Stryker announced Monday that it is acquiring a Canadian imaging firm for $701 million.
Novadaq, a public company based in Missisauga, Canada makes fluorescence imaging technology that allows surgeons to see in real time blood flow in vessels, and related tissue perfusion in a variety of surgical procedures including cardiac, cardiovascular, gastrointestinal, plastic, microsurgical, and reconstructive procedures.
“With NVDQ SYK receives what we view as a best-in-class technology that allows for an entry point into the small, but rapidly expanding open visualization segment, and fortifies the company’s overall imaging offering where SYK already has a market leading position in the larger minimally invasive (MIS) endoscopic visualization segment,” wrote Richard Newitter, an analyst with Leerink Research, in a research note Monday.
The $701 million purchase price is a whopping 95.8 percent premium over Novadaq’s current share price and 8.4 times its trailing twelve-month revenue. While steep, the transaction is a smart one by Stryker, analysts believe.
“We believe adding NVDQ’s IP to Stryker will allow [it] to better grow the fluorescence field and we feel SYK is the most equipped company to do so,” wrote Sean Lavin, an analyst with BTIG, in a research note Monday after the deal was announced.
Another analyst provided a different reason for why the deal makes sense.
A Deep-dive Into Specialty Pharma
A specialty drug is a class of prescription medications used to treat complex, chronic or rare medical conditions. Although this classification was originally intended to define the treatment of rare, also termed “orphan” diseases, affecting fewer than 200,000 people in the US, more recently, specialty drugs have emerged as the cornerstone of treatment for chronic and complex diseases such as cancer, autoimmune conditions, diabetes, hepatitis C, and HIV/AIDS.
“While the premium paid is high, we believe the deal price is defensible given NVDQ’s superior topline growth profile (20%+ topline growth) and the large opportunity for SYK to take costs out of NVDQ,” wrote Glenn Novarro, an analyst with RBC Capital Markets, in a research note on Monday.
The Canadian company has been growing its revenue — $80 million in 2016, up from $63.8 million the year before — but isn’t profitable. Other than its Spy and Pinpoint technologies, the company is also the exclusive worldwide distributor of LifeNet Health’s Dermacell products and has a licensing partnership with Intuitive Surgical (ISRG) for the FireFly fluorescence imaging system, according to Novarro.
Novadaq will fit into Stryker’s video imaging business once the deal closes, and that is expected to be at the end of the third quarter.
“This acquisition aligns with Stryker’s focus on enabling our customers to see and do more by enhancing cross-specialty surgical visualization,” stated Timothy J. Scannell, Stryker’s Group President, MedSurg and NeuroTechnology, in a news release. “NOVADAQ’S unique innovative technology complements Stryker’s advanced imaging portfolio and expands our product offerings into open and plastic reconstructive surgery.
Photo: Nicol??s Mero??o, Getty Images
This post has been updated.
