The Many Lives of Companies: J & J and Guidant Unite to Rule? -- MEDICA Trade Fair

Mergers and Acquisitions are shaking up the cardiology market. The market has seen innovations come in from start-ups and these start-ups have later been acquired by larger medical device companies making the innovations a part of their already impressive portfolios. Recent events include the acquisition of Velocimed Inc. by St. Jude Medical's portfolio, Boston Scientific Corporation acquisition of Rubicon Medical Corporation and finally the big one, the proposed takeover of Guidant Corporation by Johnson and Johnson, Inc.

Johnson and Johnson (J&J) is headquartered in New Jersey USA and is a manufacturer of healthcare products for the consumer, pharmaceutical medical device and diagnostics market. The medical device and diagnostics business segment includes suture and mechanical wound closure, surgical equipment and devices, wound management and infection prevention products, Interventional and diagnostic cardiology products, diagnostic equipment and supplies, joint replacements, other orthopaedic products and disposable contact lenses all handled by various leading medical device companies.

J & J’s list of mergers, acquisitions and take-overs include Bright Group’s minimally invasive spinal technology, Link Spine group, Orquest, Delta Glide, Obtech Medical, heartport, TERA med, Inverness Medical Technology, Atrionix, Innovasive Devices, AngioGaurd, DePuy, FemRX, IsoStent, Gynecare, Biosense, Biopsys Medical, Nitiniol, Indigo Medical, Cordis, UltraCision, LifeScan, Mitek Surgical products all of which have resulted in massive inorganic growth and made it a comprehensive and broad based company.

Guidant Corporation was a spin off in 1994 from Eli Lilly and Co. and it has worked its way into the huge market created by breakthroughs in heart stents and pacemaker-defibrillator technology to become one of the world's leading medical-device makers. Guidant too has been busy with mergers and acquisitions that include AFx, X Technologies, Bioabsorbable vascular solutions, Biosensors International’s Everolimus-eluting stent programme, Cardiac Intelligence, Metamorphic’s embolic protection filter and technology, CardioThoracic Systems, Sulzer’s Electrophysiology business, InControl, Endovascular Technologies and NeoCardia. Jan 2003 saw a proposed merger between Guidant and Cook Group terminated.

To strengthen its position in the Drug Eluting Stent market Cordis (a J&J company) entered into a strategic alliance with Guidant in 2004 for the co-promotion of drug eluting stents and the advancement of new technology in coronary stent delivery systems. The resultant Cypher stent is one of the most studied stents with an impressive clinical trial and acceptance back-up. This extensive agreement could have triggered off the speculation of a takeover of Guidant, a speculation that proved warranted. This is a friendly acquisition that is approved by the boards of directors of J&J and Guidant and it is subject to clearance under the Hart-Scott-Rodino Antitrust Improvements Act, the European Union merger control regulation, and other closing conditions.

The European Union recently cleared J & J’s planned purchase of Guidant Corp. on the condition that some operations are sold, a delay in deal closing is expected as it is reported that key U.S. regulators have not yet signed off. The approximately USD twenty five and a half billion cash and stock acquisition needed EU clearance as European regulators can block takeovers and mergers between U.S. companies when it affects the European population. Often regulators will bring in conditions to the merger/sale. Disinvestment is one such measure. The reason for disinvesting some operations is the rationale that a significant merger or takeover might inhibit market competitiveness and result in monopoly or monopolistic conditions that will adversely affect the patient population.

In the proposed J&J Guidant merger the commission stated that J&J would have to sell off either J&J’s or Guidant’s endoscopic vessel harvesting unit, the European endovascular business of Guidant as well as J&J's European steerable guidewires unit.

In a stable cardiac rhythm management market that is seeing evolving technology and adequate reimbursement the Guidant portfolio is a good acquisition for J &J. The inclusion of Guidant’s pacemaker-defibrillator business would give J&J a better stand in the industry whereby competition with rivals such as Medtronic and St. Jude Medical would intensify. One could expect a significant increase in J & J market share in Europe and a larger share of the pie as well as a more consolidated launching platform for some of its products in the U.S. Further a second stent producer (other than Cordis) would further strengthen its presence in the area of stenting and stent delivery systems in treating coronary artery disease.

But Guidant has recently faced some product recalls and the question now remains on how this affects its image in the eyes of J&J, and if the conditions and transactions that are to occur during the acquisition will undergo any change. The closing months of 2005 should answer this and if everything goes according to plan, it should be a merry Christmas for the combined J&J- Guidant team with 2006 to look forward to as a year of expanding opportunities.

For further information please contact:

Radhika Menon Theodore
Corporate Communications
+91 44 52044668