DEAL UNITES TWO FIRMS PACT WORTH $740 MILLION.

Byline: Evan Pondel Staff Writer

VALENCIA - Boston Scientific Corp. announced Tuesday it would acquire Advanced Bionics Corp. for $740 million in cash, providing a greater platform for a variety of devices that treat hearing loss and back pain by stimulating nerve fibers.

The deal calls for Advanced Bionics to receive earn-out payments based on the Valencia company's future performance. Boston Scientific executives expect the move to net more than $1 billion in sales by 2010, tapping into a neurostimulation-device market that is currently valued at about $1.6 billion worldwide.

``The deal was appealing because we could earn a substantial part of what we could earn as a public company without all of the hassle of being a public company,'' said Al Mann, founder, chairman and co-chief executive officer of Advanced Bionics.

The company will continue to operate through 2013 without any major changes in structure. However, company officials said, they plan to hire about 1,000 employees in the next three years for Advanced Bionics, with most of the new jobs created in Valencia. The company employs about 550 people at facilities in the United States, Europe and Japan.

Analysts welcomed the news, highlighting Boston Scientific's ability to move forward with a suite of new technologies. John Calcagnini, analyst with CIBC World Markets Corp. in Los Angeles, said Advanced Bionics, with its depth and breadth, is a symbiotic fit for Boston Scientific, a Natick, Mass.-based company known for its treatment of heart problems.

``It's a good deal for Boston because it provides them with a dynamic pipeline of product, angling toward cardiac stimulation,'' Calcagnini said. ``And I think reaching $1 billion in sales by 2010 is not unreasonable. Boston Scientific has been doing a lot of due diligence.''

Not so for Advanced Bionics.

The company was initially in search of a marketing partner, not a buyer.

``We are so early in the growth curve that it didn't seem appropriate for us to be seeking an acquisition,'' said Mann, who has developed a reputation in the Los Angeles area as a guru in the field of emerging medical devices. In 2001, Mann's insulin pump manufacturer, MiniMed Inc., was acquired by Minnesota-based Medtronic Inc.

``For Advanced Bionics, we were looking for a marketing partnership; any other deal didn't seem to make much sense for us,'' he said.

But Boston Scientific's offer, specifically the earn-out payments, eventually convinced Mann that such a deal would be in the company's best interest. Meeting sales performance targets and a certain gross margin level also could lead to bonus earn-out payments.

Founded in 1993, Advanced Bionics generates most of its income manufacturing and distributing the Clarion cochlear implant sound stimulator to treat deafness. Created in a university research laboratory, the device enables deaf people to process sound information through the auditory nerve. Implant candidates must undergo a surgical procedure in which receivers and electrodes are wired throughout the ear. The process, including the equipment, costs up to $60,000, with several insurance policies covering the surgery. About 40,000 Americans wear cochlear implants, and an additional 25,000 users reside in other countries.

Advanced Bionics also is developing a microbionic device, which it calls the Bion microstimulator, for treatment of urinary-urge incontinence and other debilitating neurological disorders.

``The addition of the Advanced Bionics team to Boston Scientific brings an expertise in implantable neurostimulation devices that will complement and enhance our existing less-invasive technologies,'' Jim Tobin, president and chief executive officer of Boston Scientific, said in a printed statement.

Advanced Bionics expects annual sales of about $82 million in 2004, a 45 percent increase when compared with the previous year. The company has about 100 patents and 200 applications pending, with more than $100 million invested during the last five years to develop technology that treats chronic pain in the lower back and legs.

``Looking longer-term, the deal could have great promise,'' said Jordan Estra, research analyst with Stanford Financial Group in Boca Raton, Fla. ``This deal could significantly enhance Boston Scientific's development activities.''

The transaction is slated to close in the next few days.

Shares of Boston Scientific added $1.30, or 2.9 percent, to close at $45.60 Tuesday on the New York Stock Exchange.

Evan Pondel, [phone]

evan.pondel(at)dailynews.com

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(color -- ran in SAC edition only) Advanced Bionics, headquartered in Valencia, is being acquired by Boston Scientific Corp. for $740 million.

David Crane/Staff Photographer