Update: Hillroom’s acquisition of Bardy was completed late in the day on Friday, according to an SEC filing.
Original story: Medical device company Hillrom has called off its lawyers after initially backing out of a $367 million acquisition of Seattle startup Bardy Diagnostics. The deal to acquire Bardy will now proceed, said Hillrom CEO John Groetelaars in a call to investors July 30.
Founded in 2013, Bardy sells a lightweight non-invasive cardiac monitor patch that helps detect arrhythmia. That product made the company an attractive acquisition for Hillrom — at least in January, when the deal was announced.
Soon after that announcement, however, Medicare reimbursement rates for Bardy’s device plummeted in the states where Bardy’s diagnostic testing facilities are located, from $365 to between $40-$50. The rates were set by Novitas, a medicare administrative contractor.
“Novitas’ drastic reduction in Medicare reimbursement rates came without warning and hit both Bardy and Hillrom like a Tyson right uppercut,” according to a July 9 ruling by Delaware judge Joseph Slights III ordering Hillrom to proceed with the deal. The ruling contained the following quote by famed boxer Mike Tyson as a footnote:
“Everyone has a plan until they get punched in the mouth.”
Hillrom tried to back out of the deal on Feb. 21, three days before it was set to close — but not before waiting to see if rates would change, according to the ruling.
“After the dust settled and everyone’s eyes rolled back into place, the parties agreed to operate on the premise that Novitas had made a mistake. Novitas did not act with dispatch, however.” It was only in April that Novitas increased the rates, and then to just $133.
Hillrom tried to back out on the basis of a “Material Adverse Effect” agreement the companies had signed as part of the deal. “I am satisfied Hillrom did not carry its burden to prove that Bardy suffered an MAE given its failure to prove the durational significance of the April Novitas Rate,” concluded the judge.
Hillrom initially stated it would appeal the ruling to the Delaware supreme court. But the publicly traded, 10,000-employee company has now decided to proceed with the deal.
“We have now concluded that the best path forward for our company and for our shareholders is to complete the transaction under the previously announced terms,” said Groetelaars in the call. “Once we close the transaction, we will be in a better position to work directly with reimbursement decisions with CMS and Medicare administrative contractors.”
Bardy’s device sits close to the skin of the chest and the company says it captures clearer and more accurate heart rhythms than competing electrocardiography (ECG) monitors. The startup, founded by Gust Bardy, a clinical professor of medicine, cardiology, at the University of Washington, won Hardware of the Year honors at the 2019 GeekWire Awards. Bardy sold his previous company, Cameron Health, to Boston Scientific in 2012.
Hillrom, founded in 1915, originally sold hospital beds and medical devices but has expanded to software products and digital health-related services. The acquisition will add to Hillrom’s existing cardiology products including cardiac stress exercise, Holter, and resting ECG devices.
“Although this didn’t turn out as originally contemplated, we believe there is a compelling strategic rationale for the acquisition,” said Groetelaars in the call. “Bardy’s differentiated diagnostic cardiology platform is complementary and further strengthens Hillrom’s existing cardiology portfolio and our connected care vision.” Hillrom expect the deal to close on or about August 6, according to an SEC filing.
The deal is among several recently in the cardiac monitoring area. In December, Philips bought BioTelemetry, which remotely monitors and diagnoses cardiac patients, for $2.8 billion and in January Boston Scientific bought wearable heart maker Preventice for $1.2 billion.
Hillrom’s stock price has increased more than 10% in the last month, though it has declined slightly in the last few days; the Wall Street Journal reported that Baxter is in early talks to acquire Hillrom.
Editor’s note: An earlier version of this story put the acquisition figure at $375 million. A new SEC filing puts the number at $367 million. This story has also been updated with details from court documents.
