J&J-Guidant merger to shake up stent market
Healthcare giant Johnson & Johnson said yesterday it would buy heart-device maker Guidant Corp. for $21.5 billion, ending a month of uncertainty about the deal and creating a new competitive landscape for Boston Scientific Corp., the largest life-sciences company in Massachusetts.
Johnson & Johnson, headquartered in New Jersey, will buy Indianapolis-based Guidant for $63.03 a share, lower than the $76 per share price the companies first announced last year.
If approved by Guidant's shareholders, the deal will merge Johnson & Johnson's strength in consumer products, drugs, and coronary stents with Guidant's expertise in the growing area of pacemakers and implantable defibrillators. It also will give Johnson & Johnson access to Guidant's highly regarded research program in drug-eluting stents.
''It's probably the biggest thing that happened in the medical devices [industry] in the last 10 years," said Mark Landy, an analyst for Susquehanna International Group.
The merger creates a powerful new rival for Boston Scientific in the market for stents, the tiny mesh tubes that hold arteries open after they have been cleared of blockages.
Boston Scientific sells about $3 billion a year of its Taxus stents, which slowly leak a drug that keeps arteries clear. Its only significant rival for the $6 billion global market in drug-eluting stents is the Cordis division of Johnson & Johnson, which introduced the first drug-eluting stent but has been hampered by regulatory and production problems. Investors have also worried about a lack of depth in Cordis's pipeline of future products.
Several other companies are expected to introduce drug-eluting stents in the next few years, chipping away at the market share of both companies. One of the anticipated newcomers is Guidant, whose drug-eluting stent is expected to reach the market in 2008.
In a conference call yesterday, Johnson & Johnson executives said they had not decided whether to keep their Cypher stent on the market if Guidant's stent is approved, but observers widely expect the company to consolidate its cardiology business under the Guidant name, using the heart company's sales force and manufacturing facilities.
''For Boston Scientific, it means one less drug-eluting stent competitor," wrote Deutsche Bank analyst Tao Levy in a report issued yesterday morning, saying it was a positive development for the Natick company.
A Boston Scientific spokesman said the company did not have any comment on the merger.
The stent market is crucial to Boston Scientific, which makes thousands of medical devices but relies on highly profitable stents for a large proportion of its total sales. It is less crucial to Johnson & Johnson, a diversified healthcare company that sells Band-Aid products, Tylenol, and numerous prescription drugs.
Boston Scientific's reliance on stents has led Wall Street to penalize its shares over the past year, partly from safety concerns but largely out of worry that profits will erode as competitors enter the market. Company executives have said they don't see any future product with the revenue potential of drug-eluting stents. The company's stock has sagged from a high of over $40 in 2004 to the mid-$20s this fall.
Boston Scientific shares gained 6 cents yesterday to close at $25.08.
As a condition of the deal imposed by the US Securities and Exchange Commission, Johnson & Johnson will license a key stent-implantation technology called ''rapid exchange" to another company, Abbott Laboratories of Illinois, which is developing its own stent. Analyst Landy said this could be useful to Boston Scientific, because the drug coating that Abbott intends to use on its stent could potentially be vulnerable to a patent challenge from Boston Scientific.
The merger unveiled yesterday appeared to be in jeopardy for the past several weeks. Over the summer, Guidant recalled tens of thousands of pacemakers and implantable defibrillators because of possible short-circuiting, and is under investigation by federal agencies for its handling of the problem. In October, Johnson & Johnson executives suggested they might pull out of the deal, and last week Guidant sued to force the merger to go through. Johnson & Johnson ultimately used Guidant's problems as leverage to negotiate a lower purchase price.
Stephen Heuser can be reached at sheuser@globe.com. 
