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Will Vertiflex Boost Boston Scientific's Pain Portfolio?

Boston Scientific agreed to pay $465 million in upfront cash for Vertiflex, plus additional payments contingent on certain commercial milestones over the next three years.

Boston Scientific is entering the spinal surgery market with its proposed acquisition of Vertiflex, announced Wednesday.

Boston Scientific has slowed its M&A pace considerably this year compared to 2018, but that doesn't mean the company won't take advantage of tuck-in opportunities that come its way. Case in point, the company's pending $465 million cash acquisition of Vertiflex, announced on Wednesday.

Carlsbad, CA-based Vertiflex is a private company that sells the Superion Indirect Decompression System, a device designed to improve physical function and reduce pain in patients with lumbar spinal stenosis (LSS). The procedure, which is primarily performed by doctors who treat chronic pain patients with therapies including spinal cord stimulation and radiofrequency ablation, is expected to hit $60 million in sales this year. FDA approved the device in 2015 for patients with moderate degenerative LSS.

In addition to the $465 million upfront payment, Boston Scientific agreed to additional payments contingent on commercial milestones over the next three years.

Mike Matson, a medtech analyst at Needham & Co., said in a note that it was a little surprising to see Boston Scientific enter the spinal surgery market, but he acknowledged that there probably are synergies with its existing pain business and he characterized the deal as a "typical" Boston Scientific transaction in which it acquires an asset that allows the company to go deeper within a disease state/disorder, in this case, chronic pain.

"We believe the Superion System allows [Boston Scientific] to move up the chronic back pain care continuum which, while it might not result in direct revenue synergies, could strengthen [Boston Scientific's] relationship with the chronic pain call point in order to drive increased account utilization across [Boston Scientific's] pain portfolio," Matson said, citing radiofrequency ablation and spinal cord stimulation as examples.

The Superion System works by creating space between the spinous processes of the vertebrae. This reduces pressure on the nerves and can thereby improve patient mobility and relieve pain, numbness, and cramping in the legs. The procedure is an option for patients who have not responded positively to first-line therapies, such as oral pain medication and steroid injections but do not have severe enough symptoms to require spinal fusion or laminectomy.

“The acquisition of Vertiflex and the Superion System will further our category leadership strategy by expanding the breadth of our pain management product offerings,” said Maulik Nanavaty, president of Boston Scientific's neuromodulation business. “The addition of this differentiated technology, along with our leading spinal cord stimulation and radiofrequency ablation technologies, will provide physicians with the widest variety of solutions available to manage the growing number of patients suffering from chronic pain.”

Boston Scientific said it expects the deal to close late in the second quarter of 2019.

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