Stryker Acquires Arrinex For Rhinitis Treatment Tech

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Quick Take

Stryker (SYK) has announced the acquisition of Arrinex for an undisclosed amount.

Arrinex has developed cryoablation technology for the treatment of chronic rhinitis.

SYK is adding Arrinex to its ENT group as it continues an acquisition strategy to fill in missing pieces throughout its various device segments.

Target Company

Menlo Park, California-based Arrinex was founded in 2016 to create medical device technology to treat conditions associated with rhinitis, an inflammation of the nasal and sinus passages.

Management is headed by Vahid Saadat, who has been with the firm since 2013 and was previously president and CEO of Voyage Medical.

Below is an overview video of ClariFix:

Source: ClariFix

The firm’s medical device is the ClariFix, a cryoablation device that cools down nasal nerves that create chronic conditions.

Arrinex’ investors include 7 Gate Ventures and the firm raised at least $2.5 million in a Series A financing in 2016.

Market & Competition

According to a market research report by MRFR, the global allergic rhinitis market is expected to grow at a compound annual growth rate [CAGR] of 7% from 2019 to 2023.

The main drivers for this expected growth an increasing prevalence of hay fever and recent advances in treatment options for sufferers.

Major vendors that provide treatment options include:

  • Merck (MRK)
  • GlaxoSmithKline (GSK)
  • Sanofi (SNY)
  • Cigna (CI)
  • Himalaya
  • Johnson & Johnson (JNJ)
  • Ampio Pharmaceutical

Source: Sentieo

Acquisition Terms and Rationale

Stryker didn’t disclose the acquisition price or terms and didn’t file a form 8-K or provide a change in financial guidance, so the deal was likely for a financially non-material amount.

A review of the firm’s most recent 10-K filing indicates that as of December 31, 2018, SYK had $3.7 billion in cash, equivalents, and marketable securities and $15.5 billion in total liabilities, of which $8.5 billion was long-term debt.

Free cash flow during the twelve months ended December 31, 2018, was $2.0 billion.

Stryker acquired Arrinex to add its ClariFix cryoablation technology to its portfolio

As Spencer Stiles, Group President of Stryker’s Neurotechnology, Instruments and Spine division stated in the deal announcement,

The acquisition of Arrinex is highly complementary to Stryker’s ENT portfolio, which is part of our Neurotechnology business. This acquisition aligns with our focus on providing ENT physicians with new technologies that deliver more treatment options and better patient outcomes.

In the past 12 months, SYK’s stock price has risen 15% vs. Medtronic’s (MDT) rise of 11%, as the chart below indicates:

Source: Sentieo

Stryker has a history of consistent positive earnings surprises over the past three years leading me to believe that management deliberately manages down expectations in order to exceed them,

Source: Seeking Alpha

Analyst ratings are generally divided between ‘Strong Buy’ and ‘Hold’ opinions and the consensus price target of $192.61 implies only a 2.6% upside from the stock’s current price at press time of $187.82:

Source: Seeking Alpha

Analyst sentiment in recent earnings calls has been relatively stable, as the linguistic analysis shows below:

Source: Sentieo

Commentary

With the deal for Arrinex, Stryker is adding another tool in its ENT (Ear, Nose, and Throat) portfolio to sell to physicians through its existing sales force.

The device is the first of its kind to be approved by the U.S. FDA for adults with chronic rhinitis. I presume Stryker will attempt to commercialize it internationally, especially in the EU and Asia, so the acquisition could become quite lucrative over time as SYK pushes it through its large distribution networks in over 80 countries.

Stryker is no stranger to acquiring firms as its requirements dictate. In 2018, it acquired K2M Group for approximately $1.4 billion. K2M added a significant spine treatment portfolio to Stryker’s Spine division.

I expect to see continued medical device acquisitions as SYK effectively outsources its R&D function to the active medical device startup market in the U.S. and Europe.

I research IPOs and technology M&A deals.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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