Acquisition Should Enable Johnson & Johnson to Emerge as Leader

The merger of Johnson & Johnson and Guidant will enable Johnson & Johnson to lead the cardiac devices market and enter such new markets as neuroscience stents, says a Duke University professor.

The merger, announced Wednesday, will effectively allow the merged company to pull ahead of current medical device market leaders Medtronic and Boston Scientific, and may represent the beginning of a mergers and acquisitions trend in the device market, said Gopal Chopra, M.D., adjunct associate professor of business administration at Duke's Fuqua School of Business.

"The medical device market is emerging as a lucrative and significant sector, based on the successes of Medtronic, Boston Scientific and orthopedic device companies," Chopra said. "Medical devices continue to deliver novel solutions to the growing chronic health care market, especially as the pharmaceutical business erodes and we turn to genomics for personalized, predictive pharmacogenomics."

Chopra, who is a neurosurgeon, teaches the class "Leading Medical Device Innovation to Market" in Fuqua's Health Sector Management program.

"Procedures requiring devices create a rich market for reimbursed care in the United States, especially in the fields of cardiac surgery, orthopedics and neuroscience," he said.

Johnson & Johnson has previously relied on smaller acquisitions to develop its device portfolio, which is strongest in the minimally invasive and orthopedic markets. It has been less successful in its attempts to dominate the endovascular and cardiac markets, Chopra said, so the acquisition of Guidant is a strategic move.

"Guidant is viewed as a leader in implantable cardiac defibrillators (ICDs) and stents for coronary disease, but there are also hidden gems in its portfolio, such as the recently approved carotid stent for preventative treatment of strokes," he said. "Products like that really make the premium Johnson & Johnson may pay for Guidant insignificant in comparison to the inherent opportunities for growth.

"The innovation and commercialization processes for devices are much more rapid than for pharmaceuticals, and device companies are all currently positioned to expand and move into emerging world markets where pharmaceutical companies have a greater established presence," Chopra said.

"As a global pharmaceutical company, Johnson & Johnson has a great opportunity to use its reach and understanding of global markets to its advantage, while other device companies are still trying to understand and explore the global market."

Chopra added that this acquisition is likely the beginning of a consolidation trend in the medical device industry. Medtronic, a leader in medical devices, has acquired and developed new technologies outside its core strength. Boston Scientific has excelled at developing minimally invasive technologies with the acquisitions of SciMed and Target Therapeutics, and has also recently made moves into electronics with its investment in Cameron Health and other companies.

"The future of medical devices will indeed become interesting as future merger and acquisition activity may leave the medical device industry with only two real players, an interesting situation for a young and growing industry," Chopra said. "In addition to the Johnson & Johnson deal with Guidant, a combination of the electronics and endovascular strengths of Medtronic and Boston Scientific would make for a formidable presence in the global device world."