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June 3, 2005 (11:45a) - EU Status
According to published reports, the EU has
received at least five third-parties have filed antitrust complaints in the
review of this transaction. The complaints apparently all center on the stent
overlap, which is a fully known, and fully resolvable issue -- and one which
should not ultimately be deal-threatening. The complaints are considered by
this publication to be routine for a merger of this nature, and very likely
prompted by competitors within EU jurisdictions, rather than by end users
(physicians).
The EU is expected to conduct its review in a coordinated
effort with the DOJ, and approve the transaction in September, 2005.
June 3, 2005 (11:25a) - Status Report
The defective defibrillator issue now appears to
be gaining some significance where this transaction is concerned, as JNJ now
acknowledges that it is working with GDT to "better understand and
evaluate information" with respect to this issue. Presumably, the
companies are now focusing on the inevitable patient lawsuits that are
surfacing and will spend the next several days assessing the potential
settlement damages.
At this point, there is simply no way to determine if a
major class-action lawsuit against GDT will alter JNJ's motivation for the
deal. This publication continues to believe that the merits of the deal --
including the defibrillator aspect -- remain fully intact, despite the current
situation. However, this could change very quickly if it is revealed that GDT
purposely withheld information to the public and/or FDA regarding the
difibrillators in question. Since this seems extremely unlikely given the facts
available, the chances of JNJ backing out of the deal remain small.
The FDA is considered a relatively minor factor at this
point, as GDT apparently disclosed the possible defects and, more importantly,
the regulator has essentially no power to penalize GDT for products that
obtained FDA approval. The worst the FDA can do at this point is issue an
information-only press release, which will most likely just repeat the facts
that are already known about the difibrillators.
May 27, 2005 (10:05a) - Additional
Analysis
The initial assessment of the GDT malfunctioning
defibrillator news remains completely unchanged: this is simply a non-issue for
the transaction. The revelation that GDT did in fact notify the FDA of the
potential malfunction, combined with the very low rate of actual incidents --
26 of 37,000, or .07% -- simply can not be considered by JNJ a valid reason for
reconsidering the acquisition.
Thus, it is fully believed that JNJ's statement of
confidence is sincere and the company fully intents to continue with the merger
even if the FDA finds GDT negligent in its reporting practices. The greater
issue continues to be the drug-eluting stent overlap which, as noted in several
previous updates, should be resolved without much difficulty. As the
defibrillator incident should have absolutely no impact on the FTC review
involving stents, HSR clearance and deal completion remains expected before the
end of August, 2005.
May 24, 2005 (3:30p) - JNJ Comment on GDT
Defibrillator Failures
In response to news that GDT withheld
information on defective fibrilators, JNJ has issued the following
statement:
"Johnson & Johnson continues to be
confident in its decision to acquire Guidant Corporation and anticipates a
closing of the transaction in the third quarter of 2005."
As noted on December 16, GDT's
defibrillators are a key component of this transaction since JNJ currently has
no presence in that product market. However, it does not appear at this time
that the difibrillators in question represent a major portion of GDT's products
in the segment and GDT is now indicating that it did in fact notify the FDA of
the problems. The FDA is expected to confirm or deny this claim by GDT, but it
is extremely unlikely that GDT would fabricate this sort of information.
Thus, this significant rationale for the transaction does
not appear to be a major issue at the moment. This publication continues
to anticipate DOJ approval before the end of August 2005, at which time the
transaction will be officially completed.
May 18, 2005 (12:00p) - Additional
Analysis
There have been no recent developments in the
FTC review in terms of progress, or lack thereof, since the second request was
issued in February. However, this publication remains thoroughly convinced that
HSR approval is a virtual certainty, and will be obtained before the end of the
summer. It is believed that the FTC is currently in the process of determining
if and when GDT's "drug-eluting stents" will be on the market and
what impact they will have on Boston Scientific's current market share lead. It
is fairly safe to assume Boston Scientific is involved in the process and not
in any way helping to expedite the FTC review.
It also remains the opinion of this publication that
unconditional FTC consent is possible, if not probable, for this deal, which
would allow the review process to be completed relatively quickly --
July/August time frame. The presence of Boston Scientific, and soon Medtronic,
is the basis for this opinion, and there has been very little evidence to
suggest otherwise to this point.
Some additional reports have been discovered which tend to
support the current projections. First is this 1/05 MedTech report entitled
"Stents Key to Corporate Merger". Note that Boston
Scientific is cited as having approximately 65% of the drug-eluting stent
market share in this report:
"The partnership was born out of troubles
each company has had with its own stent technology. Stents were developed to
cut down on restenosis, the re-clogging of arteries after heart surgery. The
original 'bare metal' stents dramatically reduced restenosis rates.
"Guidant’s bare metal stent, Vision, was the
market leader. But in 2003, Johnson and Johnson’s Cypher, the first
drug-coated stent, was approved by the Food and Drug Administration.
Drug-coated (or 'drug-eluting') stents lower restenosis rates even further,
into the single digits. Since then, sales of Vision have lagged, and Guidant
has had trouble developing a drug-coated stent of its own.
"While physicians like Cypher’s drug, they still
prefer Guidant’s stent and delivery system. Guidant’s catheters are
considered to be more flexible, and the edges of its stent cause less damage to
the artery.
"Meanwhile, a second drug-eluting stent was approved
last spring, Boston Scientific’s Taxus. Taxus quickly ate into
Cypher’s market share, partly because of Cypher’s inferior delivery
system. Now, about 65 percent of the drug-eluting stents sold worldwide are
produced by Boston Scientific.
"The acquisition deal will give the two companies
greater access to each other’s technologies and help them compete with
Boston Scientific – and, eventually, Medtronic, which will probably come
out with a drug-eluting stent of its own.
"(An analyst) said some research projects will be
dropped as the two companies try to achieve merger'synergies.' But he does not
think regulators will be concerned. Guidant isn’t even in the market for
drug eluting stents, so it’s hard to argue that competition would be
diminished, he said."
Also is this
Duke University MBA program document, which raises the
possibility of divestitures as a "worst case scenario":
"While management from both sides are
confident that FTC and European Union issues will not be material and believe
FTC issues appear manageable thanks to expanding competition in drug coated
stents over the next 3 years, overlap of the Cordis and Guidant stent
businesses will likely draw FTC scrutiny. J&J is the #2 interventional
cardiology delivery system company and GDT is #3. While Guidant?s franchise has
fallen dramatically from its previous perch of #1 for over 3 years running, it
is unlikely the FTC would only base its decision on the current market
dynamics. In 2003, J&J and GDT held over 80% of the US stent market. In a
worst case scenario, in which J&J is forced to divest a material portion of
either stent franchise, the transaction could be jeopardized.
"The remaining risk to completion of the deal appears
to be final FTC and shareholder approval. These risks are both relatively small
and manageable through escape strategies cited in J&J's 8K."
In short, no news is good news for this particular deal. If
there were serious issues developing in the HSR review, they would have
probably been leaked at this stage, but this obviously has not occurred. It
must therefore be assumed that the FTC is closely examining the current and
future stent markets to make sure surgeons will still have satisfactory options
after GDT's stents are available under JNJ's name. It seems reasonable to
assume that a favorable conclusion will be reached within the next three
months, if not sooner.
April 27, 2005 (11:55a) - GDT Shareholder
Approval
GDT shareholders have approved the
merger.
The company does not include a closing projection in its
press release.
Based on the pending EU and FTC reviews, the close is
currently expected in late-August, 2005.
April 25, 2005 (8:50a) - EU Review
Extended
As expected, the EU extended its review of this
transaction on Friday (4/22). The EU press release is available by following
this link. The release notes that the EU is working with the
FTC in its review, and that it has 90 working days to issue a decision. This
would put the next deadline on or about August 29, 2005. (Note that the
EU often takes lengthy holiday periods during this time of year, so the review
period could easily extend beyond August 29.)
April 20, 2005 (8:20a) - EU Status
JNJ has apparently stated that it currently
anticipates a review extension from the EU next week. Once again, this is an
expected event and is not considered a negative development for the transaction
in general.
The EU is fully expected to coordinate its review with the
DOJ, which is now entering the fourth month of its review of the deal. The
progress made by the DOJ will certainly help the EU in obtaining relevant
information and reaching a decision within the four-month extended review
period.
The EU approval is expected, along with HSR clearance, in
July/August of this year.
April 15, 2005 (11:45a) - Status Report /
Comment
The EU deadline is next Friday (4/22), and a
review extension continues to be expected.
At this point, the primary issue in this deal is no mystery
-- drug-eluting stents. Over approximately the last two months, it has become
somewhat clearer that the stent issue is significant, but by no means deal
threatening in nature. In fact, there now seems to be more awareness, among
industry sources and non-industry analysts, that the drug-eluting stent market
is in its infancy, and therefore will grow with new entrants and technologies.
The fact that GDT's products are still awaiting FDA (see
this FDA sight for an overview of these devices) approval
verifies this concept.
The simple fact is that a combined GDT/JNJ will not be able
to dominate the stent market, in the near or distant future, regardless of
GDT's product development. While there is a small possibility that the DOJ will
take more time with this deal than actually necessary, HSR consent is
inevitable, with or without conditions. There are some analyst predictions of
divestitures being necessary to obtain DOJ approval. However, given the
information available at this time, there does not seem to be any real need for
this due to the numerous companies developing products for entrance into the
market. The technologies are not all that complex -- it's simply a matter of
going through the FDA process, which generally is not difficult for medical
devices that are already proven effective.
The companies are expected to comply with the second request
within the next two months, and HSR clearance continues to be projected in
July, or perhaps August of this year.
March 23, 2005 (11:40a) - EU Review
Details
The EU has set a provisional deadline for its
review of this transacton of April 22, 2005.
The EU will very likely issue an extension in this case, and
coordinate its reiview with the FTC in the U.S.
Both the EU and FTC approvals continue to be anticipated by
mid-July, 2005.
March 23, 2005 (11:00a) - Definitive Proxy
Statement Filed
Shareholder Meeting Details
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GDT
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JNJ |
| SH Date |
April 27, 2005
(11am EST) |
n/a |
| Record Date |
March 21,
2005 |
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| Proxy Mailed |
March 25,
2005 |
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Termination Date
February 28, 2006
Regulatory Matters
HSR
Johnson & Johnson and Guidant filed Notification and Report Forms with the
Antitrust Division of the Department of Justice and the Federal Trade
Commission on January 18 and 19, 2005, respectively.
EU
Johnson & Johnson formally notified the European Commission of the merger
on March 15, 2005. Pursuant to European Community regulations, the European
Commission has 25 business days from the day following the date of
notification, which period may be extended to 35 business days after the date
of notification under certain circumstances and is also extended by Commission
holidays, in which to consider whether the merger would significantly impede
effective competition in the common market (as defined by European Community
regulations) or a substantial part of it, in particular as a result of the
creation or strengthening of a dominant position. By the end of that period,
the European Commission must issue a decision either clearing the merger, which
may be conditional upon satisfaction of the parties’ undertakings, or open
an in-depth “second stage” investigation. A second stage
investigation may last a maximum of a further 125 business days.
Other
In addition to the regulatory approvals described above, the consent of other
governmental agencies will be required to be obtained prior to the effective
time of the merger. Johnson & Johnson and Guidant are currently in the
process of reviewing whether other filings or approvals may be required or
advisable in these other jurisdictions.
February 22, 2005 (8:00a) - HSR Second Request
Issued / Comment
As expected, the FTC has issued a second request
under HSR for this transaction.
As noted on December 16, the
issue of concern here is coronary stents, or specifically 'drug-eluting' stents
in which GDT is currently seeking FDA approval for a line of products which
would compete directly the JNJ's products.
The FTC review in this case will be somewhat rare, in that
it presents both and 'education' opportunity and a potential antitrust issue at
the some time. The FTC, in attempting to understand the current market dynamics
(which includes ongoing patent litigation with Medtronic), will also have to
examine the potential impact of GDT's stents if and when they are cleared by
the FDA.
Currently, this publication is confident that HSR approval
will be obtained without a major delay, and very likely without any
significant conditions. This is based primarily on the perception the Boston
Scientific provides adequate competition in the drug-eluting stent market, and
the fact that GDT's products can easily be taken out of the FDA approval
process if the companies perceive FTC concern with the potential
overlap.
The projected second request review period is four to five
months, which assumes FTC approval in approximately mid-July, 2005. The
companies have clearly indicated that they intend to 'respond promptly' to the
anticipated second request, indicating that they are already in the process of
gathering and providing information to the regulator.
February 17, 2005 (8:40a) - Preliminary Proxy
Statement Filed
Shareholder Meeting Details
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GDT
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JNJ |
| SH Date |
TBA |
n/a |
| Record Date |
TBA |
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| Proxy Mailed |
TBA |
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Termination Date
February 28, 2006
Regulatory Matters
HSR
Johnson & Johnson and Guidant filed Notification and Report Forms with the
Antitrust Division of the Department of Justice and the Federal Trade
Commission on January 18 and 19, 2005, respectively.
EU
Johnson & Johnson and Guidant intend to seek approval of the European
Commission for the merger.
Other
In addition to the regulatory approvals described above, the consent of other
governmental agencies will be required to be obtained prior to the effective
time of the merger. Johnson & Johnson and Guidant are currently in the
process of reviewing whether other filings or approvals may be required or
advisable in these other jurisdictions.
January 20, 2005 (9:35a) - HSR / EU Review
Details
According to GDT, the HSR notification for this
transaction was filed yesterday, January 19. The waiting period expiration date
is therefore February 18, 2005. As noted on December 16 (and supported by subsequent updates), a
second request is fully expected in this case, followed by a review of
approximately four to six months. Divestitures are possible, not probable, in
the "Drug-Eluting" stent product segment, where GDT's products are
currently in the process of obtaining FDA approval.
The EU notification has not been submitted as of this
update. This filing is expected to be made within the next several days and, as
with the FTC, an extended review is anticipated.
December 20, 2004 (9:50a) - "(JNJ) deal
could bring review"
Abstracted from an
Arizona
Republic article:
"Health care products giant Johnson &
Johnson's $25.4 billion acquisition of Guidant Corp., formally announced
Thursday, could face a tough review from regulators because of their
competition in the coronary stent market, analysts say.
"Executives of Johnson & Johnson and
Indianapolis-based Guidant, however, said they did not expect federal
regulators to raise any objections that would scuttle the deal.
"(The) pacemaker-defibrillator business was clearly
desired by Johnson & Johnson executives, because it would give the company
a strong position in the field.
"The companies' stent operations, however, could get
close scrutiny from the Federal Trade Commission.
"Johnson & Johnson subsidiary Cordis Corp. and
Boston Scientific Corp. are the only two companies with drug-coated stents on
the market. Guidant has been a market leader in bare metal stents, but its
project to introduce its own drug-coated model has run into delays.
"FTC regulators will consider how the merger would
affect the drug-coated stent market, as Guidant's stent could be approved by
the Food and Drug Administration by early 2006, said Robert Doyle, a Washington
antitrust attorney who is a former FTC administrator.
"'You've got a Guidant product, for all intents and
purposes, that is already in the market in terms of providing some competitive
constraint over the Johnson and Johnson product,' Doyle said. 'The FTC will
look at this, and the FTC is always interested in knowing when FDA pipeline
products will be provided to the marketplace.'
"Doyle said he expected the FTC's review would take at
least six months."
December 16, 2004 (9:00a) - Additional Stent
Market Information
From this
October 2004 Grassroots Market Monitor report:
"Following its market introduction earlier
this year, Taxus (Boston Scientific) has taken significant share from Cypher
(Johnson & Johnson’s Cordis Corp.), according to interviews with
cardiac cath lab managers. On average, Taxus is used in 66% of stent
patients, while Cypher stents are used in 17% and bare metal stents in 17%.
Many doctors prefer the Taxus because it is more deliverable than the Cypher.
In addition, many sources cited availability issues with the Cypher, and some
reported three-month back...A year from now, sources expect to use Cypher
stents in an average 23% of patients, while Taxus is likely to be used in an
average 66%, and bare metal stents are expected to be used in an average
11%.
"While overall pricing for drug-eluting stents varies
by hospital contract, most sources reported that Cypher and Taxus are priced
competitively; with some citing a $100 to $200 difference between the two. In
the next year, prices on drug-eluting stents are expected to decrease due to
competition and higher utilization rates vs. bare metal stents. Sources agreed
that, as additional vendors come onto the market, prices will decrease further.
One explained, 'Prices are going to go lower as more companies enter the
market. Medtronic will have a drug-eluting stent on the market by the end of
next year, and Guidant (will have one) in 2006. Once a third vendor comes on
the market, everyone will drop their prices. They will eventually drop to
$1,000.'"
December 16, 2004 (8:20a) - Initial
Analysis
This deal will receive a second request under
HSR, and very likely an extended EU review, due to the angioplasty/coronary
stent overlap. This appears to be the sole issue of concern in the combination,
as JNJ currently has no presence in the defibrillator segment in which GDT is a
major player -- second only to Medtronic. Thus, the length of the regulatory
reviews will be determined by the FTC/EU's knowledge of the current stent
markets and the possibility that divestitures will be required.
It is unclear at this point if divestitures are likely, but
it seems that the presence of Boston Scientific, Abbot Labs, and Medtronic in
the stent segment could alleviate competition concerns. Furthermore, it is
apparent that GDT's "Drug-Eluting" stents are far from receiving FDA
approval in the states, and could very well be considered irrelevant by JNJ
regardless of regulatory concerns.
In short, this looks like an effort by JNJ to enter the
rapidly growing ICD (implantable cardioverter defibrillator), rather than
improving its position in the angioplasty/stents market. This being the case,
JNJ should be able to address the overlap issues very efficiently (note that
JNJ has routinely avoided second requests in major
deals) and obtain the HSR and EU approvals within six months.
Additional research and analysis will be posted
shortly.
December 16, 2004 (7:50a) - Links of
Interest
Drug-Eluting Stents - A brief history of this product which
both companies offer.
"Young at Heart" - 2001 market analysis and overview
of coronary stents.
Guidant Stent Marketing Study - 2003 MIT PowerPoint
presentation on Guidant's stent products and current market conditions.
"Hot Fields, Hot Companies" - Jan 2004 market
analysis of cardiology (and orthopedic) companies.
December 16, 2004 (7:35a) - Timelines - Recent
Medical Instruments and JNJ Transactions
Medical Instruments
JNJ Transactions
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