A Win for Everyone
The mood was upbeat at the INS meeting in Berlin earlier this month with the news of St. Jude Medical’s investment in Spinal Modulation [see article, p4, Conference Report, p7]. In an industry beset by misfortunes, from failed clinical trials to lengthy approval cycles, to tighter capital availability, any kind of good news was welcome to investors, startups, and established players alike.
With one of the most promising pain neuromodulation ventures now seemingly spoken for, speculation immediately moves to other pain startups. Will Nevro, Neuros, or Stimwave be next to exit? Will Boston Scientific or Medtronic feel pressure to follow suit to build their bench in the increasingly competitive SCS market? Or will a new medical device giant like Johnson & Johnson, Stryker, Abbott, or Covidien sense that the time is now right to get into the neuromodulation business?
The fact that St. Jude has an option to acquire Spinal Modulation outright for upwards of $300 million has to help resuscitate deflated valuations in future deals. Though there’s no guarantee that the merger will be consummated, the terms of the agreement seem like a win/win for both parties. St. Jude gains immediate access to a novel neuromodulation technology that they can test in the European market for a reasonable price. They also get in effect an insurance policy that protects the company’s bottom line in the event the FDA decides to play a NeuroPace on the Axium application or some other colossal failure afflicts the new device. Spinal Modulation gets an immediate infusion of working capital plus an insurance policy that St. Jude won’t bury the new technology or subject it to the not invented here syndrome. In the event the deal goes south, Spinal Modulation and its investors will have many other options to pursue. We think it is more likely, however, that St. Jude’s sales and marketing team will embrace the new product line, the FDA will approve the device in a reasonable time frame, and the deal will go through at somewhere near the $300 million price.
Moving beyond the SCS market, the rapidly growing DBS segment also seems primed for market activity. Lead developers Aleva and Sapiens Steering look like low-hanging fruit for one or more of the big three players already in the DBS market. Functional Neuromodulation also seems very attractive and may have enough allure to bring a large biopharma firm to the table. These and other ventures are bolstered, in our view, by the strategy of identifying a core innovation—an improved lead design, a novel target, a new indication, a simplified implantation procedure—and making that available to existing players in the market, rather than trying to reinvent the wheel.
All in all, it looks like a good time to be a neurotechnology entrepreneur or investor.
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