Should Johnson & Johnson Be Looking for a Cougar in Devices?http://www.fool.com/investing/general/2013/09/09/should-johnson-johnson-be-looking-for-a-cougar-in.aspx Stephen D., Simpson,
September 9, 2013
Several years ago, Johnson & Johnson (NYSE: JNJ) realized it had a problem with its drug business. This wasn't a particularly poignant revelation, as the struggles of the business from around 2004 to 2010 were pretty easy to see, but the company went and did something about it. Licensing agreements with Bayer and Mitsubishi Tanabe brought in drugs like Xarelto and Invokana, while the billion-dollar acquisition of Cougar Biotechnology ultimately turned into the blockbuster prostate cancer drug Zytiga.
I mention this because other parts of J&J could use some TLC. Not only is the consumer/over-the-counter business still on a slow path to recovery from repeated product quality and recall issues, but the device business has turned into a perpetual disappointment with low organic sales growth. While the large acquisition of Synthes (announced in 2011, completed in 2012) has spiffed up the orthopedics business, I think it's worth asking whether Johnson & Johnson should think about going Cougar-hunting in the device space.
First, a word (or a hundred) against...
It's also worth noting that the device business isn't like the drug business. You just don't see multibillion-dollar "blockbuster" devices very often; even much-ballyhooed Intuitive Surgical (NASDAQ: ISRG) generates about half the revenue that Boehringer Ingelheim's Spiriva generated in 2012, and that was the No. 15 drug in 2012. Likewise, Medtronic's (NYSE: MDT) entire market-leading cardiac rhythm management franchise generates only about 6% more in revenue than Spiriva did in 2012.
Even so, where could J&J look for acquired growth in the med-tech world?
A smaller name, though, could make sense. Novadaq Technologies (NASDAQ: NVDQ) has developed some innovative imaging platforms that allow surgeons to better assess perfusion (blood flow) while they're performing surgeries, leading to fewer complications. Novadaq carries a steep multiple today, but is only just beginning to expand beyond the breast reconstruction market (also a strong market for J&J) where it has 15% share . With a potential addressable market of more than $1.5 billion, Novadaq could be a good thing in a small package for a surgery business like Ethicon.