St. Jude, Edwards among those named as potential J&J M&A targets

Johnson & Johnson ($JNJ) has gone through a lot over the last couple of years. It has seen its share of quality control problems, and, on the positive side, is poised to swallow its biggest acquisition ever with its Synthes buy. But there are areas in the company's medical device unit that need a boost, particularly heart valves, as newly appointed CEO Alex Gorsky recently told Bloomberg in an interview. And analysts think St. Jude Medical ($STJ) and Edwards Lifesciences ($EW) could be eyed by the medical device/pharma titan as potential pickups.

With its cardiovascular sales dropping for the past 5 years--they've decreased 44% since 2006--buying one of those companies would definitely give J&J a boost in a lucrative area. And analysts are recommending that the company go big. "My view would be, 'Go big or go home,'" said Thomas Gunderson of Piper Jaffray, as quoted by Bloomberg. "Cardio is a growth area and J&J has done well in the past there. They just need the right horses to ride."

It would make sense to try and pick up companies with a good growth record, particularly after J&J exited the market for the drug-coated heart stents last year. For instance, Edwards has an attractive, profitable line of cardiovascular devices, according to BMO Capital Markets' Joanne Wuensch, as quoted by Bloomberg. "Edwards has the only transcatheter heart valve on the U.S. market at this stage," she added, "It's one of the more interesting medical technologies around right now."

Edwards recently reported good first-quarter results, with net sales jumping 13.5% compared with a year earlier to $459.2 million. The highlight for the company was it being the first full quarter of Sapien transcatheter heart valve commercialization in the U.S. Edwards is awaiting a June 13 FDA panel meeting to see if it can eventually get Sapien blessed for a broader class of patients.

St. Jude is also a good target and could come cheap (it trades at 11.3 times earnings, the lowest among comparable companies in either the U.S. or Europe, Bloomberg notes). It could get J&J back into the heart-related products game with its defibrillator, pacemaker and heart valve offerings, according to Jay Singhania of Westwood Holdings Group.

Still, St. Jude has had some issues, particularly with the hubbub surrounding the Riata leads, which are no longer sold, and its cardiac rhythm management division has struggled in recent quarters. That said, the company saw its atrial fibrillation product sales soar 13%, to $221 million during the most recent quarter, and neuromodulation product sales grew 12% versus the year-earlier period.

None of the named parties would comment on the speculation. But Gorsky did tell Bloomberg last week that his company remains "committed to cardiovascular." If he did decide to go for St. Jude or Edwards, it would be interesting to see how much it would cost J&J. Would it be bigger than its record-breaking $21.3 billion Synthes deal?

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