Surmodics, Inc. SRDX recently provided a statement in response to the U.S. Federal Trade Commission (“FTC”) blocking the proposed acquisition of Surmodics by funds affiliated with GTCR LLC (“GTCR”).

The FTC has moved to block the proposed acquisition of Surmodics by private equity firm GTCR. The deal, signed in May 2024 and valued at approximately $627 million, or $43.00 per share in cash, represented a substantial premium on the company’s market value. However, the FTC cited anti-competitive concerns, specifically that the merger would give GTCR control over more than 50% of the market for hydrophilic coatings, a critical component in medical devices such as catheters. The transaction, which was expected to be closed by 2024-end, may get jeopardized following the FTC’s challenge.

Surmodics has strongly opposed the decision, arguing that the merger is pro-competitive and will benefit stakeholders, including customers, shareholders and patients. The company expressed disappointment over the regulatory challenge, emphasizing that it had cooperated with the FTC for months to secure approval. Surmodics intends to fight the decision in court, maintaining that the acquisition aligns with long-term industry trends and growth objectives.

Likely Trend of SRDX Stock Following the News

Following the announcement on March 7, shares of the company lost 1.8% during after-hours trading. So far this year, SRDX’s shares have lost 25.2% against the industry’s 12% growth. The S&P 500 has decreased 0.9% in the same time frame.

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FTC’s Competitive Landscape Argument

GTCR, a well-established private equity firm with a history of investments in healthcare and technology, viewed the acquisition as a strategic move to expand its medical technology portfolio. The firm already owns Biocoat Inc., a key competitor in the hydrophilic coatings market. This dual ownership fueled the FTC’s concerns over reduced competition, which regulators believe could lead to higher prices and slowed innovation.

The FTC’s argument hinges on the notion that the merger would significantly reduce competition in the medical coatings sector, which has historically seen competitive pricing and technological advancements due to the rivalry between Surmodics and Biocoat. By consolidating ownership, the agency fears that GTCR would be able to exercise excessive market power, potentially increasing costs in an already expensive healthcare industry. The FTC’s unanimous decision to block the merger signals a strong commitment to preventing consolidation that could harm consumers.

Broader Implications for the Healthcare Sector

The FTC’s decision reflects a broader regulatory shift toward stricter scrutiny of private equity acquisitions in healthcare. Under the current administration, there has been a concerted effort to prevent deals that could lead to monopolistic behavior and increased healthcare costs. If Surmodics and GTCR fail to overturn the decision in court, it could set a precedent for future transactions, making it more challenging for private equity firms to consolidate within the medical technology space.

While Surmodics and GTCR remain committed to pursuing the merger, the FTC’s challenge presents a significant legal and financial hurdle. The outcome of this case will not only determine the future of Surmodics but also influence the regulatory landscape for private equity acquisitions in the healthcare industry. Shareholders and industry analysts will be watching closely as the case unfolds, assessing both the legal merits and the long-term impact on competition and innovation in medical device technology.

Recent Updates

Surmodics reported first-quarter fiscal 2025 results last month. Total revenues decreased 2% year over year to $29.9 million. The company also reported a loss per share of 60 cents, marking a 20% improvement from the prior-year registered loss. The pending merger has already resulted in added expenses, with $2.3 million in merger-related charges. Despite these challenges, Surmodics remains confident in its financial health, emphasizing strong sales performance in thrombectomy platforms and medical device coatings.

Surmodics, Inc. Price

Surmodics, Inc. price | Surmodics, Inc. Quote

SRDX’s Zacks Rank and Key Picks

Surmodics currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader medical space are Masimo MASI, Boston Scientific BSX and Cardinal Health CAH. At present, Masimo sports a Zacks Rank #1 (Strong Buy), whereas Boston Scientific and Cardinal Health carry a Zacks Rank #2 (Buy) each.

Masimo’s shares have rallied 30.1% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

Estimates for MASI’s 2024 earnings per share (EPS) have increased 1.2% to $4.10 in the past 30 days. MASI’s earnings beat estimates in each of the trailing four quarters, the average surprise being 17.1%. In the last reported quarter, it posted an earnings surprise of 16.6%.

Estimates for Boston Scientific’s 2025 EPS have jumped 2.9% to $2.85 in the past 30 days. Shares of the company have surged 56.7% in the past year compared with the industry’s growth of 12.5%. BSX’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 8.25%. In the last reported quarter, it delivered an earnings surprise of 7.69%.

Estimates for Cardinal Health’s fiscal 2025 EPS have increased 1.5% to $7.94 in the past 30 days. Shares of the company have jumped 15.2% in the past year against the industry’s 4.1% decline. CAH’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 9.6%. In the last reported quarter, it delivered an earnings surprise of 10.3%.

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