Wall Street is taking Abbott's ($ABT) claim that it is not interested in St. Jude Medical ($STJ) at face value, paving the way for speculation about who the drug and devicemaker will buy instead as it seeks to deploy plentiful cash and bulk up in med tech following a wave of industry M&A.
Abbott yesterday denied a story in the Financial Times that it is preparing a $25 billion bid for St. Jude. The two are already operating under a co-promotion alliance formed in 2008 and expanded in 2012.
While Abbott is not interested in St. Jude, its CEO Miles White has made it clear that it's seeking acquisition targets, saying during the most recent earnings call, saying "Investors expect us to deploy cash, and we do, and we will."
He also said that "while we've got what I think is a fairly attractive menu of opportunities for us from an M&A standpoint, you just haven't seen us act on it."
Given its participation in the nutrition, diagnostics, and pharmaceutical industries, the company has a lot of options, but White signaled he's particularly interested in "expanding and broadening the whole device business," which accounts for 27% of all revenues.
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| MitraClip cardiac device--Courtesy of Abbott |
"Structural heart, for us, really, right now, is a product," he said, referring to the MitraClip for transcatheter mitral valve repair, "but we think there's a lot more breadth there that we should be participating in. And then I think beyond that in the device space, whether it's vascular or not, there's a lot more breadth."
White backed up the comment about structural heart by soon thereafter agreeing to purchase to transcatheter mitral valve replacement player Tendyne for up to $250 million, though he may have been prodded by a move by Edwards Lifesciences ($EW) to purchase a company in that space.
But the company still had $4 billion in cash and cash equivalents as of mid-year.
What's next?
Wells Fargo analyst Larry Biegelsen said in an analyst note that he expects at least one mid-sized, $5 billion to $7 billion deal in the upcoming quarters, according to The Wall Street Journal.
"The company's strategy in medical devices is not to build scale for the sake of getting bigger or seeking operational synergies or bundling opportunities but rather to focus on differentiated technologies and platforms that can drive top-line growth," he wrote.
Target areas could include endovascular devices (such as those to treat peripheral artery disease or abdominal aortic aneurysms), electrophysiology devices (expanding on the acquisition of Topera $250 million in December), and replacement heart valves (following up on the recent deal for Tendyne).
Deals are also possible in the established/generic pharmaceutical arena and diagnostics industry, especially tissue diagnostics, Biegelsen said, according to the Wall Street Journal.
Note that the recent stock market rout offers discounted prices for companies out on the prowl for acquisitions.
Additional ammunition for a future Abbott purchase could come from the sale of its 15%, $3.6 billion, stake in Mylan ($MYL). Abbott acquired the shares when last year it sold its developed market generic drug business to the generics giant, as the Chicago-based company shifts it focus toward med tech following the spinoff of its innovative pharmaceuticals unit in 2013, resulting in the creation of AbbVie ($ABBV).
Abbott has sold already sold a third of the shares it inherited, the Chicago Tribune reports, and has said it does not intend be a long-term shareholder of the company.
- here's more from the WSJ (sub. req.)
- here's the Chicago Tribune's take