Boston Scientific May Be Too Rich for Johnson & Johnson

Market value of medical device maker up nearly 30% since December

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Jun 28, 2019
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If Johnson & Johnson (JNJ, Financial) is thinking about making a run at Boston Scientific Corp. (BSX, Financial), as was rumored late last year, the New Jersey-based health care giant is going to have to dig deeper into its pockets. Boston Scientific’s market value has soared nearly 30% since last December, to nearly $60 billion.

Shareholders may want an even bigger premium after Boston Scientific painted a rosy picture for its medical device business at a recent investor day. Even though the company’s first-quarter results fell short of analysts' expectations, management said it anticipates solid revenue and earnings growth through 2022.

Fueling the company’s optimism is the planned introduction of about 75 new products in the next three years, according to a recent article on BioSpace. This research and development investment comes on top of 10 strategic acquisitions Boston Scientific made last year. The goal of this activity is to boost its leading role in high value markets that are expected to top $20 billion by 2022.

Boston Scientific will soon close on its $4.2 billion acquisition of British oncology device maker BTG Corp. According to MedTechDive, Jefferies analysts believe BTG's interventional medicine business could add more than $200 million to Boston Scientific's revenue in 2019 and over $600 million by 2022.

The company also recently completed its purchase of privately owned Vertiflex. The Carlsbad, California-based company makes a minimally invasive vertebrae spacer for treating lumbar stenosis. Boston Scientific will make a $465 million upfront payment to Vertiflex and commit to additional monies when the company hits specific commercial targets.

Already, Vertiflex expects to book a minimum of $60 million in sales this year for its Superion Indirect Decompression System. The company says as many as 6 million people in the U.S. may be suffering from the condition, which can pinch nearby nerves and cause lower back and leg pain and numbness as well as inhibit walking.

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It’s little wonder that Johnson and Johnson might have its eye on Boston Scientific. The company would like to expand its medical devices business and make the product line a bigger part of its overall product mix. The reason is clear: the opportunity is huge.

The global medical technology market is forecasted to reach nealy $410 billion by 2023 with a compound annual growth rate of 4.5%, according to ResearchandMarkets. As expected, the aging population and increases in chronic and lifestyle diseases will drive growth.

Despite the optimistic outlook for Boston Scientific, perhaps the stock’s upside is limited. Even though 18 of 24 analysts rank it a strong buy or a buy, the company is pushing the upper limits of its average price target of just more than $44.

A year ago, Boston Scientific shares shot up when it was rumored that Stryker (SYK, Financial) planned to make a bid to acquire the company, but that report proved baseless. Given Boston Scientific’s huge market cap, the company may just be too big for Johnson & Johnson to swallow.

But Johnson & Johnson isn’t sitting on its hands. The company recently closed its a $3.4 billion acquisition of surgical robotics developer Auris Health. The terms of the deal call for Auris to earn $2.35 billion if it hits predetermined milestones, according to an article in Verdict Medical Devices.

Johnson & Johnson sees Auris Health’s Monarch Platform extending its digital offerings across a variety of surgical specialties. The system is currently used in lung diagnostic and therapeutic procedures.

Disclosure: The author holds a position in Johnson & Johnson.

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