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Elephant Cha-Cha: The J&J/Guidant Deal

Executive Summary

If you want some sense of the magnitude of Johnson & Johnson's recently announced acquisition of Guidant Corp., consider this: the $25.4 billion price tag was more than six times larger than any other deal done in the medical device space over the past six years; Still, if device industry executives were amazed by the deal, they weren't surprised. J&J's play for Guidant had been rumored for years-driven, it was argued, by a logical desire on the part of J&J to build on a valuable cardiovascular device business by accessing a major cardiac rhythm management (CRM) business. But it was the vascular business of both companies that seemed to propel the merger beyond the talking stages, beginning most notably, with the deal J&J and Guidant signed earlier this year to co-promote Cordis' Cypher drug-eluting stent. However, for all of the promise implicit in the merger of these two giants, there are enormous integration issues to be addressed, both before and after the deal closes. And for now, precisely how these challenges are resolved is likely to be fraught with uncertainty.

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Six years ago, ev3 was launched aiming at a broad attach on cardio- and endovascular disease. But the company found including coronary devices in its mix too difficult and too costly. Instead, the company shifted directions three years ago, with a focus on peripheral and neurovascular disease. In the process, it hopes to address what it calls "the innovation gap," the lack of devices developed specifically for the PVD and neurovascular specialists.

ev3: The Virtues of Focus

Six years ago, ev3 was launched aiming at a broad attach on cardio- and endovascular disease. But the company found including coronary devices in its mix too difficult and too costly. Instead, the company shifted directions three years ago, with a focus on peripheral and neurovascular disease. In the process, it hopes to address what it calls "the innovation gap," the lack of devices developed specifically for the PVD and neurovascular specialists.

Reviewing 2005: The Top Medical Device Stories

The device industry was robust in 2005. Share prices remain strong for the most part--some orthopedics and cardiovascular companies struggled, but for the most part device stock indices continue strong--and the IPO window for start-ups remains open. New technology is flowing and so are venture dollars. Certainly, the device industry has had few instances of the kinds of bad news that Big Pharma and biotechs have struggled with: investor frustration, high-profile pipeline problems, and general industry struggles to find a viable long-term strategy, with a couple of exceptions. The battle for Guidant was widely-reported precisely because Guidant ran into problems with its ICD line, which caused Johnson & Johnson to hesitate and opened the door for a rival bid from Boston Scientific. Similarly, conflict of interest stories were featured in several general business publications, all with a decidedly negative spin. We don't share the view that conflict of interest is a real problem-just the opposite: physician involvement in device development is the lifeblood of the industry.

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