Johnson & Johnson (J&J) has made a big move in the area of medical technology, announcing its acquisition of Shockwave Medical for approximately $13.1 billion. This acquisition, as per the companies’ announcement, values Shockwave at $335 per share. The agreement has received approval from both companies’ boards and is expected to close in mid-2024. The rationale behind J&J’s acquisition of Shockwave lies in its aim to diversify and strengthen its cardiovascular portfolio, with a particular focus on two rapidly growing segments: coronary artery disease (CAD) and peripheral artery disease (PAD). Shockwave Medical specializes in developing innovative medical devices that utilize intravascular lithotripsy (IVL) to disrupt calcium deposits in coronary arteries using sound pressure waves. This pioneering technique has shown promise in enhancing treatment options for patients with cardiovascular conditions, addressing an unmet need in the medical field.
J&J plans to finance the acquisition through a combination of cash on hand and debt. While the deal is projected to be operationally accretive upon closing, there is an expected dilution to adjusted earnings per share of about 10 cents in 2024 and 17 cents in 2025 due to financing costs. Despite these financial considerations, the acquisition shows J&J’s commitment to expanding its presence in innovative medical technologies and capitalizing on emerging opportunities in the healthcare market. Shockwave Medical’s optimistic sales forecast for 2024, ranging between $910 million to $930 million, highlights the company’s strong market potential and financial performance. The company reported having $990.6 million in cash or cash equivalents as of December 31st, further demonstrating its financial stability and capacity for growth in the medical device sector.
During an investor call, questions arose regarding the timing of the deal closure in light of a challenging regulatory environment. J&J CEO Joaquin Duato expressed confidence in the projected timeline, emphasizing the importance of allowing regulatory processes to unfold while reaffirming the company’s readiness for the anticipated timelines. This confidence reflects J&J’s proactive approach to navigating regulatory complications and ensuring a smooth transition for the acquisition.
Analysts at Needham provided further insight into the acquisition, expressing optimism about the fit between J&J and Shockwave. They highlighted the minimal product overlap between the two companies and deemed the likelihood of a higher bid as unlikely. According to Needham analysts, the $13.1 billion agreement represents a fair value for Shockwave, outlining the synergy and potential for value creation through the acquisition. This acquisition marks J&J’s second major medtech acquisition in recent years, following its acquisition of heart device maker Abiomed in late 2022 for $16.6 billion. J&J also acquired Laminar, another cardiac-focused medtech, for $400 million. The integration of Shockwave’s IVL devices into J&J’s portfolio enhances the company’s competitive position in the cardiovascular market and reinforces its commitment to driving innovation in healthcare.
J&J intends to operate Shockwave as a distinct business unit within its J&J Medtech division, leveraging synergies and allowing collaboration between the two entities. CFO Joe Wolk emphasized that Shockwave and Abiomed operate in under-penetrated segments, presenting ample opportunities for growth and market expansion. The alignment between Shockwave’s IVL technology and J&J’s existing product offerings positions the company for continued success in advancing cardiovascular care and delivering value to patients and healthcare providers.
