GE Healthcare's $860 million acquisition of Vital Signs Inc. provides an entry into the rapidly growing sleep apnea market and complementary offerings for its anesthesia and broader respiratory care businesses.

Announced July 24, the $74.50-per-share cash deal represents a 28% premium over Vital Signs' July 23 stock price close of $58.

The acquired anesthesia products, which include the single-use Limb-O oxygen/gas delivery circuit system, face masks and other supplies, are Vital Signs' most established products and leading revenue source. The disposable products, which Vital Signs touts as infection-reducing and cost-saving, can be marketed alongside GE's anesthesia delivery and monitoring work stations, including Aisys and S/5 Aespire .

Vital Signs also makes single-use respiratory and critical care products, including blood gas analysis collection kits, manual resuscitators and hyperinflation systems. This line fits with GE's ventilator business, which was expanded in March through the acquisition of portable ventilator manufacturer VersaMed.

Totowa, New Jersey-based Vital Signs' products "are a great complement to our existing anesthesia, monitoring and respiratory offerings," said John Dineen, CEO of GE Healthcare. Dineen was named CEO July 17.

Vital Signs Has Sleep Apnea Products And Labs

Vital Signs' fastest growing business is sleep disorder treatment and monitoring. Its Swedish subsidiary Breas sells a range of continuous positive airway pressure (CPAP) flow generators in addition to other supplies to treat obstructive sleep apnea (OSA), one of the most common sleep respiratory disorders.

Through its Sleep Services of America subsidiary, Vital Signs also owns more than 70 sleep diagnosis laboratories that perform overnight monitoring of patients for OSA. Vital Signs offers OSA-diagnosed patients and the referring physician a home-based comprehensive sleep treatment program that could include the firm's devices.

Vital Signs says it is the only company that operates OSA sleep centers and sells products to treat the condition. Most of its sleep product sales are outside of the Unites States, but it plans to leverage the centers to expand its domestic presence. The federal government, however, recently proposed to prohibit Medicare payments to a CPAP device supplier involved in conducting sleep tests used to diagnose a patient's OSA, which could present a challenge to this strategy (¹ Also see "Market Opportunity For Home Sleep Apnea Diagnosis Remains Untapped" - Medtech Insight, 7 July, 2008., p. 6).

GE's entry into the home OSA treatment space follows competitor Philips' $5.1 billion acquisition earlier this year of Respironics, a leading U.S. sleep apnea and home respiratory care product company. When the Respironics deal was first announced in December, Philips estimated the OSA market is growing about 15% annually (² Also see "Philips Buys Respironics For $5.1 Bil. To Build Home Health Care Business" - Medtech Insight, 7 January, 2008., p. 19).

Other major sleep disorder device makers include Resmed and Covidien, which along with Respironics offer diagnosis systems as well as CPAP systems and other home ventilator supplies.

Globally, Vital Signs reported $16.6 million in sleep business revenue in its fiscal second quarter (ended March 31), up 37% from the prior year. The business accounted for about $49 million in 2007.

The company also sells component parts for interventional cardiology systems to manufacturers including Johnson & Johnson and Boston Scientific, and offers a regulatory consulting service to drug and device companies.

The firm reported total revenues of $58.9 million in the second quarter, up 12%. Its 2007 revenues were $205 million.

Upon completion of the deal, anticipated by year-end, Vital Signs' products will be incorporated into GE Healthcare's clinical systems business unit, which includes patient monitoring, anesthesia delivery and acute respiratory care products.

According to GE, Vital Signs' board has approved the transaction and so far shareholders holding 37% of the firm's outstanding shares have agreed to vote in favor of the deal. Vital Signs' stock price jumped 26% on July 24, closing at $73.11.

- David Filmore (d.filmore@elsevier.com)

GE Gains Sleep Apnea, Anesthesia Products In $860 Mil. Vital Signs Purchase

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