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The talk of the town (the town being San Francisco, which kicks of the JP Morgan Annual Healthcare Conference on Monday) will most likely be the news from Sunday and early Monday that the Johnson & Johnson acquisition of Guidant for $22 billion is once again no longer a done deal.
On Sunday, Boston Scientific stepped into the fray yet again with its determined bid of $25 billion (about $3 billion sweeter than Johnson & Johnsons) after completing its due diligence on Guidant. We also heard the announcement Monday morning that Abbott Labs would acquire a chunk of Guidant for about $4 billion.
This is Abbotts second-largest acquisition ever (after the acquisition of Knoll from BASF for more than $6 billion a few years ago).
Will Johnson & Johnson bid up? Will Boston Scientific be successful? Whats it all about? In any case, Abbott at this point seems to be walking away as a winner by acquiring a key part of Guidants business that Abbott needs for its own growing cardiovascular stent business.
According to Monday mornings Wall Street Journal
, Abbott offered $3.8 billion as an upfront payment with additional future payments of $500 million if certain product approval goals are met. It also appears that Abbott will loan Boston Scientific $700 million to help close the Guidant transaction, according to the Wall Street Journal
Additionally, Abbott would share with Boston Scientific certain rights to Guidants drug-coated stent business. The drug-coated stent part of the stent market is currently valued at about $5 billion in sales each year and is dominated by Johnson & Johnson and Boston Scientific. Another strategic advantage of the Abbott deal is that it might help and expedite the antitrust review and approval thats normally part of a merger action.
The name of the game is stents.
This is a very fast-growing segment of the medical device market thats based on the use of wire mesh to hold open blood vessels and permit increased blood flow in patients who either have occluded or closed vessels (or have them clogged up). In the last few years, the stent business has had further impetus with the incorporation of drugs such as paclitaxel into the stents.
These drugs render the stents more slippery so as not to let particles stick or cling to them. This allows the drug to pass through more easily. It will be interesting to see what happens on Monday in San Francisco. Guidant is due to talk at 2:30 p.m., Boston Scientific opens up Tuesdays session at 8 a.m. and, unless I missed it, Johnson & Johnson is not on the docket to speak (though several other Big Pharmas are).
So lets turn to the business at hand as many of our Midwest companies will also be covered in San Francisco on Monday. What happened to our Midwest large cap life science businesses in 2005? Lets look first at some of the macro factors:
The Dow Jones Industrials is down (the Dow was up and down like a yo-yo during 2005).
The Nasdaq National Market is barely up.
The Nasdaq Biotech index is slightly ahead of the Nasdaq National Market.
The AMEX Biotech index is up substantially.
Remember that the Amex Biotech index measures the very largest biotech companies. In general, these are the ones that perform the best and have had a stellar year.
The Dow Jones number is a tricky one for a couple reasons. First of all, 16 of the Dows 30 stocks fell in 2005, according to Monday mornings Chicago Tribune
. Leading the downward charge and having a great impact on the index was the freefall of General Motors, which dropped about 48 percent in 2005. Still, a number of the Dow stocks performed strongly, so things arent quite as bad as it looks.
Within the context of the above, how did the Midwest fare? As I only cover the life sciences portion, thats what I will address.
Fourteen of the 26 stocks covered in this analysis were above the Dow and the Nasdaq National Market. Twelve declined versus these indices. This means theres a bit of a mixed bag with the tendency to be slightly better on those that outperformed. Some of the best companies had truly great years (particularly Dade-Behring, the leader in performance, and Monsanto).
Abbott spin-off Hospira outperformed its former parent by a long shot with stock growth of 28 percent versus Abbotts decline of 15 percent. Others had very solid years (such as St. Jude Medical, Cardinal Health and Medtronics). In fact, Medtronic finished the year as our second-largest market cap company.
On the decline, lets just say it wasnt pretty for a number of companies (such as Zimmer, Dow Chemical, Guidant, Stryker and Abbott). Even Eli Lilly only had a so-so year.
The Midwest big cap life science group continues to have a mixed performance for the year. However, the leaders outnumber the laggards and actually strengthened their growth numbers.
Next week, we will look at our Midwest biotech sector to see how it fared, and Im sure all kinds of news will be emerging this week from the JP Morgan conference. See you next week!
Michael S. Rosen is president of Rosen Bioscience Management, a company that provides CEO services including financing, business and corporate development to start-up and early stage life science companies such as Renovar and Immune Cell Therapy. Rosen is also a founder and board member of the Illinois Biotechnology Industry Organization
. He can be reached at firstname.lastname@example.org
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