Abbott Laboratories jointly sells medical devices with Little Canada-based St. Jude Medical, and the two companies operate in an industry rife with recent corporate-acquisition news.
But financial experts say there’s little reason to believe the stories, first reported Thursday morning in London’s Financial Times, that Abbott Labs in the Chicago suburbs is trying to raise $25 billion to put in a bid on St. Jude.
“We do not believe an ABT bid for STJ is likely in the near-term,” Wells Fargo analyst Larry Biegelsen wrote in a note to investors Thursday, using the stock-ticker abbreviations for Abbott and St. Jude. “In our view, a bid for STJ would be a departure from [Abbott’s corporate acquisition] strategy.”
An Abbott spokesman said the company has not evaluated St. Jude for acquisition and has not been consulting with financiers about raising the money for such a bid. A St. Jude spokeswoman put the Financial Times story in the category of “speculation” and declined to comment on it.
The companies’ stocks seemed to benefit from the attention. Stock in both rose about 4 percent on Thursday, which was about double the growth in the overall S&P 500 index for the day. St. Jude closed at $72.43, up $3.09, and Abbott closed at $45.64, up $1.66.
It is true that Abbott and St. Jude are among the bevy of medical-technology companies aggressively pursuing growth through acquisitions this year, though.
St. Jude is buying California-based heart-pump maker Thoratec for $3.4 billion before the year is out, its largest deal ever. St. Jude also bought neurostimulation firm Spinal Modulation in a $215 million deal this summer.
Last month Abbott announced an agreement to acquire Roseville-based heart-valve firm Tendyne in a $250 million deal, even though Tendyne’s investigational mitral valve device is not yet approved for sale in any country.
Medical device maker Boston Scientific Corp. bought the men’s-health division of Minnesota-based American Medical Systems for $1.6 billion from Dublin-based drug company Endo International.
In January, Medtronic became the world’s largest medical device company when it acquired surgical supplier Covidien for $49.9 billion. That deal moved Medtronic’s world headquarters to Dublin, providing more flexibility to use its overseas cash reserves for acquisitions.
Since then, Medtronic has been busy in the acquisition front, buying cardiac imaging firm CardioInsight Technologies ($93 million), neurostimulation firm Advanced Uro-Solutions (undisclosed price) and hearing-device company Sophono (also undisclosed), while offering to buy surgical-supply tracking company RF Surgical Systems ($235 million), among other notable deals.
“You are seeing a lot of mergers, especially in this space,” said Keith Snyder, a med-tech analyst with S&P Capital IQ. “What you are seeing across the industry is companies looking to expand their breadth of products and cut costs at the same time.”
Hospitals are facing growing pressure to contain costs, driving demands for lower prices on medical devices and wider purchase contracts covering more supplies. Devicemakers are responding by getting bigger, both to increase their offerings and gain more clout in pricing talks.
St. Jude and Abbott are already pursuing some aspects of these strategies.
St. Jude’s offer for Thoratec is driven by a desire to build the industry’s most complete line of devices to treat patients with heart failure, a continuum that begins with people who need devices to detect early signs of disease and would extend to the sickest patients needing costly heart pumps, executives have said.
Meanwhile Abbott is feeling growing pressure to strengthen its medical-device division to compete against med-tech companies with more extensive products and services. “There is increasing pressure on ABT to make some kind of acquisition to strengthen its device division,” Morningstar analyst Debbie Wang wrote in an e-mail.
Abbott and St. Jude have complementary product lines, and they’ve had agreements since 2008 to be able to sell one another’s products in joint purchasing contracts with hospitals. Their “Choice Alliance” combines Abbott’s coronary and endovascular product portfolios with St. Jude Medical’s electrophysiology, cardiac rhythm management and cardiology devices.
The merger speculation stories on Thursday noted how they could enhance their bargaining strength through a merger. But beyond Abbott’s flat denial of the rumor, financial analysts wondered whether sinking $25 billion into St. Jude would be the best deployment of its resources. Analysts with Deutsche Bank estimated that such an offer would value St. Jude at $90 a share.
“Are there greater opportunities across the other business units and across other geographies?” the Deutsche Bank analysts wrote in a note to investors. “We believe ABT’s management team will be prudent in its capital redeployment decisions.”