J&J Examines Prospects for Entering Cardiac Device Market

Associated Press – Johnson & Johnson (NYSE: JNJ) lost the bidding war for medical device maker Guidant (NYSE: GDT) on Wednesday, but analysts said the world’s most diversified health care company is likely to turn its sights on other, smaller players in the US$10.3 billion cardiac device market. J&J, after previously bidding for Guidant, let a Tuesday deadline pass by which it would have had to raise its bid further, allowing the Indianapolis company to make a $27.2 billion deal with Boston Scientific (NYSE: BSX).

However, J&J has a well-funded war chest, which will grow by $705 million when it gets the fee Guidant must pay J&J by Thursday for backing out of their deal. “They’re going to go after small to mid-size acquisitions,” of both pharmaceuticals and medical devices, predicted independent health care analyst Hemant Shah of HKS & Co. “Which? I have no idea.” Randy Katz, a mergers and acquisitions lawyer with Bryan Cave LLP, said one possible target is St. Jude Medical (NYSE: STJ) of Minneapolis, which, like Guidant, makes pacemakers and implantable heart defibrillators. Analysts say the third player in that fast-growing market, industry leader Medtronic (NYSE: MDT) of Fridley, Minn., with about $11 billion in annual revenues, is generally considered too large to be a J&J acquisition target. That’s about three times more than Guidant and St. Jude and just over one-fifth of J&J’s yearly sales. Health care analyst Steve Brozak of WBB Securities said it would be much tougher for J&J to acquire St. Jude or Medtronic than Guidant, whose management was open to an acquisition. He thinks it’s more likely J&J will make multiple, smaller acquisitions such as Edwards Life Sciences of Irvine, Calif., which makes heart valves and devices to insert stents — wire-mesh devices that prop open arteries — or Biosensors International of Singapore, a tiny company that makes a stent and technology to coat it with a drug to prevent reclogging of an artery.

Johnson & Johnson, which disclosed little publicly during the six-week bidding war with Boston Scientific, said in a statement Wednesday that it decided not to raise its last bid for Guidant “because to do so would not have been in the best interest of its shareholders.” J&J spokesman Marc Monseau would not elaborate. On Tuesday, when Johnson & Johnson reported year-end results — net income of $10.4 billion on revenue of $50.51 billion — chairman and chief executive officer William Weldon called medical devices a future growth driver, though. Operating profit for the company’s medical devices and diagnostics segment already has grown threefold since 2000, from $1.7 billion to $5.5 billion. The company would not disclose how much of that was from devices alone.
While J&J chooses its next option in the coming months, analysts say that companies rumored to be takeover targets likely will see heavy trading and volatile share prices.