Johnson & Johnson (NYSE:JNJ) announced today that it agreed to acquire Abiomed (Nasdaq:ABMD) for approximately $16.6 billion.
Under the agreement, Johnson & Johnson intends to acquire through tender offer all outstanding Abiomed shares. That amounts to an upfront payment of $380 per share in cash. Johnson & Johson plans to complete the transaction before the end of the first quarter of 2023.
Shares of ABMD skyrocketed up more than 50% at $378.30 apiece in morning trading today. The company also reported its third-quarter earnings this morning. Meanwhile, JNJ shares dipped slightly at $172.82 apiece. MassDevice‘s MedTech 100 Index, which includes stocks of the world’s largest medical device companies, was up more than 2%.
Abiomed shareholders will receive a non-tradeable contingent value right (CVR). This entitles the holder to receive up to $35 per share in cash upon the achievement of certain commercial and clinical milestones. Both companies’ boards of directors approved the transaction.
Why Johnson & Johnson is acquiring Abiomed
Johnson & Johnson said it broadens its Johnson & Johnson MedTech business’ position as a cardiovascular innovator. (Celine Martin, Johnson & Johnson group chair of its cardiovascular & specialty solutions (CSS) group, discussed how the company seeks to lead the way in ablation during our DeviceTalks West event last month.)
Abiomed develops the Impella heart pump portfolio for treating coronary artery disease and heart failure. The company said in a news release that Abiomed presents “significant expansion opportunities” in indication, geography and product.
“The addition of Abiomed is an important step in the execution of our strategic priorities and our vision for the new Johnson & Johnson focused on Pharmaceutical and MedTech,” said Joaquin Duato, CEO of Johnson & Johnson. “We have committed to enhancing our position in MedTech by entering high-growth segments. The addition of Abiomed provides a strategic platform to advance breakthrough treatments in cardiovascular disease and helps more patients around the world while driving value for our shareholders.”
Johnson & Johnson MedTech makes its big M&A move
Rumors earlier this year circulated that Johnson & Johnson aimed to get active on the medtech M&A front. With J&J’s consumer health business spinning off next year as a stand-alone company called Kenvue, a big medical device acquisition would help right-size the medical device part of J&J with the larger pharmaceutical business. Suggestions pitted Boston Scientific suggested as one realistic option for a big buy.
In July, Duato played down the rumored eagerness to make acquisitions. However, he emphasized that opportunities do exist on the market. Abiomed turns out to be an example.
“Down the road, we continue to see M&A as an important source of building our pipeline and also fortifying our current portfolio,” he said at the time.
More about the Abiomed acquisition
EVP and Worldwide Chair of MedTech, Ashley McEvoy added that Abiomed brings a skilled workforce and strong relationships with clinicians. It also features an innovative cardiovascular portfolio and “robust pipeline” that complement Johnson & Johnson MedTech’s portfolio. McEvoy recently joined Abiomed Chair, President and CEO Michael Minogue at AdvaMed’s The MedTech Conference to discuss trends in the industry.
“We are pleased to have reached an agreement that reflects the remarkable value Abiomed created with our revolutionary Impella heart pump platform and promising pipeline,” said Minogue. “This transaction partners us with an organization that shares our patients-first mindset and creates immediate value for our patients, customers, employees and shareholders. It will enable us to leverage Johnson & Johnson’s global scale, commercial strength and clinical expertise to accelerate our mission of making heart recovery the global standard of care.”
Johnson & Johnson said the acquisition diversifies and expands its portfolio while also benefitting patients. The companies touted their combined footprint, capabilities and expertise in the commercial and clinical sides.
Additionally, they believe the combination expands their market opportunity and accelerates near- and long-term sales and earnings growth. Johnson & Johnson expects the acquisition to be slightly dilutive to neutral to adjusted earnings per share in the first year, considering financing. It then projects it to be accretive by approximately 5¢ in 2024 and increasingly accretive thereafter.
Milestone payments
The milestones included in the acquisition include payments of $17.50 per share, payable if net sales for Abiomed products exceeds $3.7 billion during Johnson & Johnson’s fiscal second quarter of 2027 through the fiscal first quarter of 2028. Or, if this threshold is not met during this period but is subsequently met during any rolling four-quarter period up to the end of fiscal 2029, the agreement includes payments of $8.75 per share.
Upon FDA premarket application approval for the use of Impella products in STEMI patients without cardiogenic shock by Jan. 1, 2028, the agreement includes payments of $7.50 per share. A Class I recommendation for the use of Impella in high-risk PCI or STEMI with or without cardiogenic shock within four years from their respective clinical endpoint publication dates (no later than Dec. 31, 2029) leads to $10 per share payments.
Johnson & Johnson plans to fund the transaction through a combination of cash on hand and short-term financing. It expects to maintain a strong balance sheet throughout.
Following the transaction, Abiomed is to operate as a standalone business within Johnson & Johnson MedTech. Minogue established a succession plan and intends to assist in the transition. The plan sees Andrew Greenfield, Abiomed’s COO and a 17-year veteran at the company, appointed as president of Abiomed. Johnson & Johnson plans for Michael Bodner, worldwide president of J&J’s Biosense Webster electrophysiology business, to lead the integration under McEvoy’s leadership.