Global Insight Perspective | |
Significance | U.S. healthcare conglomerate J&J confirmed its long-term commitment to the drug-eluting stent market yesterday, by moving to acquire compatriot company Conor Medsystems for US$1.4 billion. |
Implications | Following the closure of the deal, which is expected in the first quarter 2007, Conor will become a part of J&J’s Cordis franchise. The addition of Conor to Cordis will significantly boost the latter's long-term potential in the interventional cardiology field. |
Outlook | The acquisition of Conor brings some extremely exciting technology to J&J’s drug-eluting stent franchise, which will make the company much more competitive as the sector becomes increasingly congested towards the end of the decade. |
J&J to Fold Conor into Cordis
In a move that will significantly affect the future competitive landscape of the drug-eluting stent market, U.S. healthcare conglomerate Johnson & Johnson (J&J) has confirmed that it has agreed to acquire Conor Medsystems in an all-cash transaction, for around US$1.4 billion. Under the terms of the agreement, Conor’s stockholders will receive US$33.50 for each outstanding Conor share. This represents a premium of around 22% over the price of the company’s shares on Nasdaq late yesterday, according to the Wall Street Journal. Upon the closure of the deal, which has been approved by both companies’ boards of directors but still requires the clearance of regulators and Conor’s stockholders, Conor will operate as a part of J&J’s subsidiary Cordis. The deal is expected to close in the first quarter of 2007.
Confirming Its Commitment to Drug-Eluting Stents.
After J&J missed out to Boston Scientific (U.S.) in its bid to acquire cardiac device specialist Guidant, and following a quarter during which the drug-eluting stent market has been rocked by safety issues, there appeared to be some doubt creeping in over the company’s commitment to this particular area. However, J&J has strongly confirmed through this move that it intends to retain its position as one of the leaders in this market. This comes despite the fact that the lucrative U.S. drug-eluting stent market, which currently is a duopoly between J&J and Boston Scientific, is set to become much more congested in the short-to-medium term, with new entrants from Medtronic (Endeavor) and Abbott (Xience) anticipated in mid-2007 and the first half of 2008 respectively.
Specifically, the acquisition of Conor brings a new and exciting technology platform to J&J’s stent franchise, in the form of Conor’s CoStar system. This device, which provides for drug elution from a stent with a fully bioabsorbable polymer, employs a unique reservoir drug-delivery technology. The company stated that these reservoirs enable site-specific drug delivery, as well as the potential for the delivery of multiple therapeutic agents. Nicholas Valeriani, J&J’s worldwide chairman, cardiovascular devices and diagnostics, added that this technology positions J&J "to lead the development of the next-generation technologies aimed at advancing the standard of care in the treatment of coronary artery disease".
Outlook and Implications
This very reasonably priced deal represents a significant positive for J&J, and will bring a valuable addition to its Cordis franchise. Not only does it give the company access to a medium-term U.S. product launch, but it also allows J&J to lay claim to the only true next-generation drug-eluting stent that is on the global market. Conor’s CoStar paclitaxel-eluting cobal chromium stent is currently sold outside the United States, and enrolment in a U.S. trial has now been completed. It is widely anticipated, on the basis of the strong safety profile that CoStar has so far gained, that it will be launched in the United States during 2008.
Therefore, beyond the technology that the acquisition of Conor will bring to J&J, the deal will also generate a number of extremely important competitive benefits in the relatively near term. Upon the U.S. launch of the CoStar stent, it's addition to J&J’s Cypher sirolimus-eluting stent will allow the company to offer physicians a stent portfolio that uses two different drug platforms (paclitaxel and sirolimus). This will allow J&J to compete on a level footing with Boston Scientific, its arch rival in the U.S. stent market; by 2008, that company is also expected to be able to offer two separate drug-platforms, through its current market leader, the Taxus paclitaxel-eluting stent, and its future entrant, the Promus everolimus-eluting stent.
However, perhaps the deal's greatest benefit for J&J will come if it can position CoStar as a truly innovative advance in the drug-coated stent market. The segment has been hit significantly by recent fears that drug-eluting stents may lead to a higher incidence of blood clots over time (late-stent thrombosis) than their bare-metal predecessors. One possible cause of this small but significant additional risk is the inflammatory response that body elicits to the polymers surrounding drug-eluting stents. With CoStar’s strong safety profile, and its use of a fully bio-erodable polymer, the device could be insulated from the detrimental impact that late-stent thrombosis has on the drug-eluting stent market; it therefore has the potential to give J&J a significant commercial advantage over its competitors.
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