Wall Street

The talk of the town (the town being San Francisco, which kicks of the JP Morgan Annual Healthcare Conference on Monday) will most likely be the news from Sunday and early Monday that the Johnson & Johnson acquisition of Guidant for $22 billion is once again no longer a done deal.

On Sunday, Boston Scientific stepped into the fray yet again with its determined bid of $25 billion (about $3 billion sweeter than Johnson & Johnsons) after completing its due diligence on Guidant. We also heard the announcement Monday morning that Abbott Labs would acquire a chunk of Guidant for about $4 billion.

This is Abbotts second-largest acquisition ever (after the acquisition of Knoll from BASF for more than $6 billion a few years ago).

Will Johnson & Johnson bid up? Will Boston Scientific be successful? Whats it all about? In any case, Abbott at this point seems to be walking away as a winner by acquiring a key part of Guidants business that Abbott needs for its own growing cardiovascular stent business.

According to Monday mornings Wall Street Journal, Abbott offered $3.8 billion as an upfront payment with additional future payments of $500 million if certain product approval goals are met. It also appears that Abbott will loan Boston Scientific $700 million to help close the Guidant transaction, according to the Wall Street Journal.

Additionally, Abbott would share with Boston Scientific certain rights to Guidants drug-coated stent business. The drug-coated stent part of the stent market is currently valued at about $5 billion in sales each year and is dominated by Johnson & Johnson and Boston Scientific. Another strategic advantage of the Abbott deal is that it might help and expedite the antitrust review and approval thats normally part of a merger action.

The name of the game is stents.

This is a very fast-growing segment of the medical device market thats based on the use of wire mesh to hold open blood vessels and permit increased blood flow in patients who either have occluded or closed vessels (or have them clogged up). In the last few years, the stent business has had further impetus with the incorporation of drugs such as paclitaxel into the stents.

These drugs render the stents more slippery so as not to let particles stick or cling to them. This allows the drug to pass through more easily. It will be interesting to see what happens on Monday in San Francisco. Guidant is due to talk at 2:30 p.m., Boston Scientific opens up Tuesdays session at 8 a.m. and, unless I missed it, Johnson & Johnson is not on the docket to speak (though several other Big Pharmas are).

So lets turn to the business at hand as many of our Midwest companies will also be covered in San Francisco on Monday. What happened to our Midwest large cap life science businesses in 2005? Lets look first at some of the macro factors:

The Dow Jones Industrials is down (the Dow was up and down like a yo-yo during 2005).

The Nasdaq National Market is barely up.
The Nasdaq Biotech index is slightly ahead of the Nasdaq National Market.
The AMEX Biotech index is up substantially.