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J&J Seals Bond with Closure Medical

Originally Published MDDI May 2005 NEWSTRENDS Maria Fontanazza

Originally Published MDDI May 2005

NEWSTRENDS



Maria Fontanazza

The recent CE-mark approval of Closure Medical Corp.'s Omnex surgical sealant may have been a major reason behind J&J's acquisition of the company.

Johnson & Johnson (J&J; New Brunswick, NJ) has positioned itself further into the wound-management market with the acquisition of Closure Medical Corp. (Raleigh, NC). Analysts believe the deal will be good for J&J but say the full effect on the rest of the wound-care market remains to be seen.
Although J&J already sells a bulk of Closure's products, the agreement may have been driven by the recent CE-mark approval of Closure's Omnex surgical sealant. The product seals the surfaces of artificial grafts and blood vessels.

“That was a tipping point for J&J, because Closure hadn't given marketing rights yet,” says Greg Aurand, senior medical devices analyst at Zacks Investment Research Inc. (Chicago). “So, rather than have the rights to Omnex go elsewhere, J&J could either try to negotiate and acquire the rights, or just buy the company.”

The $350-million deal is expected to close in the second quarter of this year. J&J is likely to make Closure part of its Ethicon Inc. (Somerville, NJ) business, which sells surgical adhesives, sealants, sutures, and staples.

Overall, the agreement is positive for the expanding wound-care market and presents a long-term opportunity for J&J. With less competition in the professional market for surgical sealants, price points will be more flexible, and there will be better margins in the product categories, says Aurand.

J&J's strategy comes down to what fits and what makes economic sense. “I think from the perspective of any large company, they're going to look at what fills their product gap,” says Aurand. It also helps that the two companies have had a working relationship for nearly a decade. “I don't know the rationale of exactly how it worked out, but I think from J&J's perspective, they thought they could grow Closure even faster through owning it.”

However, after the deal was announced, the stock of other biosurgical companies, such as CryoLife Inc. (Kennesaw, GA), took a hit. The reason: They now must deal with a large competitor. “Certainly there's the 800-lb gorilla mentality when a bigger company buys out another company and the remaining smaller competitors may be more adversely affected,” says Aurand. “I think the perception is that since J&J is buying the company, it will put more resources behind selling the products, which may more severely affect a company like CryoLife.”

The deal may not be indicative of an impending acquisition spree in wound care. Aurand believes it's just another example of J&J's practice of constant acquisition.

Copyright ©2005 Medical Device & Diagnostic Industry

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