A federal fraud investigation into Advanced Neuromodulation Systems didn't dissuade medical devicemaker St. Jude Medical from spending $1.3 billion-what one analyst called "an extravagant amount"-to purchase the spinal implant producer.
St. Jude spokeswoman Angela Craig said that the St. Paul, Minn.-based company did its homework on ANS before announcing the purchase on Oct. 16. Craig said the company was aware of the investigation. "We looked into it and we're satisfied with our due diligence," Craig said. "That investigation is between ANS and the government, and is not information we would be privileged to disclose."
An ANS spokeswoman said that ANS President and Chief Executive Officer Christopher Chavez declined to comment on the Plano, Texas-based company's sale or the ongoing investigation by the HHS' inspector general's office into the fast-growing company's business and marketing practices.
With ANS, St. Jude gains entry and the one-fifth market share held by the No. 2 player in a fast-growing, $1 billion industry niche, according Cheryl Richer, an analyst who tracks the medical device industry for credit-rating firm Standard & Poor's. Richer said that St. Jude sought "to buy the knowledge, expertise and potential product pipeline from ANS' research and development team."
In its new rating of St. Jude, S&P said the market for implantable devices is currently "underpenetrated." Nevertheless, Richer said St. Jude is paying "an extravagant amount" for the company.
Richer said many of the industry's big players have announced they are cooperating in government investigations.
"Most of these companies have these types of issues hanging over their heads," Richer said. "Virtually nobody's untouched by these investigations. It's part of the risk profile for the industry. It's impossible to avoid that."
Officials from the inspector general's office could not be reached for comment at deadline. But sources close to the story confirmed that the investigation is proceeding.
In February, Modern Healthcare reported that the inspector general served subpoenas questioning ANS' marketing and reimbursement practices, which the company revealed in a Feb. 17 shareholders' meeting (Feb. 21, p. 16).
In 2004, the inspector general had begun warning the device industry it would examine its business practices.
The St. Jude-ANS deal is expected to close by year-end. Medtronic dominates with nearly an 80% market share.