Johnson & Johnson acquires Abiomed for $16.6 billion.
Analyst: Mehak Mahajan (King’s College London)
Deal Overview:
Acquirer: Johnson & Johnson (NYSE: JNJ)
Acquiree: Abiomed (NASDAQ: ABMD)
Deal Size: $16.6 billion
Buy Side Advisors: J.P. Morgan Securities LLC (Financial), and Cravath, Swaine & Moore LLP (Legal)
Sell Side Advisors: Goldman Sachs & Co. LLC (Financial) and Sullivan & Cromwell LLP (Legal)
Introduction:
On 22 December 2022, Johnson & Johnson, the multinational healthcare company, announced that it had completed its $16.6 billion acquisition of Abiomed, the medical device technology company engaged in the research, development and sale of cardiovascular medical devices. This involved an upfront payment of $380.00 per share in cash, corresponding to an enterprise value of approximately $16.6 billion. Through this acquisition, Johnson & Johnson aims to strengthen its MedTech business by leveraging Abiomed’s skilled workforce, strong relations with clinicians, and extensive cardiovascular portfolio.
Company Overview: Johnson & Johnson
Based in New Brunswick, New Jersey, Johnson & Johnson is an American multinational company that operates in 3 main business segments: MedTech, Pharmaceutical, and Consumer Healthcare. Johnson & Johnson's revenue for the twelve months ending March 31, 2023, was $96.26 billion, a 1.46% increase year-over-year. As of December 2022, they have 140,000 employees and a market capitalisation of $442.5 billion.
Johnson & Johnson is no stranger to inorganic business growth and has conducted 47 acquisitions and 25 investments since its inception, spending $104.54 billion in acquisitions as of March 2023. Some prominent acquisitions include the purchase of Actelion for $30 billion in January 2017 and the acquisition of DePuy Synthesis for $19.70 billion in June 2012. J&J sees the Abiomed acquisition as a means to accelerate growth in its MedTech business and expand its portfolio in the high-growth cardiovascular markets.
Company Overview: Abiomed
Based in Denvers, Massachusetts, USA, Abiomed is a medical device technology company involved in the research, development and sale of cardiovascular medical devices. Abiomed generated revenue of $1.03 billion in its latest fiscal year ending March 2022. Furthermore, analysts expect this revenue to increase to $1.5 billion annually by 2025 (Refinitiv, 2022). Its primary devices include the Impella heart pump and The
Abiomed Breethe OXY-1 System. According to Abiomed’s website, the Impella heart pump is the world’s smallest heart pump, and its worldwide revenue totalled $985 million in FY 2022. As of December 2022, Abiomed has 2003 employees and a market capitalisation of $16.9 billion.
Displaying a solid commitment to clinical research, the company has invested more than $850 million in clinical research in the last five years. After the acquisition in December 2022, Abiomed now operates as a standalone business within Johnson & Johnson’s MedTech unit. Abiomed’s CEO, Michael R. Minogue, sees this acquisition as a way to leverage Johnson & Jonson’s global scale and commercial strength to accelerate Abiomed’s mission of "making heart recovery the global standard of care".
Industry Analysis (Medical Technology):
The medical technology (or MedTech) industry is an important and fast-growing sub-sector of the healthcare industry. It comprises three main segments: Medical devices, In Vitro Diagnosis, and Digital Health Solutions. The global MedTech industry was valued at $495.46 billion in 2022 and is projected to grow to $579.40 billion in 2023 (Statista, 2023). Its revenue is expected to show a steady annual growth rate (CAGR 2023-2027) of 4.91%, resulting in a market volume of $701.90 billion by 2070. Additionally, it should be noted that the US led the global MedTech market in revenue (USD 198.3 billion) in 2022. Furthermore, the US is home to the world's three largest medical technology companies: Medtronic Inc., Abbott Laboratories, and Johnson & Johnson.
The medical technology industry has a bright future: Governments worldwide are releasing policies and subsidies to encourage foreign direct investments in this lucrative sector. For example, the UK government released its inaugural medical technology strategy in February 2023 to strengthen the UK’s position as a hotspot for MedTech innovation and make advanced medical devices accessible to more patients. (GOV UK,
2023).
In the upcoming years, the most significant growth drivers in the MedTech industry include the rising emphasis on early diagnosis of chronic disease, increasing investment in research & development (R&D) by private MedTech companies, and the growing ease of approval for medical technologies by the regulatory authorities. On the other hand, some challenges that the MedTech industry would face include the slow and
inequitable adoption of new technologies, the high acquisition cost of advanced medical devices, and the disruption of the global supply chain caused by trade restrictions between the US and China and the Ukraine-Russia war.
Deal Rationale and Synergies
1. Increased Product Offering: The acquisition of Abiomed allows Johnson & Johnson to diversify and expand its portfolio in the cardiovascular sector. Abiomed's Impella heart pumps complement Johnson & Johnson's existing MedTech portfolio, enhancing its position as a cardiovascular innovator and providing a broader range of treatment options. It should be noted that Abiomed’s Impella heart pumps are the only
US FDA-approved products for patients with severe coronary artery disease requiring high-risk percutaneous coronary intervention. This helps establish Abiomed's monopoly in mechanical circulatory support and is expected to deliver 12-15% revenue growth in the coming years. (Abiomed, 2022)
2. Innovation and R&D: Abiomed has a strong track record of profitable growth and an extensive innovation pipeline of life-saving technologies. By leveraging Johnson & Johnson's resources and capabilities, including its robust clinical expertise, Abiomed can accelerate the commercialisation of breakthrough treatments in cardiovascular disease. In addition, with J&J’s backing, Abiomed can increase its reach to heart failure patients beyond the US.
Risks
1. Market Competition: The cardiovascular medical technology market is highly competitive, with
several established players like St. Jude Medical, Abbott Laboratories, and Boston Scientific. Johnson &
Johnson must navigate intense competition, technological advancements, and evolving market dynamics
to maintain and grow its market share in the cardiovascular medical device industry.
2. Clinical Milestones and Contingent Value Right (CVR): The acquisition includes a non-tradeable CVR for Abiomed shareholders, which entitles them to receive additional cash up to $35.00 per share if certain clinical and commercial milestones are achieved. While these milestones provide incentives for both parties, there is no guarantee that they will be achieved—it depends on Johnson & Johnson’s management, product development, and regulatory approvals of new technology.
3. Financial Risks: The acquisition involves a significant upfront payment. Under the terms of the deal, J&J will pay $380 in cash for each Abiomed share outstanding, representing a 50.7% premium to the previous day’s closing price of $252.08. While Johnson & Johnson expects the transaction to be accretive to earnings in the future, there may be short-term dilution and financial risks associated with the financing and integration process due to fluctuations in market conditions, interest rates, etc.
Conclusion:
In conclusion, the acquisition of Abiomed by Johnson & Johnson for $16.6 billion represents a strategic move to strengthen Johnson & Johnson's position in the MedTech industry, specifically in the cardiovascular segment. By adding Abiomed's expertise and innovative portfolio of cardiovascular medical devices to its capabilities, Johnson & Johnson aims to expand its product offering and accelerate the development of breakthrough treatments for cardiovascular diseases. While the deal presents opportunities for growth and synergies, it also comes with risks, including intense market competition, the achievement of clinical milestones, and financial considerations. Nonetheless, with its long-standing reputation for inorganic growth and commitment to innovation, Johnson & Johnson is well-positioned to navigate these challenges and capitalise on the potential of the rapidly evolving MedTech industry.
References
1. https://www.businesswire.com/news/home/20221101005752/en/Johnson-Johnson-to-Acquire-Ab
iomed
2. https://www.jnj.com/johnson-johnson-to-acquire-abiomed
3. https://www.bloomberg.com/profile/company/ABMD:US
4. https://en.wikipedia.org/wiki/Johnson_%26_Johnson
5. https://tracxn.com/d/acquisitions/acquisitionsbyJohnson-&-Johnson
6. https://www.statista.com/outlook/hmo/medical-technology/worldwide#:~:text=Revenue%20in%2
0the%20Medical%20Technology,US%24701.90bn%20by%202027
7. https://www.fortunebusinessinsights.com/industry-reports/medical-devices-market-100085#:~:te
xt=KEY%20MARKET%20INSIGHTS&text=The%20global%20medical%20devices%20market
,5.5%25%20during%20the%20forecast%20period.
8. https://www.gov.uk/government/publications/medical-technology-strategy
9. https://www.fortunebusinessinsights.com/industry-reports/medical-devices-market-100085
10. https://www.mddionline.com/cardiovascular/top-10-cardio-device-companies-highlights-tct