$480M J&J deal heats up neuro-device market

By Dow Jones Newswires
Posted July 12, 2010 at 2:39 p.m.

Johnson & Johnson said Monday it plans to bolster its lineup of stroke-prevention products by buying Micrus Endovascular Corp. for about $480 million, marking the latest deal in a neurovascular-device market that appears to be heating up.

J&J’s planned purchase of San Jose, Calif.-based Micrus comes weeks after rival Covidien PLC  announced plans to buy ev3 Corp. , a Micrus rival, for $2.6 billion. Leerink Swann analyst Rick Wise said the Covidien-ev3 combination may have spurred on J&J amid a trend of focusing more on bundled portfolios of products.
After these deals, “it seems clear that the neuro space has become one of the more attractive MedTech markets for would-be acquirers,” Wise wrote in a research note.

This could have bearing for Boston Scientific Corp.  if it decides to sell its Neurovascular division as part of a restructuring the company has said could include  divestitures and purchases. Analysts have speculated this could happen, though Boston Scientific hasn’t commented on what it might sell. Analyst Wise questioned whether Abbott Laboratories and Medtronic Inc., which have big vascular-products businesses, might feel compelled to join the fray.

The J&J-Micrus deal highlights the value of Boston Scientific’s neuro assets, which also include its neuromodulation unit, Wise said.

J&J’s purchase of Micrus values the latter company at $23.40 per share, a 5.5 percent premium to Friday’s closing price. But the company’s shares were up 48 percent on the year before the announcement and had climbed 28 percent since June 1, when Covidien announced plans to buy ev3. Covidien announced Monday it has successfully completed a tender offer for the company.

Ladenburg Thalmann analyst Juan Sanchez called J&J’s offer “appropriate,” in that it credits Micrus’ “accomplishments while accounting for the potential challenges of a lack of commercial product diversification and competition.” He downgraded his Micrus rating to neutral from buy.

Micrus makes implantable and disposable products to treat vascular problems in the brain, such as aneurysms and atherosclerosis that cause types of strokes. Its lineup includes tiny coils that are pushed into brain aneurysms to block blood flow. J&J noted in a release that an estimated 795,000 people in the U.S. experience a stroke each year at an estimated cost of $73 billion, and Dodds estimated the coil market, led by Boston Scientific, is worth more than $600 million.

Micrus posted sales of $91.1 million in its fiscal 2010, which ended March 31, up 16 percent from the prior fiscal year. It had forecast that sales would rise by 10 percent to 17 percent in the new fiscal year.

J&J said Micrus would join Codman & Shurtleff Inc.,  the neuro-device business within J&J’s DePuy companies. J&J will add Micrus to a devices-and-diagnostics franchise that posted $23.6 billion in sales last year, when it became the largest business segment at the health-care conglomerate.

Monday afternoon, Micrus shares  traded up 4.5 percent, at $23.20, near the planned purchase price. J&J’s shares slipped 23 cents, to $60.31.

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