J&J to buy heart pump maker Abiomed for $16.6 billion ahead of consumer health spinoff

By Michael Erman, Leroy Leo and Raghav Mahobe

(Reuters) -Johnson & Johnson said on Tuesday it struck a deal to buy heart pump maker Abiomed Inc for $16.6 billion in cash, as it looks to boost growth in its medical devices unit after next year's planned spinoff of the consumer health business.

J&J agreed to pay $380 per Abiomed share, a 50.7% premium over its closing price of $252.08 on Monday. Shares of Abiomed surged about 50%, while J&J shares slipped 0.5%.

J&J's upfront payment is just shy of Abiomed's 52-week high of $381.99 per share.

Abiomed shareholders will also receive rights worth up to $35 per share in cash if certain commercial and clinical milestones are achieved.

The deal, expected to close before the end of the first quarter of 2023, will add to adjusted earnings from 2024, the company said.

J&J is focused on its pharmaceuticals and medical devices operations with the consumer health spinoff expected by November 2023. Chief Executive Joaquin Duato has said he will look to build up the medical devices unit through acquisition.

"One of my priorities for the new Johnson & Johnson is to drive medtech to become a best in class performer," Duato, who became CEO in January, said on a conference call after the deal's announcement, adding that he was looking to expand into high growth markets.

Stifel analyst Rick Wise said J&J's medical device business is facing headwinds from the pandemic, the stronger dollar and supply chain issues that have kept its growth in the mid-single-digit percent range.

"It seems clear Abiomed is going to accelerate that growth," by 1% or more, he said.

Abiomed, which generated revenue of $1.03 billion in its most recent fiscal year that ended in March, develops medical technology that provides circulatory and oxygenation support. Analysts expect its revenue to climb to $1.5 billion annually by 2025, according to Refinitiv data.

George Congdon, senior analyst at Third Bridge, said J&J can boost sales of Abiomed's heart pumps by improving the device, seeking regulatory clearance for its use in other heart-related diseases and expanding geographically.

"So when you think about that kind of trifocal opportunity to augment their own market size, the acquisition seems all the more attractive," Congdon said.

REVIEW OF UNMET PATIENT NEEDS

J&J approached Abiomed after a review of unmet patient needs in the medical technology sector, working internally and with outside advisers before expressing interest in an acquisition, according to people familiar with the matter who were not authorized to speak on the record.

After engaging, the talks moved fairly rapidly, the people added.

J&J is not anticipating any regulatory issues given the limited overlaps with its existing cardiovascular products, the people said.

Abiomed's Impella heart pumps, the smallest in the world, have been used in the United States since 2008. The devices brought in worldwide revenue of $985 million in fiscal year 2022.

Heart disease is a leading cause of death in the United States, accounting for nearly 700,000 deaths in 2020, government data showed.

J&J executives said they believe its existing infrastructure can be used to expand Abiomed's reach outside the United States in addition to building growth through new products Abiomed is developing.

Abiomed will operate as a standalone business within the healthcare conglomerate's medical technology division. The company does not expect to make significant job cuts at Abiomed after the deal closes, noting that expected synergies from the deal would be "quite modest."

J&J's medical technology business includes surgical, orthopedic and various other devices. The unit generated more than $20 billion in sales in the first nine months of the year.

(Reporting by Raghav Mahobe and Leroy Leo in Bengaluru; additional reporting by David Carnevali in New York; Editing by Sriraj Kalluvila, Ed Osmond and Bill Berkrot)