyst comments.

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