Intersect ENT announced Tuesday it struck a deal to buy German electromagnetic surgical navigation specialist Fiagon AG Medical Technologies, setting it up to gain an FDA-cleared sinuplasty balloon and geographic reach.
News of the takeover, which will cost 60 million euros ($71 million) over three years, comes about two months after a report that Medtronic had made a move to acquire Intersect.
Analysts at SVB Leerink said in a note to investors the Fiagon deal may be a “bit of a surprise” given expectations that Intersect could be acquired but praised the strategic fit, highlighting the diversification and European expansion enabled by the takeover.
Intersect has carved out a space in the treatment of ear, nose and throat conditions with its range of sinus implants but took a hit as COVID-19 spread, leading it to suspend production and lay off a quarter of its staff. Sales fell 63% in the second quarter. Against that backdrop, Medtronic, which identified the pandemic as a good time to do M&A, reportedly made a move to buy Intersect.
Yet, it is Intersect that has bought a company badly affected by COVID-19. Fiagon sells a navigation system for ENT procedures, including a sinuplasty balloon that received 510(k) clearance last month. The products generated sales of more than 10 million euros last year, according to SVB Leerink analysts, but have failed to carry momentum into 2020. “According to management, 2020 sales have experienced a significant negative impact due to COVID and distributor changes and thus are trending well below that level,” the analysts wrote.
Intersect has taken on the challenge of returning the portfolio to growth without putting a big dent in the $135.8 million in cash and short-term investments it had at the end of June. The takeover will cost Intersect 15 million euros upfront, plus annual payments of 15 million euros for the next three years.
In return, Intersect will expand its portfolio beyond its existing Sinuva and Propel implants, potentially enabling it to make better use of its ENT-focused sales team. The recently FDA-cleared VenSure product from Fiagon moves Intersect into the balloon sinuplasty space several years before its own drug-coated product is due to come to market.
Down the line, the SVB Leerink analysts expect Intersect "will presumably eventually have the ability to offer every type of balloon sinuplasty option to customers: navigated/un-navigated as well as coated /un-coated balloon capability."
The takeover also widens Intersect's geographic reach, notably in Fiagon’s home continent of Europe. Menlo Park, California-based Intersect was trying to expand its “small, largely German and U.K.-based” European business prior to the Fiagon deal, for example through an independent analysis of the cost and outcomes associated with its Propel implant that management highlighted on a quarterly results call last month. Buying Fiagon could accelerate the European expansion.
News of the Fiagon takeover comes less than one week after Intersect disclosed a pharmacy services agreement with AllianceRx Walgreens Prime. The agreement covers the distribution of Intersect’s Sinuva implant.