UPDATE: Medtronic reveals stake in Arsenal AAA

Medtronic (NYSE:MDT) this week said it took out a stake with an exclusive option to buy in Arsenal Medical subsidiary Arsenal AAA.

Arsenal AAA is developing a hemostatic foam and delivery system designed to reduce the chance of endoleaks after the placement of a stent graft to treat an abdominal aortic aneurysm. Arsenal president & CEO Maria Palasis told MassDevice.com that the product is designed “to controllably fill cavities in the presence of blood flow.”

Financial terms of the investment were not disclosed, but Medtronic said the deal includes an option to acquire Arsenal “after the company achieves certain milestones.”

Earlier this month, Arsenal and sister company 480 Biomedical raised a collective $26 million from a syndicate of backers that included “a long-term strategic investor,” which Palasis yesterday confirmed as Medtronic.

480 Biomedical, which spun off from Arsenal in 2011, is developing a bioresorbable stent for treating occlusive disease in the superficial femoral artery.

Medtronic’s aortic division general manager, Daveen Chopra, said his company’s investment in Arsenal AAA is part of its plan to invest in core abdominal aortic aneurysm markets “and complements our organic investments in next-generation stent graft programs.”

“The investment will allow Arsenal AAA to utilize its expertise in foam technologies to address persistent endoleaks that can occur after endovascular aneurysm repair (EVAR) procedures,” Chopra said in prepared remarks.

“Medtronic’s strategic investment in Arsenal AAA validates our breakthrough in situ forming foam platform,” added Palasis, who joined the company in January. “Medtronic’s leading market position and expertise in this field will help accelerate the introduction of this novel technology to the broader AAA community and we are looking forward to working with such a dynamic company.”

Palasis told us that Medtronic’s investment in Arsenal AAA is an example of strategics stepping in to the gap left as venture capital’s interest in medtech has waned in recent years.

“There is a void and this deal is proof that strategics are stepping in to help fill it,” Palasis wrote via email. “Consolidation has not helped – there are fewer options for those of us seeking funding.”

Citing the $30 million acquisition of Covidien‘s Stellarex drug-eluting balloon by Spectranetics (NSDQ:SPNC), Palasis said strategic investment needn’t be limited to large-cap players. Covidien agreed to that deal last November to mollify anti-trust regulators about its $50 billion merger with Medtronic (NYSE:MDT).

“It will be interesting to see what role the mid-cap/ smaller medical device companies play in all of this,” she told us. “Spectranetics’ purchase of Stellarex is perhaps just a start. There are some exciting young medical device companies out there that could begin to play a role here; they have a pipeline they will need to fill.”

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