St. Jude Medical (St. Paul, Minnesota) is making a $175-plus move for Spinal Modulation (Menlo Park, California), a startup that has developed a neurostimulation system for chronic pain, on top of a previous $40 million equity investment in the company nearly two years ago.

Exercising its option to acquire Spinal Modulation, St. Jude agreed to pay $175 million up front, plus undisclosed regulatory and financial milestone payments. The option was part of St. Jude's $40 million investment in June 2013, which also included an agreement for St. Jude to distribute Spinal Modulation's Axium in international markets.

Spinal Modulation's other investors include Johnson & Johnson (New Brunswick, New Jersey) and Medtronic (Dublin). The company is expected to present data from its Dorsal Root Ganglion (DRG) ACCURATE investigational device exemption study in June at the International Neuromodulation Society World Congress in Montreal.

DRG stimulation works differently than traditional spinal cord stimulation (SCS), targeting nerves within the DRG, a structure packed with sensory nerves that transmit information to the spinal cord, which then conducts those signals to the brain. Traditional SCS takes a different approach, targeting nerves along the spinal cord's dorsal column which often proves challenging to isolate the desired target painful area.

A couple of years ago, Jeff Kramer, chief scientific officer and VP of clinical field activities at Spinal Modulation, told Medical Device Daily that the DRG plays an important role in the development and maintenance of chronic pain. That patient population is "enormous" and the current technology can really treat a good section of those patients, Kramer said. But, he added, for a lot of those patients the source of their pain makes it challenging to treat them using the existing technology. That's where the Axium system is expected to come into play, because of its focus on the DRG (MDD, Aug. 28, 2013).

Kramer explained that current SCS technology has been around since the sixties and has advanced over time so that it is a good approach for some patients. There are sensory fibers that transmit pain to the brain that the current technology targets but those sensory fibers are upstream from the DRG, he said. "We're taking advantage of what is called the on-ramp of those fibers."

Larry Biegelsen, senior analyst of medical supplies and devices at Wells Fargo Securities, said in a research note last month that St. Jude recently indicated the DRG IDE study met its primary endpoint for both non-inferiority and superiority compared to traditional SCS for intractable lower limb pain.

St. Jude said it expects to complete the acquisition of Spinal Modulation in the second quarter. That will make it the only device manufacturer to offer radiofrequency (RF) ablation, SCS, and DRG stimulation therapy solutions for the treatment of chronic pain, the company said.

According to the company, Stimulation of the DRG with the Axium system has been shown to provide meaningful relief for patients battling chronic pain, and is especially useful for treating focal pain areas often challenging to treat using traditional SCS. The Axium originally received CE mark approval in November 2011 for the management of chronic, intractable pain. Last December, Spinal Modulation reported that it had completed enrollment in the IDE trial and submitted its premarket approval application (PMA) to the FDA. Biegelsen said he estimates DRG could be approved in the U.S. later this year.

The company said DRG stimulation can also benefit patients suffering post-surgical pain and neuropathic pain, a population estimated to represent more than five times the current addressable market.

DRG stimulation with the Axium system complements St. Jude's current chronic pain product portfolio, said Michael Rousseau, chief operating officer at St. Jude. That portfolio includes RF ablation with NeuroTherm and traditional SCS with Protege in the U.S., Prodigy in Europe, and next-generation Proclaim, which is expected to launch in Europe during the first half of this year and in the U.S. later this year. Biegelsen said that St. Jude has indicated plans to integrate DRG into Proclaim, which he said would leverage primary cell technology, bluetooth communication, and MRI compatibility.

St. Jude reported that DRG contributed $25 million in revenue from Europe and Australia last year, up from nearly $15 million in 2013. The company said the Spinal Modulation acquisition will shave 5 cents from its adjusted consolidated earnings for 2015, but that will be partially offset by operating efficiencies.

St. Jude Medical's first quarter earnings call is scheduled for this Wednesday.