Covidien Closes CV Ingenuity Buyout

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Large-cap medical technologies company, Covidien plc. (COV) has successfully completed the acquisition of Fremont, California-based medical device company, CV Ingenuity. Both the parties have not disclosed financial details of the deal. The closure of the deal, in the first quarter of 2013, was in line with the company’s expectations.

Privately-held CV Ingenuity specializes in the production of devices used for the treatment of peripheral arterial disease (:PAD). Its product offerings are utilized to heal natural vessels, clear vascular blockages and prevent restenosis. The company’s key product, a Drug Coated Balloon (:DCB) platform with a unique tunable rapid-release system, is still in the investigational phase.

Covidien integrated the acquired entity in its Vascular business, under the core Medical Device segment. The inclusion of CV Ingenuity’s strong product portfolio should boost Covidien’s vascular product offerings and reinforce its leading position in providing innovative vascular solutions.

The company plans to invest in research and development (R&D) to develop CV Ingenuity’s product portfolio. Management is hopeful that the company will receive U.S. Food and Drug Administration (:FDA) approval for a DCB product by fiscal 2017 using the CV Ingenuity technology.

Covidien expects R&D expenses to increase more than $20 million in the second half of fiscal 2013 and above $30 million in fiscal 2014. However, despite these higher R&D expenses and acquisition-related costs, the company reiterated its fiscal 2013 guidance. Management forecasts adjusted operating margin in the range of 22%—23% for fiscal 2013. 

Earlier, in October 2012, Covidien’s Pharmaceuticals business, Mallinckrodt, acquired CNS Therapeutics Inc., a St. Paul Minnesota-based specialty pharmaceutical company, for roughly $100 million. Covidien plans to spin-off its Pharmaceutical business by mid-2013 to focus on its high-margin surgical products portfolio.

Covidien is a leading developer, manufacturer and distributor of medical devices and services on a global scale. However, the company's product offerings under its larger Medical Device segment are similar to some of its competitors like Johnson & Johnson (JNJ), Becton, Dickinson and Company (BDX) and CR Bard Inc. (BCR).

Covidien currently carries a Zacks Rank #3 (Hold). We have a Neutral recommendation on the stock for the long term.
 

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