St. Jude Steadily Scooping Up the Cardio Market

Includes: AGAM, STJ
by: Investment U

By Alexander Moschina

Pull up the chart for AGA Medical (Nasdaq: AGAM) and you’ll see a massive spike in mid October. A 40% spike, to be exact, as the stock surged on news that St. Jude Medical (NYSE: STJ) ponied up $1.3 billion to buy the company.

The bid valued AGA at a 41% over its previous day’s closing price – $20.80 for each AGA share that investors own, paid in cash and/or St. Jude Medical common stock. Great news for AGA shareholders. And for St. Jude, the deal gives it a spot in “one of the fastest areas of medical technology,” according to Leerink Swann & Co. analyst, Rick Wise. It’s an area where companies develop treatments worth billions. And St. Jude just bought the golden goose.

AGA Gives St. Jude the Leading Position in Four New Markets

A mechanical heart valve pioneer, St. Jude’s cardiovascular business helped grow its revenue from $4.4 billion to $4.7 billion in 2009. But thanks to its AGA acquisition, it now predicts an increase of more than 10% in 2011. That’s because AGA is the industry leader of catheter-based treatments for heart defects. Its Amplatzer line of heart devices will give St. Jude the #1 spot in four brand new markets.

Sales of these products have been so strong that AGA’s annual revenue has increased 19% each year since 2004. And under St. Jude’s wing those numbers could explode.

St. Jude will Take the Amplatzer Line to the Next Multibillion-Dollar Level

St. Jude’s global reach can bring the Amplatzer brand to countries like Belgium, Korea and China – where the cardiovascular devices market is set to increase 18% annually through 2013.

In addition, with over $500 million in available cash, St. Jude has the money to fund expensive clinical trials, which will speed up the drug production process for AGA’s pipeline. This includes a new treatment for a heart defect that causes strokes.

The markets for these treatments could be worth billions. And it’s all part of St. Jude’s plan to dominate the cardiology market.

St. Jude Steadily Scooping Up the Cardio Market

St. Jude’s acquisition strategy is nothing new. It’s been expanding this way for years. Since snapping up Pacesetter in 1994, it’s since picked up 16 other companies. And each one has helped to solidify St. Jude’s position as a global cardiology giant. In particular, there are two that stand out.

  • In 2008, St. Jude acquired EP MedSystems, which added two new growth drivers to its atrial fibrillation business – a market growing at a 25% to 30% annual clip in the United States.
  • Earlier this year, the company announced that an additional $20 million will be added to its 2010 revenue as a direct result of its LightLab purchase.

Recently named #445 on the Fortune 500 list, there’s no doubt that St. Jude dominates major markets and niche markets alike. And it’s aiming to stay on top of the pack by investing 12% of its sales into research & development. That, plus its keen eye for budding smallcaps like AGA will help keep the cardiology giant on top.

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