Medtronic to acquire spinal device maker Kyphon for $3.9 billion

Fridley-based Medtronic is buying a rival to expand its spinal business. The big medical device maker announced Friday a $3.9 billion purchase of spinal implant maker Kyphon.

Medtronic's spinal products already constitute a significant portion of business. A spokesman says spinal devices are part of a line that generated $2.5 billion last year. That's one fifth of total revenues.

The acquisition of Kyphon is expected to boost that business all the more by extending the product offering.

Medtronic's current spinal product line is used in treating younger patients who are suffering from curvature of the spine and degenerative disc disease in the neck or lower back. Kyphon's products are more widely used in treatments for older patients who suffer from spinal nerve damage and spinal fragility fractures.

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In a conference call with investors, Medtronic President and Chief Operating Officer William Hawkins said the two companies' products pair well together.

"As a combined entity, we will be able to more effectively and efficiently treat patients suffering from a number of debilitating spinal conditions," he said. "Together we will offer innovative products at all points along this continuum providing patients and customers a variety solutions to their complex disease states."

Alex Arrow, a med tech analyst at Lazard Capital Markets, says the merger is one of the biggest med tech mergers in recent years, and among the four largest acquisitions for Medtronic. Arrow says Kyphon will fill in gaps in Medtronic's business line.

"Kyphon represents the one part of the spinal industry that Medtronic has failed to gain a presence in on its own, tools for treating collapsed spine bones or vertebral compression fractures, a space which Kyphon pioneered, but which Medtronic has failed to get into," he notes.

Kyphon is growing much faster than Medtronic's spinal business. Market analyst Joanne Wuensch issued a note pointing out Kyphon's 33 percent growth last year, when it generated $407 million in revenues.

Kyphon is known as a leader in a treatment called balloon kyphoplasty, used to treat fragility fractures.

According to Dr. John Stark, assistant professor of orthopedic surgery at the University of Minnesota and a lumbar spine specialist, fragility fractures are very common among older people, especially women. And he says kyphoplasty can offer relief.

"The technique of kyphoplasty or vertebroplasty is to reinforce the bone in its newly broken position until the body can reconstitute itself and make it more comfortable for the patient during that early period," he says.

Medtronic's acquisition of Kyphon requires shareholder approval and is expected to close in the first three months of next year.

Analyst Alex Arrow says the deal will require significant cost cutting. Kyphon has the largest sales force in the spinal medical device industry, and Medtronic has the second largest force.

Shares of Medtronic closed Friday at $50.81, down 11 cents or about 0.2 percent.