The Orange County healthcare sector has seen some billion-dollar wheeling and dealing the past few years,the last year or so was no different.
Healthcare accounted for OC’s biggest deal last year: the $2 billion sale of Sybron Dental Specialties Inc.,a Newport Beach company that makes dental products such as braces,to Washington, D.C.-based Danaher Corp., which is best known for its Craftsman tools sold at Sears, Roebuck & Co.
In May, Vascular Control Systems Inc., which was based in San Juan Capistrano, was bought for about $100 million by Johnson & Johnson’s Ethicon Endo-Surgery unit. Vascular makes a clamp to treat uterine fibroid tumors and a hemostat, or instrument, that’s used to control blood loss during surgery. The company eventually moved out of OC after combining with Ethicon.
Santa Ana eye device maker Advanced Medical Optics Inc. has been busy buying since it spun off from Allergan Inc. almost five years ago. It led the way with the largest buy for the healthcare market of late.
Advanced Medical is spending $718 million for Irvine’s IntraLase Corp. IntraLase makes lasers that cut a flap in a patient’s cornea,the first step in laser vision-correction surgery.
The IntraLase buy, which is expected to close in the second quarter, is intended to build “a true refractive enterprise,” said Advanced Medical Chief Executive James Mazzo earlier this year.
Nationwide Health Properties Inc., a Newport Beach real estate investment trust, bought 32 assisted living and Alzheimer’s disease care facilities for $419 million from Hearthstone Assisted Living Inc. of Houston in March.
Irvine’s Sun Healthcare Corp., an operator of long-term care facilities, spent $350 million in October to buy Harborside Healthcare Corp., a Boston nursing and healthcare company that was owned by Investcorp, the global asset manager.
Allergan Still Spending
Then there was Allergan. The Irvine drug maker wasn’t done dealing after its $3.2 billion buy of Inamed Corp. in early 2006.
Allergan spent $217 million to buy Groupe Corneal Laboratories of Paris, which was the original developer of Juv & #233;derm, the lower-face wrinkle remover that it got in the Inamed deal.
Allergan also continued building on its obesity treatment portfolio when it announced it would pay $97 million for EndoArt, a Swiss company that makes a remote-controlled stomach clamp to fight obesity. Allergan’s fat-fighting product stable also includes the Lap-Band, a reversible stomach banding system.
Beckman Coulter Inc., a Fullerton maker of medical testing gear, spent $185 million to buy Lumigen Inc. Southfield, Mich.-based Lumigen makes chemicals that are used to run tests on Beckman’s machines.
Add medical software makers to the list of buyers. Newport Beach-based TriZetto Group Inc., a medical software company that mainly serves health insurers, bought Phoenix-based Quality Care Solutions Inc. for $142 million. Quality Care makes software for processing health insurance claims.
Buyers Also Sellers
Some of the buyers also were sellers during the past year.
In November, Nationwide sold 30 communities in eight states to Brookdale Senior Living Inc. of Chicago for $149 million.
Meanwhile, Agencourt Personal Genomics, a developer of genetic analysis technologies that was 49% owned by Beckman Coulter, was sold for $120 million in May to Applied Biosystems Group, an Applera Corp. business.
I-Flow Corp., a Foothill Ranch-based medical device maker, sold its InfuSystem Inc. infusion pump rental unit to HAPC Inc., a New York company set up to buy another business, for $140 million in October.
Outlook
Looking ahead, there’s still talk that Cooper Cos., the Lake Forest-based contact lens and women’s surgical product maker could be an acquisition target.
Cooper,which has seen shipping delays, sluggish contact lens sales and a critical lag in coming out with a new type of lens already being sold by rivals,has seen increased speculation that it could be bought by France’s Essilor International SA, a maker of corrective lenses for glasses.
Essilor has said it was interested in getting into contact lenses, but didn’t specifically name Cooper.
Buzz continues to swarm around Beckman Coulter and Edwards Lifesciences Corp., the Irvine heart valve maker, as possible targets, although both companies have said they’re not seeking a sale.
Exit of Choice
For smaller startups, observers say that being sold, rather than going public, could be the exit of choice for medical device and drug companies this year.
“In contrast to say, six years ago, achieving liquidity for most venture-supported life science companies will be acquisition instead of IPO unless the value of the company is above $150 million to $200 million,” said Ned Olivier, founding general partner of Oxford Bioscience Partners, a venture capital firm with an office in Costa Mesa.
Regulatory changes by the Securities and Exchange Commission also could make it harder for smaller companies to raise money, leading to more buyout deals in the medical device sector, said Dennis McCarthy, a managing director at B. Riley & Co., an investment banking firm with offices in Newport Beach and Los Angeles.
Regulators are leery of private investment in public equity, called PIPEs in the industry. They attract hedge funds and other investors, and had been a popular option for smaller public companies to raise money without doing a big secondary stock sale, McCarthy said.
The SEC is seeking to limit PIPE deals because of fears that they are getting complicated and shareholders aren’t aware of what they might be getting into. The changes would force “serial PIPE issuers,” many of whom are medical technology companies, to look at a buyout as the alternative, McCarthy said.
OC still has a handful of well-funded companies, particularly in the device sector that could look to do initial public offerings or are possible acquisition candidates.
They include Devax Inc., an Irvine maker of drug-coated stents to treat heart and vessel ailments that’s raised more than $48 million, and Eyeonics Inc., an Aliso Viejo-based eye device maker that’s raised around $40 million.
