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Cameron’s Billion-Dollar Premium

Boston Scientific Corp. is making a big bet on Cameron Health Inc., a San Clemente-based startup that’s developed a medical device some consider to be a game-changer in the field of heart-rhythm management.

The Natick, Mass.-based diversified medical device maker has agreed to pay $150 million for venture-backed Cameron. The deal calls for an additional $150 million on regulatory approval, and milestone payments for further progress that could bring an additional $1 billion over a six-year period.

Cameron has annual sales of about $14 million from its heart defibrillator, which is implanted under the skin to provide an electric shock to interrupt potentially fatal rhythms during a heart attack. The device, S-ICD, has European approval and is under consideration by the Food and Drug Administration.

Boston Scientific anticipates FDA approval in the first half of next year.

The company said that no decisions have been made about whether Cameron will remain in Orange County. It doesn’t expect to give details on plans until the deal closes, which is expected in the second or third quarter of this year.

Boston Scientific has 25,000 workers, $7.6 billion in annual sales and a market value of about $8.7 billion. It said that Cameron will become part of its cardiac rhythm-management business, which is currently based in Arden Hills, Minn. The unit accounted for $2.1 billion in revenue in 2011, about 27%, of Boston Scientific’s total.

Company spokesperson Denise Kaigler told the Boston Globe that a team has been assembled to help integrate Cameron and its 160 workers into Boston Scientific.

Cameron’s S-ICD differs from traditional implantable defibrillators because it doesn’t require certain wires that pass through veins and into the heart. Problems with such wires have led to product recalls and heightened scrutiny of traditional implantable defibrillators.

Boston Scientific has been a Cameron investor since 2003 and held an option to buy the company since 2004, Boston Scientific said in response to an emailed query.

“[S-ICD] represents a breakthrough treatment for patients at risk of sudden cardiac arrest,” the company said.

Boston Scientific expects to accelerate commercial expansion through existing relationships with doctors who use traditional implantable defibrillators and complementary technologies, it said.

Joining Boston Scientific will allow Cameron to “bring this proven therapy to more patients around the world,” Cameron Chief Executive Kevin Hykes said in a press release.

• Headquarters: Natick, Mass.

• Business: medical device maker

• Founded: 1979

• Ticker symbol: BSX (NYSE)

• Market value: about $8.7 billion

• Notable: in deal to buy San Clemente-based Cameron Health Inc. for $150 million and up to $1.15 billion in additional payments based on regulatory milestones

Hykes couldn’t be reached for further comment.

Milestones in the deal include a limited launch of S-ICD in Europe, a further clinical study there, completion of a pivotal U.S. clinical trial and submitting an application for premarket approval to the FDA.

Cameron has raised almost $200 million in venture capital financing in its 12-year history as an independent company.

Investors besides Boston Scientific include Versant Ventures, which has an office in Newport Beach, Palo Alto-based Alloy Ven-tures and Delphi Ventures of Menlo Park.

Versant led Cameron’s first investment 11 years ago.

“While the development of the S-ICD technology took longer and more capital than we initially planned, it is a very important technology (that) avoids the challenges and risks of intravascular leads,” said William Link, a Newport Beach-based Versant managing director who was Cameron’s chairman until about two years ago.

Link added that he’s “confident in the Cameron team and technology and Boston [Scientific] is one of the leaders in the ICD market.”

The acquisition of Cameron comes at a time when the overall U.S. implantable heart defibrillator market has taken some punches in recent years, including a U.S. Department of Justice civil investigation into charges of Medicare fraud on defibrillator sales along with critical press about product recalls.

Boston Scientific hasn’t been immune. It recently settled a case with the Department of Justice for about $9 million, and its defibrillator business—including products acquired from Guid-ant Corp.—has been under the microscope for design flaws.

The company saw rival device makers hire away salespeople a few years ago, amid the controversies.

The acquisition of Cameron appears to be a move to reinvigorate its defibrillator business, Michael Matson, an analyst with Mizuho Securities in New York, recently told the Dow Jones News Service.

“They can’t really exit that business,” Matson said. “The best thing they can do is to try and make themselves as competitive as possible.”

Cameron’s S-ICD holds the potential to bring Boston Scientific a competitive advantage because it’s “something that’s differentiated,” the analyst said.

Such “truly unique technology” has become increasingly important in a segment with a selection of traditional defibrillators with few distinctions, said Larry Biegelsen, an analyst with Wells Fargo Securities in New York.

Biegelsen said the acquisition of Cameron will help Boston Scientific take away market share from a pair of Minnesota-based companies with Orange County operations—Medtronic Inc. and St. Jude Medical Inc.

That’s because S-ICD addresses complications related to wires—known as transvenous leads— that have led to recalls of defibrillators from Boston Scientific, Medtronic and St. Jude, he said.

“Some of the safety and reliability issues associated with transvenous leads include lead dislodgement, lead fracture and lead degradation,” the analyst added. “Strategic-ally, we think this device will improve the company’s visibility in many U.S. accounts and will be a valuable product in emerging markets because of its relative ease of implant.”

Cameron had been on the radar of Boston Scientific and other big device makers for some years. In 2010, Boston-based investment bank Leerink Swann LLC took the unusual step of highlighting Cameron as a company whose product could change the cardiac rhythm management industry and make it a potential buyout target.

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