Wall Street not anticipating another suitor for Thoratec on heels of St. Jude's $3.4B bid

Thoratec's HeartMate II left ventricular assist device--Courtesy of Thoratec

The consensus is that none of the other medical device bigwigs will try and steal heart pump maker Thoratec ($THOR) from the clutches of St. Jude Medical ($STJ) during the $3.4 billion deal's 30-day "go-shop" period.

Thoratec's shares have spiked by 25% since Bloomberg revealed that discussions were underway, but have flatlined since the deal and go-shop period were announced, indicating investors don't expect another suitor.

Bloomberg says that at 42 times 12-month earnings before interest, taxes, depreciation and amortization, the deal is already the second priciest medical device transaction of the last 5 years, and will barely raise St. Jude's earnings per share.

Before the rumored deal was announced, Jefferies analysts said a hypothetical all-cash $3.3 billion deal would make sense, especially if no equity was used to fund the deal. That turned out to be close to the offer price, though Fitch placed St. Jude's credit rating on a negative watch due to the increased debt load it would entail.

Another deterrent to a bidding war is the $30 million in compensation Thoratec would owe St. Jude if it agreed to be purchased by another company during the go-shop period.

While a repeat of last summer's med tech merger mania looks unlikely, Leerink analyst Danielle Antalffy wrote that Johnson & Johnson ($JNJ), Abbott ($ABT) and Medtronic ($MDT) are the most likely bidders, while JPMorgan's Michael Weinstein added Edwards Lifesciences ($EW) to the list.

Neither Medtronic nor Edwards have had their earnings call since the deal was announced. The case against either making a bid is that Medtronic is still busy integrating the $50 billion Covidien acquisition into its empire, while Edwards is tightly focused on artificial heart valves.

Johnson & Johnson could view a bid for Thoratec as a way to strengthen its slow-growing device division, though an offer would risk annoying Wall Street, which tends to dislike conglomerates. Its members periodically call on J&J to spin off its consumer and device units.

But as CEO Alex Gorsky pointed out during an earnings call, the company has the balance sheet to do pricey deals: "We're always also interested in growth opportunities. And when we see strong innovations that really make a difference for patients, then also where we feel it offers a great complement to one of our existing franchises, or frankly, a platform for significant growth into the future, you know we've got the balance sheet. We've got the wherewithal to make those investments and that's always a priority for us, it will remain so into the future."

On the other hand, Abbott continues to shift away from its pharma roots since spinning off its therapeutics division to create AbbVie ($ABBV), as evidenced by the company's sale of its non-U.S.-developed market generic drug business to Mylan ($MYL).

CEO Miles White acknowledged during the company's earnings call that Abbott needs to add breadth to its cardiovascular and cardiology offerings. "You probably should not assume that we're just sitting here on our hands accumulating," he said. "Investors expect us to deploy cash, and we do, and we will."

Thoratec makes left ventricular assist devices that pump the blood of patients awaiting a heart transplant, and on a permanent basis for those who are ineligible for a donated organ. The company said it shipped 3,618 HeartMate II LVADs last year, out of an estimated market of about 6,500 implantations per year.

In addition, St. Jude touted Thoratec's entrance into the $300 million percutaneous heart pump market, thanks to the recent CE-mark approval of the HeartMate PHP.

St. Jude said it is entering markets worth more than $1 billion that are expected to grow about 10% per year.

The only other LVAD maker, HeartWare ($HTWR), has experienced a 9% stock price surge on the possibility of an acquisition from one of the giants. Unlike Thoratec, it doesn't have permission to use its HVAD device on destination therapy patients who are not awaiting a donating heart, making it less attractive.

Leerink expects the company to get that expanded indication from the FDA soon, but the agency's decision will be a contentious one because a clinical trial to get that indication found a high stroke rate among destination therapy patients, though the device still met its primary survival endpoint.

- read the Bloomberg article

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