Israeli medical tech company joins billion dollar exit club

In the biggest deal ever for an Israeli medical device company – and one of the biggest in any industry in Israel – Massachusetts-based HeartWare International is acquiring Israeli biotech start-up Valtech Cardio.

According to the terms of the agreement, Valtech shareholders will receive some six million shares of HeartWare stock in incremental stages over the next year, depending on milestones. Between the stock transfers and cash payments that accompany several of the milestones, the deal is worth more than $900 million, and could reach as much as a billion dollars.

Valtech specializes in the development of innovative surgical and transcatheter valve repair and replacement devices for the treatment of the most prevalent heart valve diseases, including mitral valve regurgitation (MR) and tricuspid valve regurgitation (TR).

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MR is a condition in which the leaflets of the mitral valve – between the left atrium and the left ventricle of the heart – fail to close properly, allowing backflow of blood from the left ventricle into the left atrium during the contraction of the heart’s valves during its normal course of activity. A related condition, TR involves the leakage of blood backwards through the tricuspid valve each time the right ventricle contracts. Approximately 6 million patients are affected by MR or TR in the US alone; many patients often suffer from both at the same time. Left untreated, severe MR can eventually lead to conditions such as heart murmur, cardiac deterioration, and eventually death.

Neither can be treated with drugs, but surgery is often risky for patients who suffer from the condition because it usually brings in its wake other heart malfunctions that make operating risky. To treat such patients, Valtech created the CardioBand, which offers reconstruction of the mitral valve using a small implant introduced into the heart through a femoral vein, which is then shaped and anchored in the same way an annuloplasty band – devices to provide support for weakened heart valves – would be installed in an open heart procedure.

In the wake of CardioBand technology, ten-year-old Valtech has developed several other solutions – CardioValve, for use in situations where mitral regurgitation cannot be repaired, and valves require complete replacement, and Cardinal, a band that surgeons can install in the heart during surgery and that can be adjusted later on if MR or TR returns, without the need for repeat surgery. Out of the three products, only Cardinal is currently authorized for use in Europe, while the company expects CE approval for CardioBand in the coming months. Preparations are being made to seek FDA approval, the company said.

HeartWare’s payments and stock transfers are contingent on milestones in each of the three technologies. Valtech shareholders receive 4.4 million shares of HeartWare common stock up front; am additional 800,000 shares of HeartWare common stock contingent upon CE Mark approval for CardioBand; and 700,000 shares of HeartWare common stock upon the earlier of first-in-man implants for either CardioBand or CardioValve.

HeartWare develops and manufactures miniaturized implantable heart pumps, or ventricular assist devices (VADs), to treat patients suffering from advanced heart failure. Like Valtech, HeartWare’s devices are designed to be implanted next to the heart, avoiding the abdominal surgery generally required to implant such devices. As such, said analysts, Valtech’s complementary technology could help HeartWare significantly expand its market share. However, it’s a risky proposition, as the gambit depends on both European and American officials approving Valtech’s technology – and as a result, shares of HeartWare fell on the Nasdaq by 18% Wednesday.

Nevertheless, both companies are enthusiastic about the deal.

“We have been actively monitoring the mitral space for several years, given the overlap of patient population and referral channel with our VAD business,” said Doug Godshall, president and CEO of HeartWare. “We identified Valtech as having the broadest, most compelling portfolio several years ago, which led to an investment in 2013. This investment gave us a unique opportunity to observe Valtech’s significant progress across their portfolio of valve repair and replacement technologies. It is from this vantage point that we have concluded that Valtech’s platforms represent the most innovative and comprehensive portfolio of interventional and surgical products for mitral and tricuspid repair and replacement in development today.”

“Valtech has benefited significantly from HeartWare’s early investment in our company. Since then, we have developed a strong relationship based on a shared mission to deliver transformative products to patients with advanced heart failure and degenerative heart conditions,” said Amir Gross, Founder and CEO of Valtech. “By joining HeartWare, we can more quickly and fully realize the potential of our pipeline technologies and further influence the underpenetrated markets that we serve. HeartWare’s existing market development experience and commercial infrastructure provide a compelling platform from which to launch multiple products worldwide, including a near-term launch of Cardioband in international markets following anticipated CE Mark approval this year. Together, we can offer clinical heart failure teams a compelling portfolio of surgical and interventional technologies to serve the advanced heart failure population.”