The Buzz at JP Morgan--Devices: No Longer the Conference Stepchild
Over the past five years, big cap device companies have been some of the strongest performers among all life science stocks, and this year's conference represented something of a renaissance of device companies. However, most interesting wasn't so much the revival of interest in device stocks itself, but the message that device companies sent and that investors are embracing: "Forget about the hype; slow and steady wins the race."
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The diversity of messages from the Big Pharma presenters at this important conference reflected the broader investment uncertainty about the sector. Investors weren't certain about the biotech business model either, though they packed the rooms. Among the basic arguments: whether the returns from companies pursuing compounds against novel targets will trump the returns from those companies pursuing precedented mechanisms.
Stockholders didn't do well with most Big Cap indices, but they did a lot than with Big Pharma-which lost $270 billion of market value over five years. Not that life sciences in general wasn't a good place to park your savings. According to our market cap analysis of health care industry segments, you would have done extremely well to have invested in medical devices-the best performing sector in our universe.
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.