March 7, 2025 | June, 2004 issue
The competitive landscape of the neurotechnology industry changed dramatically this month when Boston Scientific Corp., the Natick, MA manufacturer of medical devices, acquired 100 percent of the stock of Advanced Bionics Corp., the Valencia, CA manufacturer of neural prostheses and neuromodulation devices. The acquisition transforms the industry overnight from one dominated by a single large firm, Medtronic Inc., to a highly competitive market with two giant competitors and several smaller but nimble medical technology firms. And the stage is set for even more deals, marketing partnerships, and strategic alliances in coming years.
The Boston Scientific/Advanced Bionics deal was worth $740 million up front, plus future payouts based on performance over the next six years, which could bring the total payout to $2 billion or more. Advanced Bionics sales are estimated to be about $82 million in 2004, making the valuation, even at conservative estimates, reminiscent of technology deals during the dot-com era.
Boston Scientific said that it intends to keep Advanced Bionics intact, with the same product mix, staff, and location that it currently has, although the company name may change in the years ahead to reflect its status as a wholly owned subsidiary of Boston Scientific. Advanced Bionics chairman Al Mann and president Jeff Greiner will stay on with the new company. Advanced Bionics recently moved into a new office complex in Valencia built by Mann.
Advanced Bionics already competes with Medtronic in the spinal cord stimulation market, now that its new rechargeable Precision SCS system is approved, and the two players are on a collision course in the deep brain stimulation market, though that showdown not likely to take place for a couple more years, at least. The firm has stiff competition in the cochlear implant market from Australian manufacturer Cochlear Ltd. and Austrian firm MedEl.
Meanwhile, the merger brought a swift reaction from another major competitor in the neurostimulation market, Plano, TX based Advanced Neuromodulation Systems Inc. “Boston Scientific’s acquisition of Advanced Bionics clearly validates our long-held position that neuromodulation is a large and rapidly growing market with vast potential,” said Chris Chavez, president and CEO of ANS.
ANS recently announced that it is developing its own family of rechargeable implanted pulse generators, which the company expects to begin bringing to market in the first half of 2005. But Chavez disputed Advanced Bionics’ claim that rechargeable IPGs will be the only neurostimulation devices that pain practitioners need. Chavez also noted that Advanced Bionics’ spinal cord stimulation system has not yet been subjected to the clinical demands ANS has faced. “Advanced Bionics also must show that its SCS system does not infringe our patented technologies or utilize our trade secrets,” Chavez said. ANS recently filed a lawsuit asserting that Advanced Bionics is infringing at least one of its patents, a suit that evidently did not frighten off the Boston Scientific acquisition team.
Chavez also said that ANS is reassessing its 2002 distribution agreement with Boston Scientific for the company’s neuromodulation products in Japan. For its part, Boston Scientific says it fully intends to honor the agreement. ANS and Advanced Bionics are not the only neurotechnology firms Boston Scientific has dealings with. The Massachusetts firm owns a minority stake in Houston-based Cyberonics Inc., the manufacturer of vagus nerve stimulation systems. The firm has already received a juicy return on that investment, given an FDA panel’s recent endorsement of VNS for treatment-resistant depression, and the subsequent run-up in Cyberonics stock [see article, p2]. Boston Scientific also has a stake in neurosensing firm Aspect Medical, and the odds are good that the firm will invest in, or buy outright, one or two more firms in the neuro space.
The Advanced Bionics deal also points up the potential role of two other medical device giants, Johnson & Johnson and Guidant, that are lurking around. Both firms have internal venture capital firms but have yet to make an acquisition in neurotechnology devices. Finally, the valuation of the Advanced Bionics deal will likely have a positive effect on venture capital investment in the neurotech space. Previously, VC professionals have pointed to the lack of an example of a profitable cash out from neurotech devices as a disincentive for funding new firms, especially early-stage neurotech firms. Now, that has all changed.
