Cardiac device maker Abiomed acquired by Johnson & Johnson

Last week, Abiomed acquired by Johnson & Johnson, is the most important event in the US capital market.

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These two companies in my books

I used Johnson & Johnson (ticker: JNJ) as an example when I discussed debt credit ratings in subsections 2-2 of my book “The Rules of Super Growth Stocks Investing“. In Sections 3-4, pp. 143-151, of my book “The Rules of 10 Baggers“, when discussing the major pharmaceutical and medical device companies in the U.S. stock market, I constantly use Johnson & Johnson as an example.

In section 3-4, page 152 of my book “The Rules of 10 Baggers“, when I discuss the rising star of medical equipment, I use the company ABIOMED (ticker: ABMD) as an example.

The direction of Johnson & Johnson’s medical device division

The acquisition of Abiomed

Johnson & Johnson acquired cardiac device maker Abiomed for $16.6 billion on 11/01/2022, and Abiomed’s stock price rose 51.58% immediately the next day. Johnson & Johnson is planning to spin off its consumer products division, which sells Tylenol and Band-Aids, into a separate company next year (see my article “How the best AAA credit rating Johnson & Johnson makes money?“) .

The Abiomed deal is J&J’s largest since its $30 billion acquisition of drugmaker Actelion in 2017. This is the company’s largest equipment deal since its $19.7 billion acquisition of Synthes in 2012.

In line with Johnson & Johnson’s development strategy

Johnson & Johnson’s acquisition of Abiomed will allow J&J to focus more on its remaining pharmaceutical and medical device divisions. The medical device division, once Johnson & Johnson’s largest revenue generator, has been replaced in recent years by the company’s pharmaceutical division. Johnson & Johnson’s CEO said the acquisition is in line with the strategy to expand Johnson & Johnson’s medical device division into high-growth markets and accelerate revenue growth while improving standards of care.

More than 11 years ago, then-CFO Dominic Caruso said the company was looking to enter the heart pump and heart valve business if it could buy the right company at the right price.

Johnson & Johnson’s original medical device division

Johnson & Johnson has struggled for years to boost sales growth in its medical device division. Pressure to transition is mounting as the company prepares to spin off its business that sells Tylenol, Listerine and other consumer health products. The segment currently sells products mainly artificial knee joints, contact lenses and surgical products, with 2021 revenue of $27.06 billion, an increase of 18% over 2020.

Johnson’s original heart-related medical device product

Johnson & Johnson’s medical device division, MedTech, is already selling Israel’s Biosense Webster product, acquired in 1997, to treat patients with arrhythmias, so adding a $17 billion heart pump maker, Abiomed, is in line with the company’s operations. Especially since Abiomed is the market leader in cardiac pumps.

Introduction of Abiomed

Simple bio of Abiomed

Abiomed was founded in 1981 and acquired Impella Pumps in 2005 with the acquisition of Impella CardioSystems in Germany. The pump was first launched in Europe before it was approved by the U.S. Food and Drug Administration (FDA) in 2008.

Abiomed calls Impella the smallest heart pump in the world. For many patients, it is placed in the heart through a catheter inserted into an artery in the leg to temporarily assist the heart’s pumping function while the patient undergoes other procedures to treat underlying cardiovascular disease, or it can be implanted during surgery.

Main Products of Abiomed

Abiomed’s Impella heart pump provides power and is primarily used to treat conditions such as heart attack, heart failure, and blocked arteries. In addition, Abiomed has also been testing new uses for Impella to provide new revenue streams, but there is no guarantee that these studies will benefit revenue or that regulators will approve new uses in the future.

Abiomed is one of the fastest growing companies in the medical device industry. The company’s sales rose 22% to $1.03 billion in the last fiscal year ended March 31, bringing in about $937 million in cash.

The core competitiveness of Abiomed

Abiomed’s Impella is considered the industry standard because it is the smallest in its class and doesn’t require surgery to install it, which is its biggest advantage. It keeps the heart working properly during coronary interventions and cardiogenic shock, when the heart can’t pump enough blood on its own to support the body’s needs.

Integration of Johnson & Johnson and Abiomed

Johnson & Johnson’s follow-up to Abiomed

Johnson & Johnson said it hopes to further accelerate the sales of Impella products by launching Impella products in more countries and regions and expanding the approved uses of pumps. “This transaction will allow us to leverage Johnson & Johnson’s global distribution network of scale, commercial strength and clinical expertise to accelerate our mission of making cardiac rehabilitation a global standard of care,” said Abiomed’s CEO.

In the second quarter of this year, 82.3% of Abiomed’s revenue came from the United States. In contrast, only 52.3% of Johnson & Johnson’s third-quarter revenue came from the United States, with the rest from abroad.

Unlike some past acquisitions, Johnson & Johnson doesn’t plan to tightly integrate Abiomed into its other businesses. Ashley McEvoy, executive vice president and global chairman of Johnson & Johnson Medical Devices, said Abiomed will operate as a separate business within J&J Devices.

Revenue for Johnson & Johnson

That includes $17.50 per share if sales of certain Abiomed products exceed $3.7 billion in the 12 months ending in the first quarter of 2028. An additional $7.50 per share could be added if the FDA approves additional new uses for Impella.

Potential Risks of Abiomed

More than a decade ago, the FDA sent a warning letter to Abiomed in 2011, pointing out that some of Abiomed’s promotional documents used Impella for purposes not approved by the FDA. In 2013, Abiomed introduced some corrections, and after those issues were addressed, the FDA also concluded its review.

Some cardiologists have also discussed the safety and effectiveness of Impella pumps for certain uses. An analysis presented at the 2019 American Heart Association meeting by researchers from several medical schools found that in some cases, Impella was used in hospitals with higher rates of adverse events and higher costs than older procedures. But Abiomed said the analysis was flawed.

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