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Thoratec Acquisition: The Impact on St. Jude’s Growth Potential

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Apr. 21 2016, Updated 11:06 a.m. ET

Deal overview

On October 8, 2015, St. Jude Medical (STJ) completed the acquisition of Thoratec for $3.3 billion in net cash consideration. It’s St. Jude’s largest acquisition ever. Each Thoratec share was converted into a right to receive $63.50 per share in cash. The acquisition positions St. Jude Medical as the market leader in LVAD (left ventricular assist devices) in the United States.

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Portfolio expansion

Thoratec was the leader in mechanical circulatory support devices (or MCS) technology. With the acquisition, St. Jude Medical added the broadest portfolio of support devices for the treatment of patients suffering from advanced heart failure, including the HeartMate II LVAD.

Other major Thoratec products that are now part of St. Jude’s product portfolio are the HeartMate 3 LVAD, blood pumps CentriMeg and PediMag, and Thoratec PVAD (Paracorporeal Ventricular Assist Device). PVAD and LVAD devices are chronic circulatory support systems for the treatment of heart failure. Blood pumps are the circulatory support systems for the treatment of acute heart failure conditions. PVAD is a device placed outside a patient’s body. Abiomed (ABMD) is a strong competitor of St. Jude in the LVAD market space.

Financial performance and contributions

Thoratec sales for 4Q15 were around $136 million, representing ~9.4% of the company’s total revenues. The results exceeded St. Jude’s estimates of $125 million–$130 million in revenues from Thoratec sales. The launch of the HeartMate 3 in Europe and its strong adoption in the market has been a key driver for the higher-than-expected Thoratec sales. St. Jude Medical expects the earnings accretion to be about $0.20 per share. The company expects to reinvest half of these gains into the business.

Investors can participate in the growth of St. Jude Medical and peers such as Medtronic (MDT) and Boston Scientific (BSX) by investing in the Health Care Select Sector SPDR ETF (XLV). XLV has ~0.64% of its total holdings in St. Jude Medical.

In the next part, we’ll see how St. Jude’s capital allocation strategy is affecting shareholders.

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