J&J Acquisition Targets

Interesting note by a Wells Fargo analyst speculating that Edwards or Boston Scientific would be good acquisition targets for J&J.

In a Sept. 16 note, the analyst observed that devices accounted for 41% of J&J's total sales in 2012 but are expected to generate only 32% in 2019. Lately, he writes, J&J Chief Executive Alex Gorsky has called out the increasing innovation and friendlier regulation of devices, compared with some other products.

The Wells Fargo analyst wrote that either would get J&J into the growing market for heart valves inserted through arteries, instead of open-heart surgery. Edwards has the leading position in such transcatheter valves, two-thirds of the market for aortic valves, and a head start in the emerging market for transcatheter mitral valves.

Both make sense but would Gorsky have the cajones to make it happen? Or would a smaller acquisition target make more sense?

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A few things:

If you read the article, it was suggesting those two device makers as targets due to the shrinking device revenue in JnJ. I agree with your overall comment that a Biotech/Pharma company could potentially be more lucrative, but that wasn't what the author was trying to say. The point of the article was how to infuse device $. If you feel JnJ shouldnt invest in devices thats a fair position to have after Synthes and some of the other recent failures.

Edwards is on pace to do about 4billion in sales this year so you are off with your numbers by quite a bit.

How has the Actelion acquisition gone? :)

The Actelion acquisition has gone swimmingly :)

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If JNJ is committed to their device business, Gorsky needs to make a substantial acquisition or a number of smaller ones like Stryker anand Boston Scientific have over the last two years. If not, sell off everything to a company that's committed.

agreed. I would expect a few more MDD divestitures in 2019, so JNJ will have to decide either to reinvest in MDD or focus elsewhere.

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A few things:

If you read the article, it was suggesting those two device makers as targets due to the shrinking device revenue in JnJ. I agree with your overall comment that a Biotech/Pharma company could potentially be more lucrative, but that wasn't what the author was trying to say. The point of the article was how to infuse device $. If you feel JnJ shouldnt invest in devices thats a fair position to have after Synthes and some of the other recent failures.

Edwards is on pace to do about 4billion in sales this year so you are off with your numbers by quite a bit.

How has the Actelion acquisition gone? :)

If JNJ is committed to their device business, Gorsky needs to make a substantial acquisition or a number of smaller ones like Stryker anand Boston Scientific have over the last two years. If not, sell off everything to a company that's committed.

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Pharmaceuticals & biologics are far more lucrative and give a much better return on investment than medical devices. Spending $40 or $50 billion to acquire Edwards, which barely brings in $2 billion in annual sales would take 15 or 20 years to break even. Investing $1 billion in a new drug or biologic which can bring in far more than $2 billion in annual sales for 20 years guaranteed with patent protections is a better deal, and that is what J&J specializes in. Look at the Imbruvica deal, J&J spent $975 million up-front to acquire half the rights, and this year is on track to bring in over $2.5 billion in sales, and even more in the years to come.

A few things:

If you read the article, it was suggesting those two device makers as targets due to the shrinking device revenue in JnJ. I agree with your overall comment that a Biotech/Pharma company could potentially be more lucrative, but that wasn't what the author was trying to say. The point of the article was how to infuse device $. If you feel JnJ shouldnt invest in devices thats a fair position to have after Synthes and some of the other recent failures.

Edwards is on pace to do about 4billion in sales this year so you are off with your numbers by quite a bit.

How has the Actelion acquisition gone? :)

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I agree to a point. Boston Sci has too many product lines and some overlap with J&J so the FTC issues would be a nightmare in terms of spinning off product lines from either company. Edwards is overpriced, but i think it could be a unique opportunity, THV is becoming more common, but as of now the main replacement is limited to the aortic valve. Mitral and Tricuspid replacement and repair technologies are going to make a lot of $$$ over the next 5-10 years. Abbott, Medtronic, and Boston Sci are already players in the space. Also,the Cordis failures were more than just others entering the market.

Pharmaceuticals & biologics are far more lucrative and give a much better return on investment than medical devices. Spending $40 or $50 billion to acquire Edwards, which barely brings in $2 billion in annual sales would take 15 or 20 years to break even. Investing $1 billion in a new drug or biologic which can bring in far more than $2 billion in annual sales for 20 years guaranteed with patent protections is a better deal, and that is what J&J specializes in. Look at the Imbruvica deal, J&J spent $975 million up-front to acquire half the rights, and this year is on track to bring in over $2.5 billion in sales, and even more in the years to come.

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Not going to happen. JNJ would have to divest BWI if they acquired Boston Sci. Boston Sci is largely a low-margin commodities company, and their product lineup would not fit with JNJ's portfolio.

Also, Edwards market cap is too high for it's relatively small revenue.

Also, there will be 3 transcatheter heart valve companies in the US next year, and 4 or more by 2020 or 2021. JNJ is probably not going to get involved in the THV market because heart valves will become a commodity in the next few years with multiple manufacturers. Same thing happened with drug eluting stents, and JNJ ending Cordis.

JNJ would rather invest a few hundred million buckaroos into a new drug or biologic which will then sustain $5-10 billion in annual revenue for 20 years until patent protection runs out, then rinse and repeat.

I agree to a point. Boston Sci has too many product lines and some overlap with J&J so the FTC issues would be a nightmare in terms of spinning off product lines from either company. Edwards is overpriced, but i think it could be a unique opportunity, THV is becoming more common, but as of now the main replacement is limited to the aortic valve. Mitral and Tricuspid replacement and repair technologies are going to make a lot of $$$ over the next 5-10 years. Abbott, Medtronic, and Boston Sci are already players in the space. Also,the Cordis failures were more than just others entering the market.

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Can you name a medical device company that J&J has acquired that they haven't screwed up?

nope, struggling to think of one, they sure did a fine job in bringing demise to many of them though...Lifescan for example.

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Not going to happen. JNJ would have to divest BWI if they acquired Boston Sci. Boston Sci is largely a low-margin commodities company, and their product lineup would not fit with JNJ's portfolio.

Also, Edwards market cap is too high for it's relatively small revenue.

Also, there will be 3 transcatheter heart valve companies in the US next year, and 4 or more by 2020 or 2021. JNJ is probably not going to get involved in the THV market because heart valves will become a commodity in the next few years with multiple manufacturers. Same thing happened with drug eluting stents, and JNJ ending Cordis.

JNJ would rather invest a few hundred million buckaroos into a new drug or biologic which will then sustain $5-10 billion in annual revenue for 20 years until patent protection runs out, then rinse and repeat.

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Whichever one they ended up acquiring, you can count on them to milk every last dime and potential out of it then to F it up down the road..just look at what they are doing to CSS and BWI.

Can you name a medical device company that J&J has acquired that they haven't screwed up?

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Whichever one they ended up acquiring, you can count on them to milk every last dime and potential out of it then to F it up down the road..just look at what they are doing to CSS and BWI.

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