Johnson & Johnson Acquires Shockwave Medical for $13.1 Billion to Strengthen Cardiovascular Portfolio

Recently, Johnson & Johnson announced a massive $13.1 billion acquisition of Shockwave Medical (referred to as "Shockwave"), with the transaction expected to be completed by mid-2024.

As early as 2023, the "destination" of Shockwave Medical has drawn significant attention from giants like Johnson & Johnson, Boston Scientific, and Medtronic. Now that the dust has settled, Johnson & Johnson's cardiovascular sector has gained another powerful addition.

Double Down on Cardiovascular Field
Aiming to Be the King of Global Devices

What is the charm of Shockwave Medical that makes giants willing to pay a fortune to acquire it?

All of this stems from Shockwave's IVL technology. IVL is a catheter-based minimally invasive technique used to treat coronary artery calcified lesions and is the only technology capable of addressing both intimal and medial calcification. The technology utilizes acoustic pressure waves to manage calcified lesions, helping to improve vascular compliance when treating coronary artery disease (CAD) and peripheral artery disease (PAD), and is typically used in conjunction with stent placement.

The market prospect of IVL is extremely broad. According to Frost & Sullivan, the global IVL market size for coronary artery disease increased from US$1.7 million in 2017 to US$64.1 million in 2020 and is expected to reach US$3.347 billion by 2030. In China, the potential of the IVL market is particularly impressive, with an estimated growth from 225 million yuan in 2023 to 918 million yuan in 2025, and a compound annual growth rate of 37.9% from 2025 to 2030.

Shockwave Medical is not only the world's first company to provide Intravascular Lithotripsy (IVL) for coronary arteries, but also the only company currently offering commercial IVL technology.

In addition, Shockwave Medical once invested in acquiring Neovasc, a company focused on the Reducer system for alleviating symptoms of refractory angina. The Reducer system, which has significant market potential, is currently undergoing clinical trials in the United States and has already received CE certification in the European Union and the United Kingdom.

Next, Johnson & Johnson Medical Technologies' cardiovascular product portfolio will expand into the two fastest-growing innovative fields in cardiovascular interventions: CAD and PAD.

It goes without saying that the addition of Shockwave Medical has significantly strengthened Johnson & Johnson's position, but this is not the heaviest investment Johnson & Johnson has made in the cardiovascular field.

In recent years, Johnson & Johnson has spared no expense in its strategic expansion within the cardiovascular field.

Table: Johnson & Johnson's Recent Acquisitions in the Cardiovascular Field

Data Source: Collation of Public Information

Among them, Abiomed, acquired for $16.6 billion in 2022, is highly renowned in the cardiovascular field.It has the world's only interventional artificial heart currently certified by the U.S. FDA —— Impella.Known as "the world's smallest artificial heart." This product can effectively deliver blood and oxygen throughout the body by temporarily assisting the heart's pumping function, allowing the heart to rest and recover. It has already received FDA approval. According to publicly available data, this series of products has few rivals in the global interventional cardiac pump field.

Now, Johnson & Johnson has exclusively acquired Shockwave's IVL technology, and upon completion of the transaction,Shockwave Medical will operate as a business unit of Johnson & Johnson Medical Technologies., the financial status will be reported in Johnson & Johnson's cardiovascular product portfolio, which was previously known as the Interventional Solutions.

In response to the addition of the new division, Johnson & Johnson has implemented a series of personnel adjustments. Michael Bodner, the current Global Head of Cardiac Recovery at Abiomed, will continue to lead this business division after the integration. Isaac Zacharias, who serves as President and Chief Commercial Officer, will transition to the role of Global President at Shockwave Medical and will report to Michael Bodner.

Johnson & Johnson has high hopes for this acquisition, stating that upon the completion of the transaction, Johnson & Johnson Medical Technology will hold a leading position in four high-growth cardiovascular market segments.

Diversified Layout
What to Do About the Patent Cliff?

Johnson & Johnson is a company that has taken diversification to the "extreme" in the global pharmaceutical industry.

In 2023, Johnson & Johnson implemented a series of significant internal reforms: spinning off its consumer goods business division to establish Kenvue, an independent company with 44 sub-brands; the pharmaceutical division, Janssen, underwent a complete VI system overhaul and was renamed Johnson & Johnson Innovative Pharmaceuticals.

The official completion of the spin-off of the consumer health business also means that Johnson & Johnson has completely become a pharmaceutical giant focusing on two major businesses: medical technology and pharmaceuticals. The performance of the two categories of innovative drugs and medical technology (devices and equipment) in 2023 was indeed commendable.Innovative drug revenue for the full year reached $54.8 billion, a year-on-year increase of 4.2%; medical device business revenue was $30.4 billion, a year-on-year increase of 10.8%.

In 2023, Johnson & Johnson is set to become the global leader in medical devices driven by strong performance in Q1-Q3, but ultimatelyA Difference of $800 MillionThe amount fell short of the throne. Now, Johnson & Johnson's cardiovascular business layout is once again strengthened, and 2024 may be the year it competes with Medtronic.

Johnson & Johnson's pharmaceutical business mainly focuses on several major fields: autoimmune diseases, oncology, neuroscience, infectious diseases, pulmonary hypertension, cardiovascular and metabolic diseases. Among them,Autoimmunity and TumorsJohnson & Johnson's pharmaceutical business is the core pillar, contributing $18.052 billion (+6.6%) and $17.661 billion (+10.5%) in revenue, respectively.

Notably, Johnson & Johnson's star product, ustekinumab, is also facing the crisis of a patent cliff. In fact, the patent for ustekinumab expired as early as September 2023. However, to mitigate the sharp revenue drop caused by the patent cliff, Johnson & Johnson has reached an agreement with competitors to delay the launch of biosimilars. Some pharmaceutical companies, led by Amgen, have agreed not to launch biosimilars before 2025, which means that ustekinumab can continue to generate revenue for Johnson & Johnson in 2024 and 2025. Nevertheless, there are still biosimilars expected to enter the European market by mid-2024 and subsequently enter the U.S. market in the coming years.

Johnson & Johnson is also taking advantage of this "buffer period" to vigorously expand into innovative drugs. In January 2024, Johnson & Johnson acquired Ambrx Biopharma, an ADC company, for $14.3 billion.Expected to become the first and best anti-PSMA ADC ARX517, aggressively entering the booming ADC field.

Summary

From a series of M&A strategies, it is not difficult to see that Johnson & Johnson is adopting a multi-pronged approach. The addition of new assets has allowed the company to double down on novel therapies in the innovative drug sector and expand its cardiovascular business in the medical technology field. But will these moves provide Johnson & Johnson with the confidence to face the patent cliff of its blockbuster products? We will wait and see.

References:
1. Johnson & Johnson Official WeChat, Official Website, Earnings Report
2. "How to Break the Patent Cliff? These Two Giants Have Provided the Standard Answer" - Cover World
3. Public Information

Editor: Mu Mian

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