J&J CEO Gorsky Reportedly Prefers Small Deals
By Jof Enriquez,
Follow me on Twitter @jofenriq
Johnson & Johnson CEO Alex Gorsky reportedly prefers making smaller acquisitions of early-stage companies, even though the company's large and growing cash pile could fund much larger deals as speculated by analysts.
In a recent interview, Gorsky, who was at the J.P. Morgan Healthcare Conference in San Francisco, told Bloomberg that since "value creation in large deals is much more challenging," J&J will likely pursue smaller deals that involve early-stage technologies. He cites the company's hallmark approach to innovation, as well as lessons learned in making past M&A deals, as rationale behind the plan.
"Because we’re more of an innovation-focused company, the ideal deal for us is early, great innovation, great science, then we scale it, versus going in and simply ripping out costs and trying to find other synergies," Gorsky said in the interview.
According to Bloomberg data, J&J's cash balance reached $37.3 billion last quarter — enough for analysts to speculate that J&J is working on making a splash in the M&A front anytime, just as some industry rivals have done recently. Gorsky did not rule out a large deal, but considers it unlikely because it is tougher to make larger transactions to gain scale and cut costs. A $10 billion share buyback program announced in October also indicated that M&A targets were less appealing.
"We’ve tried that approach – we’ve had some successes, we’ve had others that haven’t been so successful," he told Bloomberg. "We’d much rather spend our time creating the next platform than downsizing, reorganizing and taking the next track."
Since a large deal in 2012 when J&J bought device maker Synthes, J&J has focused more on acquiring and investing in early-stage developers. That included the purchase of Coherex Medical, maker of the WaveCrest left atrial appendage (LAA) occlusion device for the treatment of high-risk atrial fibrillation (AF), in November 2015. J&J this month also invested in two start-ups located in medtech hotspot Israel, namely Cartiheal, which makes a bio-absorbable bone and cartilage regeneration implant, and V-Wave, which manufactures a cardiac shunt.
J&J also supports early-stage innovators in the United States through programs such as the Health and Wellness Technology Accelerator in New Jersey and the Hardware for Health program, among other initiatives.
The company continues to collaborate with fellow bigwigs, though. For example, it announced last month a joint venture with Verily Life Sciences called Verb Surgical, a new robotic surgery platform that will utilize "leading-edge robotic capabilities and best-in-class medical device technology."