Scimitar Equity Blog

Covidien, plc, a Dublin, Ireland medical device and pharmaceutical maker but with its U.S. headquarters in Mansfield, Mass. announced an agreement to acquire Aspect Medical Systems (ASPM) of Norwood, Mass. Covidien will pay $12.00 in cash per Aspect share for a total of approximately $210 M, net of cash and short-term investments acquired. The transaction, which will take the form of an all cash tender offer followed by a second-step merger is subject to customary closing conditions, including receipt of certain regulatory approvals and is expected to be completed by the end of calendar 2009 (Business Wire).

Founded in 1987, Aspect has been recognized as a pioneer and global market leader in brain monitoring, with 2008 revenues of $99 M.  Aspect’s  Biospectral Index™ (BIS™) technology — became the first clinically proven and commercially available direct measure of the effects of anesthetics and sedatives on the brain. Aspect developed proprietary technologies that directly measure these effects and ultimately improve the quality and cost effectiveness of patient care. BIS technology was designed to reliably gauge the precise amount of anesthetic medication required by each patient.

ASPM had closed at $7.67 on Friday, 9/25/09 and has risen 55+% since the announcement. Covidien will provide the scale and resources to accelerate growth of BIS and other Aspect products.  A former competitor and comparable, Physiometrix, also a Mass. company had been acquired by Hospira in 8/05 for approximately $23 M in cash plus the repayment of the company’s bank debt of approximately $1 M.

Aquisitions seem to be lifting investor confidence and enthusiasm as the market heads into earnings season.

Every time the markets rebound, investors deliberate whether this marks the bottom for share pricing and if so, might it be time to get in. However, for those of us who remain skeptical; we have seen too many spikes in momentum, resistance, confidence and resilience as second quarter earnings were good but will it last?

Valuations provide  indicators when compared to the rapid decline and slow moves to present market levels. Biotechnology, diagnostic and medical device innovation are risky business; development is expensive and regulatory hurdles i.e. risks are very high. Biotech companies spend millions on drug development that might not even achieve regulatory approval from the FDA. When reviewing and evaluating small cap healthcare companies, cash might keep them going but what are three (3) fast and easy indicators or tools of comparison.

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