Funny how rumors work. There were widely-spread rumors that Stryker (NYSE: SYK) and Boston Scientific (NYSE: BSX) were talking deal, with Stryker being seen as a likely buyer for BSX's neuromodulation business.
Well ... the rumors were partially right. Stryker and Boston Scientific did announce a deal, but in a real twist Stryker decided to buy BSX's neurovascular business for $1.4 billion in cash and potentially another $100 million in earn-outs. Unlike the neuromodulation business, which largely involves pacemaker-like devices that deliver controlled electrical pulses to nerves or tissue to control conditions like pain, the neurovascular business involves stroke treatment and prevention, with a suite of products including wires, catheters, balloons, and embolic coils.
It's a curious decision. Neuromodulation is sometimes seen as a logical fit with orthopedics since so much of the demand for the devices is in pain relief following unsuccessful back surgery. Moreover, BSX's under-investment in this business and flagging competitiveness relative to Medtronic (NYSE: MDT) and St. Jude (NYSE: STJ) had many looking at it as a solid fix'er-up/turnaround opportunity.
In the neurovascular business, Stryker is buying a unit that should produce in excess of $300 million in revenue and has been a market leader. Unfortunately, BSX has been losing ground to competition from ev3 (now part of Covidien (NYSE: COV)) and Micrus (now part of Johnson & Johnson (NYSE: JNJ)). Part of the problem here is a lack of innovation and simply falling behind in terms of product performance. Although there has been some optimism about new devices that will roll out over the next couple of years, the general thought has been that Boston Scientific was dangerously close to becoming a "has been" - at least in terms of leading-edge devices.
I have to give BSX credit, though, and that is not something I do often - they got a fine price for this unit. While there is absolutely every chance that this can be a lucrative unit for Stryker, it will need some work and Stryker will be competing against large and experienced rivals. So, to get 4.5x sales (assuming the full earn-out) for the unit, BSX did well. By comparison, Micrus got a multiple of about 5.2x, while ev3 sold out for a similar amount.
To an extent, Stryker had to do this deal - they need to inject more growth into the business, and neither orthopedics, surgical instruments, or hospital equipment are likely to do it. What's more, there are not too many obvious alternatives for the company - wound care is a tough business, and entering robotics (presumably by buying Intuitive Surgical (Nasdaq: ISRG)) would have been enormously expensive.
For BSX, the cash will be welcome and can either go towards paying down debt or identifying some small early-stage tech ideas for acquisition.
All in all, it's amusing to see how the conventional rumors were wrong on this deal. It's also an interesting sign of what lengths Stryker needs to go to to get growth these days; while the stock looks cheap maybe I need to reconsider some of my growth assumptions.
Disclosure - I own shares of JNJ
Showing posts with label Micrus Endovascular. Show all posts
Showing posts with label Micrus Endovascular. Show all posts
Thursday, October 28, 2010
Wednesday, August 18, 2010
Interesting Rumors Around Boston Scientific
It sounds like there are some interesting rumors bubbling up around Boston Scientific (NYSE: BSX) these days. With the stock in the toilet and little momentum in the business (but plenty of debt!) I am sure management is fielding quite a few "do something!" calls from our lovely and ever-so-patient friends in Hedge Fund-Land.
The first rumor is that BSX is about to sell its neurostim business to Stryker (NYSE: SYK). I saw this rumor in Bloomberg this morning, and talked with some friends in the industry. It all seems to make a fair bit of sense to us.
First, BSX has bigger fish to fry in its stent and CRM businesses, and has not really been doing all that great against Medtronic (NYSE: MDT) or St. Jude (NYSE: STJ) in that (neurostim) market. Like so many other niche businesses at BSX, this one too has suffered from neglect and under-investment.
For Stryker, this would offer another business platform and access to a market that has decent underlying growth. Now, I think the "synergy" that Bloomberg mentioned between Stryker's spine business and neurostim is a little silly (yes, back pain is a big indication for neurostim, but they do not go together quite so tightly), but the deal still makes sense. I happen to think that Stryker wants to add some more businesses to its portfolio, and most of the exciting ideas like Intuitive Surgical (Nasdaq: ISRG) or Nuvasive (Nasdaq: NUVA) are rather pricey.In buying BSX's neurostim business, Stryker could be getting an underappreciated fixer-upper that delivers good growth with just a little care and reinvestment.
Beyond the neurostim business, BSX is also apparently looking to jettison the neurovascular business. BSX has a very good franchise in treatments for cerebral aneurysms like embolization coils and they have been a major player for a number of years. This is interesting timing given that Johnson & Johnson (NYSE: JNJ) recently announced a deal for Micrus Endovascular (Nasdaq: MEND) - one of BSX's up-and-coming rivals.
What is BSX telegraphing here? Is the company saying, in effect, that only BSX's superior marketing abilities and long-term customer relationships were keeping them afloat and that MEND's products in the hands of JNJ's salesforce is too overwhelming to fight?
That is probably hyperbole, but it is an interesting development nonetheless. So who might buy this business? I would think Medtronic or St. Jude might give it a courtesy sniff, but I would expect the likes of Cook or Bard (NYSE: BCR) to be the more logical candidates right now. But who knows? Covidien (NYSE: COV) is out there buying every other damn thing, so maybe they will take a look too.
All in all, these are interesting developments at BSX. Does this mean the company is really circling the wagons and choosing to focus on major product categories like stents and CRM? Or is this just a process of cleaning out a few under-performing (but still marketable) businesses where a recovery is unlikely?
I am not sure yet, but I would keep a close eye too on whether they jettison the IVUS business. A sales of that business to a motivated buyer (like, say, GE (NYSE: GE) or Siemens (NYSE: SI)) would be bad news for Volcano (Nasdaq: VOLC). Volcano has great technology (the best, actually) and products, but they have clearly also benefited from BSX's unwillingness to support and develop the business any further. A sale to a new rival, then, would be a clear threat.
At the end of it all, though, I still would not be a buyer of BSX. But then, I am sort of accustomed to not liking BSX, so I do not pretend to be unbiased.
Disclosure - I own shares of JNJ
The first rumor is that BSX is about to sell its neurostim business to Stryker (NYSE: SYK). I saw this rumor in Bloomberg this morning, and talked with some friends in the industry. It all seems to make a fair bit of sense to us.
First, BSX has bigger fish to fry in its stent and CRM businesses, and has not really been doing all that great against Medtronic (NYSE: MDT) or St. Jude (NYSE: STJ) in that (neurostim) market. Like so many other niche businesses at BSX, this one too has suffered from neglect and under-investment.
For Stryker, this would offer another business platform and access to a market that has decent underlying growth. Now, I think the "synergy" that Bloomberg mentioned between Stryker's spine business and neurostim is a little silly (yes, back pain is a big indication for neurostim, but they do not go together quite so tightly), but the deal still makes sense. I happen to think that Stryker wants to add some more businesses to its portfolio, and most of the exciting ideas like Intuitive Surgical (Nasdaq: ISRG) or Nuvasive (Nasdaq: NUVA) are rather pricey.In buying BSX's neurostim business, Stryker could be getting an underappreciated fixer-upper that delivers good growth with just a little care and reinvestment.
Beyond the neurostim business, BSX is also apparently looking to jettison the neurovascular business. BSX has a very good franchise in treatments for cerebral aneurysms like embolization coils and they have been a major player for a number of years. This is interesting timing given that Johnson & Johnson (NYSE: JNJ) recently announced a deal for Micrus Endovascular (Nasdaq: MEND) - one of BSX's up-and-coming rivals.
What is BSX telegraphing here? Is the company saying, in effect, that only BSX's superior marketing abilities and long-term customer relationships were keeping them afloat and that MEND's products in the hands of JNJ's salesforce is too overwhelming to fight?
That is probably hyperbole, but it is an interesting development nonetheless. So who might buy this business? I would think Medtronic or St. Jude might give it a courtesy sniff, but I would expect the likes of Cook or Bard (NYSE: BCR) to be the more logical candidates right now. But who knows? Covidien (NYSE: COV) is out there buying every other damn thing, so maybe they will take a look too.
All in all, these are interesting developments at BSX. Does this mean the company is really circling the wagons and choosing to focus on major product categories like stents and CRM? Or is this just a process of cleaning out a few under-performing (but still marketable) businesses where a recovery is unlikely?
I am not sure yet, but I would keep a close eye too on whether they jettison the IVUS business. A sales of that business to a motivated buyer (like, say, GE (NYSE: GE) or Siemens (NYSE: SI)) would be bad news for Volcano (Nasdaq: VOLC). Volcano has great technology (the best, actually) and products, but they have clearly also benefited from BSX's unwillingness to support and develop the business any further. A sale to a new rival, then, would be a clear threat.
At the end of it all, though, I still would not be a buyer of BSX. But then, I am sort of accustomed to not liking BSX, so I do not pretend to be unbiased.
Disclosure - I own shares of JNJ
Tuesday, July 20, 2010
Johnson & Johnson - The Hits Keep On Comin'
Day by day (or rather, quarter by quarter) it is getting harder to hang in there with Johnson & Johnson (NYSE: JNJ). I own this one in a retirement account and I have owned it for a while now - during which time it has faithfully spun off dividends, but done little else for me. At some point, I am going to have to consider swapping this out for Abbott Labs (NYSE: ABT) or Roche (Nasdaq: RHHBY) if things do not turn around.
This quarter was textbook mediocre.
Sales growth was sub-1% and the $15.3B total was almost $400M below the average guess (though that's pretty close given the scale). Pharma was okay - up 1% to $5.6B. Consumer was not - down almost 7% in constant currency. Devices was in the middle - up 4% (I say "in the middle" because I expected more of devices and less of pharma). What bothers me about devices, though, is that nothing looked very good - Ethicon and DePuy did not look good, and clinical diagnostics was pretty iffy too.
Going down the line, earnings quality was not so hot - gross margins were down and the company needed a lower tax rate to pick up some incremental earnings power. All in all, EPS of 1.21 was in-line.
Along with these earnings, the company also cut guidance by about $0.15 due to for-ex and the recalls in the Consumer business. Okay, a few pennies here or there in the for-ex pot does not bother me, but I am frankly surprised at the magnitude of the revision due to the recall. I guess that the company is going to have to write down a lot more inventory than I thought and the cost of getting those plants back in order is likewise steeper than I surmised. Of course, some of this could also be due to anticipated revenue/margins decline from the perception hit that the business is taking.
All in all, this is another frustrating and lackluster report.
What makes matters worse is that there is no quick fix. JNJ is so large that it is like moving a supertanker. So even though I like the acquisition of Micrus Endovascular (Nasdaq: MEND), that is not going to single-handedly reverse the fortunes of the device segment. Likewise, unless the company can come up with a true new blockbuster drug, the Pharma business is not going to change quickly.
All that said, I would like to see the company get more active. They should be signing early-stage partnerships and in-licensing biotech compounds (I would especially like to see them get involved in siRNA drugs). They should also be aggressively pursuing early stage medical technology companies and bringing prospectively high-growth technologies in house (this is the model that Medtronic has used quite successfully). None of that would help today, or even next year, but it would make investors feel a bit better about the future.
I hold JNJ largely because it seemed like valuation was baking in pretty much pathetically flat performance, and I thought the company would be able to surpass that. Perhaps I was wrong - maybe 1% growth is all that this company can do under present management. I do not really believe that (yet), but I have to at least incorporate that into my scenario analysis.
I just do not know. I am going to continue to hold JNJ for the time being, but I have to say that I am looking more and more at supplementing or replacing it with names like Abbott, Roche, Bard (NYSE: BCR), Becton Dickinson (NYSE: BDX) and so on. I am doing this to make money, afterall.
Disclosure - I own shares of JNJ.
This quarter was textbook mediocre.
Sales growth was sub-1% and the $15.3B total was almost $400M below the average guess (though that's pretty close given the scale). Pharma was okay - up 1% to $5.6B. Consumer was not - down almost 7% in constant currency. Devices was in the middle - up 4% (I say "in the middle" because I expected more of devices and less of pharma). What bothers me about devices, though, is that nothing looked very good - Ethicon and DePuy did not look good, and clinical diagnostics was pretty iffy too.
Going down the line, earnings quality was not so hot - gross margins were down and the company needed a lower tax rate to pick up some incremental earnings power. All in all, EPS of 1.21 was in-line.
Along with these earnings, the company also cut guidance by about $0.15 due to for-ex and the recalls in the Consumer business. Okay, a few pennies here or there in the for-ex pot does not bother me, but I am frankly surprised at the magnitude of the revision due to the recall. I guess that the company is going to have to write down a lot more inventory than I thought and the cost of getting those plants back in order is likewise steeper than I surmised. Of course, some of this could also be due to anticipated revenue/margins decline from the perception hit that the business is taking.
All in all, this is another frustrating and lackluster report.
What makes matters worse is that there is no quick fix. JNJ is so large that it is like moving a supertanker. So even though I like the acquisition of Micrus Endovascular (Nasdaq: MEND), that is not going to single-handedly reverse the fortunes of the device segment. Likewise, unless the company can come up with a true new blockbuster drug, the Pharma business is not going to change quickly.
All that said, I would like to see the company get more active. They should be signing early-stage partnerships and in-licensing biotech compounds (I would especially like to see them get involved in siRNA drugs). They should also be aggressively pursuing early stage medical technology companies and bringing prospectively high-growth technologies in house (this is the model that Medtronic has used quite successfully). None of that would help today, or even next year, but it would make investors feel a bit better about the future.
I hold JNJ largely because it seemed like valuation was baking in pretty much pathetically flat performance, and I thought the company would be able to surpass that. Perhaps I was wrong - maybe 1% growth is all that this company can do under present management. I do not really believe that (yet), but I have to at least incorporate that into my scenario analysis.
I just do not know. I am going to continue to hold JNJ for the time being, but I have to say that I am looking more and more at supplementing or replacing it with names like Abbott, Roche, Bard (NYSE: BCR), Becton Dickinson (NYSE: BDX) and so on. I am doing this to make money, afterall.
Disclosure - I own shares of JNJ.
Monday, July 12, 2010
JNJ Paying Up For Quality
It was only a week ago that I wrote about Micrus Endovascular (Nasdaq: MEND) as a hot med-tech stock that investors should take a look at and consider for a growth-oriented portfolio. Well, I hope they looked quickly, because Johnson & Johnson (NYSE: JNJ) announced this morning that it was acquiring Micrus for $23.40/share in cash.
That is a total deal value of $480 million, but a rather small premium of only about 5%. The stock has had a strong run since mid-May, though, and some of the move from $16-and-change could have been a product of rumors and whispers about a deal. Given the relatively recent deal between Covidien (NYSE: COV) and ev3 (Nasdaq: EVVV), it seems even more probable that people were connecting the dots and assuming that MEND would get a bid.
Although I am a JNJ shareholder, I have ripped the company plenty of times for its M&A strategy -- the company often pays too much and gets too little.
I really actually do like this deal, though. First, JNJ is by no means overpaying. JNJ is paying about 4.2 times trailing sales for Endus, and that is a good price. Growing small-cap med-tech companies often normally trade at 4 or 5 times trailing sales, and buyout premiums usually push that to a 6-8x range.
Second, Micrus has good technology on the market that integrates nicely with Johnson & Johnson's existing neurovascular intervention business. Not only have Micrus's products shown strong clinical results, they have actually sold well in the market and become something of a threat to rivals like Boston Scientific (NYSE: BSX). In my analysis, then, the combination of MEND's high-quality embolization coils and JNJ's existing business is a strong one.
I have to say, though, that I wonder if these deal actually goes through at this price. There are several other companies that could make a lot of hay from the Micrus assets, and the deal price is not so high that these other companies could not come in with a sweeter offer. If you are a Micrus shareholder, that is something to look forward to; if you are a JNJ shareholder, it is something to dread.
Who else could get involved? How about Medtronic (NYSE: MDT), Cook, or Bard (NYSE: BCR)? Certainly BSX could be interested as well, but I doubt that they have the balance sheet liquidity to do the deal, and I really doubt that Micrus shareholders would be thrilled about getting BSX shares instead of JNJ cash.
At the bottom line, I had modeled that MEND was worth about $25 a share. Given that MEND's management was willing to take less than that, I wonder where my model might have been a bit too optimistic. In any case, that spread between my fair value and the deal price is what a former boss of mine would describe as "close enough for jazz", so I am not going to worry about it too much. Moreover, I have also felt that JNJ needed to get more aggressive in finding new growth opportunities, so this is a deal and a price than I can live with pretty happily.
I would still recommend investors buy shares of JNJ. I also wonder if MEND shares are not worth a shot as an arbitrage play - so long as you can get the shares at a price that will still leave you with a profit after commissions, it might be worth the gamble to see if another bidder appears.
Disclosure - I own shares of JNJ.
That is a total deal value of $480 million, but a rather small premium of only about 5%. The stock has had a strong run since mid-May, though, and some of the move from $16-and-change could have been a product of rumors and whispers about a deal. Given the relatively recent deal between Covidien (NYSE: COV) and ev3 (Nasdaq: EVVV), it seems even more probable that people were connecting the dots and assuming that MEND would get a bid.
Although I am a JNJ shareholder, I have ripped the company plenty of times for its M&A strategy -- the company often pays too much and gets too little.
I really actually do like this deal, though. First, JNJ is by no means overpaying. JNJ is paying about 4.2 times trailing sales for Endus, and that is a good price. Growing small-cap med-tech companies often normally trade at 4 or 5 times trailing sales, and buyout premiums usually push that to a 6-8x range.
Second, Micrus has good technology on the market that integrates nicely with Johnson & Johnson's existing neurovascular intervention business. Not only have Micrus's products shown strong clinical results, they have actually sold well in the market and become something of a threat to rivals like Boston Scientific (NYSE: BSX). In my analysis, then, the combination of MEND's high-quality embolization coils and JNJ's existing business is a strong one.
I have to say, though, that I wonder if these deal actually goes through at this price. There are several other companies that could make a lot of hay from the Micrus assets, and the deal price is not so high that these other companies could not come in with a sweeter offer. If you are a Micrus shareholder, that is something to look forward to; if you are a JNJ shareholder, it is something to dread.
Who else could get involved? How about Medtronic (NYSE: MDT), Cook, or Bard (NYSE: BCR)? Certainly BSX could be interested as well, but I doubt that they have the balance sheet liquidity to do the deal, and I really doubt that Micrus shareholders would be thrilled about getting BSX shares instead of JNJ cash.
At the bottom line, I had modeled that MEND was worth about $25 a share. Given that MEND's management was willing to take less than that, I wonder where my model might have been a bit too optimistic. In any case, that spread between my fair value and the deal price is what a former boss of mine would describe as "close enough for jazz", so I am not going to worry about it too much. Moreover, I have also felt that JNJ needed to get more aggressive in finding new growth opportunities, so this is a deal and a price than I can live with pretty happily.
I would still recommend investors buy shares of JNJ. I also wonder if MEND shares are not worth a shot as an arbitrage play - so long as you can get the shares at a price that will still leave you with a profit after commissions, it might be worth the gamble to see if another bidder appears.
Disclosure - I own shares of JNJ.
Wednesday, July 7, 2010
Seven Hot Medical Device Ideas
I have made the case before that medical technology has something to appeal to any type of investor. If you want value, you will find it. If you want income, you will find it. Today, we talk about some of the most highly-valued "hot" stocks in the space.
Edwards Lifesciences - Not Boring Anymore
For quite a while, Edwards Lifesciences (NYSE:EW) was a sleepy company. A leader in tissue heart valves and critical care monitoring products, there was a time when it was difficult to get anybody interested in this idea.
Not anymore.
Edwards is making a concerted effort to move into higher-growth, higher-margin products. With a very interesting new approach to heart valve replacement, the minimally-invasive trans-catheter Sapien valve, the company is well on its way and could become a consistent double-digit grower. (For more, see A Checklist To Successful Medical Technology Investment.)
For the complete article, please go to:
http://stocks.investopedia.
Edwards Lifesciences - Not Boring Anymore
For quite a while, Edwards Lifesciences (NYSE:EW) was a sleepy company. A leader in tissue heart valves and critical care monitoring products, there was a time when it was difficult to get anybody interested in this idea.
Not anymore.
Edwards is making a concerted effort to move into higher-growth, higher-margin products. With a very interesting new approach to heart valve replacement, the minimally-invasive trans-catheter Sapien valve, the company is well on its way and could become a consistent double-digit grower. (For more, see A Checklist To Successful Medical Technology Investment.)
For the complete article, please go to:
http://stocks.investopedia.
Tuesday, June 1, 2010
Covidien Shuffles The Deck
One of the least-surprising take-outs I've seen was today's announcement that ev3 is getting bought out. That said, I'm not sure you could have found 10 people who would have put Covidien in the top three most likely buyers. Bard would have made sense to me, as well as Cook or even Boston Scientific or JNJ. But Covidien?
Strange times...
By the way, I do own shares of JNJ.
Medical technology companies, particularly the larger ones, tend to be quite acquisitive. So, another sign that normalcy may be returning to the economy and the market is when acquisitions start to tick up again. The good news is, this appears to be happening now. In the wake of the Medtronic (NYSE:MDT) and ATS Medical deal a little while ago, Tuesday saw the announcement of a larger deal between Covidien (NYSE:COV) and ev3 (Nasdaq:EVVV).
For the full article, please continue on to:
http://stocks.investopedia.com/stock-analysis/2010/Covidien-Shuffles-The-Deck-COV-EVVV-MDT-CSII-SPNC-BSX-MEND0601.aspx
Strange times...
By the way, I do own shares of JNJ.
Medical technology companies, particularly the larger ones, tend to be quite acquisitive. So, another sign that normalcy may be returning to the economy and the market is when acquisitions start to tick up again. The good news is, this appears to be happening now. In the wake of the Medtronic (NYSE:MDT) and ATS Medical deal a little while ago, Tuesday saw the announcement of a larger deal between Covidien (NYSE:COV) and ev3 (Nasdaq:EVVV).
For the full article, please continue on to:
http://stocks.investopedia.com/stock-analysis/2010/Covidien-Shuffles-The-Deck-COV-EVVV-MDT-CSII-SPNC-BSX-MEND0601.aspx
Subscribe to:
Posts (Atom)