Renowned medical devices maker CR Bard (BCR) recently announced a definitive agreement to purchase leading thoracic sealing company Neomend Inc. for $140 million in cash and will pay contingent consideration of up to $25 million in the future, based on the achievement of sales-based milestone payments through 2016.
The entire purchase price for this acquisition was funded through the issuance of commercial paper. Bard plans to merge the acquired entity with its Davol subsidiary, which specializes in the development of surgical specialty products.
Privately-owned Neomend manufactures surgical sealants and anti-adhesive products used during surgical procedures. Its key product, the Progel Air Leak Sealant is approved by the Food and Drug Administration (:FDA) and is used for sealing of air leaks during thoracic surgery. The sealant has also received the CE Mark clearance for lung sealing and for its use as an anti-adhesion barrier.
In addition, clinical results of Neomend’s Progel Pleural Air Leak Sealant indicate that the product is capable of lowering post-operative air leaks to a large extent as well as reduce hospitalization time.
Acquisition to Boost Surgical Specialties Product Portfolio
The acquisition of Neomend will enable Bard to expand into the lucrative $1 billion market for surgical specialties offerings. Neomend’s innovative technology and pipeline products offer attractive opportunity for future clinical indications across a vast range of surgical specialties applications. Moreover, the addition of an FDA-approved technology platform further strengthens Bard’s position in this market segment.
In the last reported third quarter of 2012, revenues from Bard’s Surgical Specialties business remained flat year over year at $107.7 million. However, it inched up 2% in terms of constant currency. We believe that the Neomend acquisition is in line with Bard’s strategy to expand into the global markets via strategic acquisitions.
With a market cap of $7.94 billion, CR Bard is a well-diversified medical device company, providing a complete line of products to treat medical conditions through less invasive procedures in a cost-effective manner. We expect new product launches to drive organic revenue growth and help CR Bard meet its sales objective. We are also impressed by the company’s initiative to expand into emerging markets with attractive growth opportunities.
However, increasing competition, fluctuating currency, pricing/volume pressure and an overall tough U.S. economy remain areas of concern. The company faces strong competition from Boston Scientific Corporation (BSX), and Johnson & Johnson (JNJ).
We currently have a Neutral recommendation on C.R. Bard. The stock currently retains a Zacks #3 Rank, which translates into a short-term “Hold” rating.
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