Cordis Sold to Cardinal

On March 2, after months of rumor and speculation, Johnson & Johnson finally sold its Cordis division—manufacturer of stents, catheters and less-invasive treatments for vascular disease—to Cardinal Health Inc. for $1.94 billion cash (approximately $1.59 billion, net the present value of tax benefits). Cordis had $780 million in sales in 2014, with about 70 percent coming from outside the United States.

Dublin, Ohio-based Cardinal is primarily a drug wholesaler, but it has been growing its medical products business steadily.
Cardinal’s Chairman and CEO George Barrett said the company is focused on medical products that have become commoditized, as the potential for differentiation has become limited. Cardinal has focused its efforts on areas including wound management, cardiovascular and orthopedics.

Barrett said an aging global population and demand for less-invasive medical treatments makes the Cordis-Cardinal combination a sound move.

“The acquisition of Cordis reinforces our strategic position to address this need and strengthens an important growth driver in the Cardinal Health portfolio,” Barrett said.

The deal, subject to regulatory approval, is expected to close near the end of the year.

The divestiture is part of New Brunswick, N.J.-based JNJ’s strategy to shed its under-performing assets, reduce costs and focus on higher-growth businesses.

A decade ago, Fremont, Calif.-based Cordis was a market-leading golden child for JNJ, serving as one of the pioneers in the drug-coated stent market. JNJ acquired Cordis in 1996 for $1.8 billion. But rapid and fierce competition, along with research that raised questions about drug-coated stents’ true efficacy compared to traditional stents, led to shrinking sales and market share for Cordis. In 2011, the company got out of the drug-coated stent business.

According to David Lewis, a managing director and medical device market analyst for Morgan Stanley, the Cordis sale is consistent with JNJ’s efforts to streamline its device holdings.

“A divestiture would be in-line with management’s efforts to prioritize its medical device business and focus on faster growth assets where JNJ has strong competitive positioning,” Lewis wrote in a research note. “Cordis has a dominant franchise in catheters as well as market share in balloons, guidewires and vascular closure devices.”

Johnson & Johnson recently sold its Ortho-Clinical Diagnostic unit—which makes diagnostic tests—to a private-equity group for $4 billion. In 2014, JNJ’s medical device sales were $27.5 billion, a decrease of 3.4 percent from the prior year. Excluding the net impact of M&A activity, including the sale of Ortho Clinical Diagnostics, JNJ’s medical device business had underlying operational growth of 1.5 percent. The company’s pharmaceutical sales, by contrast, increased 14.9 percent to $32.3 billion in 2014.

When JNJ’s CEO Alex Gorsky was asked about the potential sale of Cordis during an earnings conference call in January, he said the company was interested in staying in the cardiovascular device market, but that it would be “focusing” its strategy. “We think we can really make a difference for patients, where we think the markets are promising for the future in terms of reaching more patients, expanding share, volume growth, some pricing stability,” he said. “And so, we’re going to continue to evaluate our portfolio to make sure that we’re consistent with our strategy as it relates to cardiovascular.”

Once the transaction is complete, the business will report to Don Casey, Cardinal Health’s Medical Segment CEO.

Casey said Cardinal Health and Cordis have complementary skills and expertise, creating a combined talent base that will be world class in cardiovascular solutions.

“We look forward to drawing heavily on the knowledge and innovative spirit of Cordis team members around the world. Additionally, Cordis’ global expertise and footprint provide an exciting opportunity to leverage scale in sourcing and manufacturing,” Casey said.