Sometimes, early interest may not be a harbinger of a quick acquisition.

That is the case with Medtronic’s  recently-announced $1.1 billion acquisition of Intersect.

Medtronic actually invested in the company back in 2010, according to John Jordan, director of external communications for Medtronic’s minimally invasive therapies group.

“We’ve had a close relationship with Intersect for more than a decade,” he said in a Zoom interview. “We’ve always admired the technology, but we have remained disciplined about how and when to pursue the company.”

Menlo Park-based Intersect ENT makes steroid-coated stents, which are either used in conjunction with sinus surgery (Propel), or for cases where surgery wasn’t successful (Sinuva). It was the first company to get clearance for these types of devices, which gives it a unique position in the market.

However, it took time for the company to get physicians to use its product, and win over coverage from payers.

“The challenge with Sinuva was that reimbursement wasn’t in place. There was little incentive for physicians,” said Ryan Zimmerman, managing director of equity research for BTIG. “Then, it really started to take off.”

According to its annual earnings report, Intersect brought in $80.55 million in revenue last year, down 26% from 2019 as procedures and appointments were put on hold during the first few months of the Covid-19 pandemic. Since then, the company noted that sales have since recovered rapidly in hospitals and surgical centers for Propel, which is placed in the sinus after surgery. Intersect also touted improved reimbursement and payer coverage for its outpatient device, Sinuva.

After rumors of a potential acquisition by Medtronic didn’t materialize last year, Intersect found other avenues to grow. In October, it acquired Fiagon AG Medical Technologies, which makes surgical navigation products.

It had also recently picked up a $60 million term loan, leading its stock to climb. This may have spurred the deal to cross the finish line, Zimmerman said.

The financing gave Intersect “a nice runway to stand as a more diversified ENT player,” Zimmerman said in a phone interview. “They started to get their feet under them; all of the pieces were in place.”

The deal would complement Medtronic’s current portfolio, including products for balloon sinus dilation and other surgical devices. For example, Intersect’s postoperative implant is used in conjunction with Medtronic’s balloon sinuplasty products, JPMorgan Senior Analyst Robbie Marcus wrote in a research note.

In addition, Medtronic could expand Intersect’s footprint, including selling its devices outside of the U.S.

“At the end of the day, we are very focused on assisting surgeons who are treating ENT patients and this is just an additional technology into our portfolio that helps surgeons help patients,” Jordan said.

Both companies’ boards have approved the deal, but it still needs the green light from Intersect’s investors. If it doesn’t go through, Intersect would face a $29.25 million termination fee, according to a proxy statement filed by Medtronic. 

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