J&J Makes a $16.6 Billion Bet on Heart Pumps to Lift Medical-Device Sales

J&J’s medical-device business, which sells artificial knees and contact lenses, has had largely sluggish growth for several years, especially relative to its pharmaceutical unit.

Turning around the medical-device unit is taking on more importance because J&J is planning to separate its consumer-health unit, which sells Tylenol and Band-Aids, into an independent company next year. That will leave J&J with pharmaceutical and medical-device units.

“You want to have a higher mix of more above-average, growing companies,” said Stifel analyst Rick Wise.

To rev up the medical-device unit’s sales, New Brunswick, N.J.-based J&J has in recent years exited or shed some device businesses such as artery-opening stents and diabetes devices, while looking for higher-growth areas it could enter.

J&J executives say Abiomed would add to its lineup an emerging and fast-growing business in heart pumps, named Impella. 

The tiny pump is generally used to assist the heart’s pumping function as heart-disease patients undergo other cardiovascular procedures. Abiomed is the market leader, topping $1 billion in sales in its most recent fiscal year. 

J&J, whose medical-device unit had $27 billion in sales last year, thinks it can substantially boost Abiomed sales.

J&J’s medical-device unit’s global footprint, extensive relationships with doctors, commercial capabilities and clinical expertise “will strengthen Abiomed’s geographical reach and global therapy adoption to more quickly expand access,” said

Ashley McEvoy,

the unit’s chairwoman.

Analysts say J&J could increase Impella sales by introducing the pump, currently sold in the U.S. and a handful of other countries, to more markets. “There’s an opportunity to globalize this business,” said Jayson Bedford, an analyst with Raymond James & Associates.

J&J also plans to boost sales by broadening the patients who could get the Impella pumps to patients undergoing high-risk heart procedures or who have had heart attacks, in addition to those who already get them for heart failure and other conditions.

Under the terms of the deal, J&J has set targets for sales growth that could be tough to meet, analysts say. Abiomed shareholders will receive additional payments from J&J if Abiomed product sales top $3.7 billion during a 12-month period later this decade. 

The target is ambitious because it would imply about 20% average annual growth, said Mr. Bedford. In comparison, Abiomed’s year-over-year revenue rose 11% excluding currency exchange for its latest quarter.

The structure of the deal mitigates the risk of missing that target, however, because Abiomed shareholders will only get those additional payments if the target is met, analysts say. 

Another risk, according to analysts, is that ongoing clinical trials of Abiomed’s Impella pump, testing it in high-risk patients, may fail to produce results that support wider use of the pump.

Abiomed hopes the studies, which are expected to yield results in the coming years, lead to recommendations in heart-treatment guidelines for Impella’s use. The trials are estimated to be completed between 2023 and 2026, according to a National Institutes of Health database of clinical trials. Yet Wells Fargo analyst Larry Biegelsen said in a research note that the trials could take longer than expected and may not be positive.

Abiomed is “a solid company, but our checks suggest there are significant risks to growth going forward,” Mr. Biegelsen said.

J&J expects the deal to begin adding to its earnings in 2024.

Write to Peter Loftus at [email protected]

J&J’s medical-device business, which sells artificial knees and contact lenses, has had largely sluggish growth for several years, especially relative to its pharmaceutical unit.

Turning around the medical-device unit is taking on more importance because J&J is planning to separate its consumer-health unit, which sells Tylenol and Band-Aids, into an independent company next year. That will leave J&J with pharmaceutical and medical-device units.

“You want to have a higher mix of more above-average, growing companies,” said Stifel analyst Rick Wise.

To rev up the medical-device unit’s sales, New Brunswick, N.J.-based J&J has in recent years exited or shed some device businesses such as artery-opening stents and diabetes devices, while looking for higher-growth areas it could enter.

J&J executives say Abiomed would add to its lineup an emerging and fast-growing business in heart pumps, named Impella. 

The tiny pump is generally used to assist the heart’s pumping function as heart-disease patients undergo other cardiovascular procedures. Abiomed is the market leader, topping $1 billion in sales in its most recent fiscal year. 

J&J, whose medical-device unit had $27 billion in sales last year, thinks it can substantially boost Abiomed sales.

J&J’s medical-device unit’s global footprint, extensive relationships with doctors, commercial capabilities and clinical expertise “will strengthen Abiomed’s geographical reach and global therapy adoption to more quickly expand access,” said

Ashley McEvoy,

the unit’s chairwoman.

Analysts say J&J could increase Impella sales by introducing the pump, currently sold in the U.S. and a handful of other countries, to more markets. “There’s an opportunity to globalize this business,” said Jayson Bedford, an analyst with Raymond James & Associates.

J&J also plans to boost sales by broadening the patients who could get the Impella pumps to patients undergoing high-risk heart procedures or who have had heart attacks, in addition to those who already get them for heart failure and other conditions.

Under the terms of the deal, J&J has set targets for sales growth that could be tough to meet, analysts say. Abiomed shareholders will receive additional payments from J&J if Abiomed product sales top $3.7 billion during a 12-month period later this decade. 

The target is ambitious because it would imply about 20% average annual growth, said Mr. Bedford. In comparison, Abiomed’s year-over-year revenue rose 11% excluding currency exchange for its latest quarter.

The structure of the deal mitigates the risk of missing that target, however, because Abiomed shareholders will only get those additional payments if the target is met, analysts say. 

Another risk, according to analysts, is that ongoing clinical trials of Abiomed’s Impella pump, testing it in high-risk patients, may fail to produce results that support wider use of the pump.

Abiomed hopes the studies, which are expected to yield results in the coming years, lead to recommendations in heart-treatment guidelines for Impella’s use. The trials are estimated to be completed between 2023 and 2026, according to a National Institutes of Health database of clinical trials. Yet Wells Fargo analyst Larry Biegelsen said in a research note that the trials could take longer than expected and may not be positive.

Abiomed is “a solid company, but our checks suggest there are significant risks to growth going forward,” Mr. Biegelsen said.

J&J expects the deal to begin adding to its earnings in 2024.

Write to Peter Loftus at [email protected]