Health care behemoth

Johnson & Johnson

(JNJ) - Get Report

has often relied on acquisitions to grab a piece of growing markets, but after ending its pursuit of heart-device maker

Guidant

( GDT), the obvious question concerns what the company's next move might be.

Biotechnology has ushered in an era of personalized medicine and a wider variety of medical options for patients, leaving older and bigger players to adapt and innovate internally or acquire and conquer using the expertise of newer and nimbler firms. This is the world in which J&J must now compete and hope to thrive.

Experts agree that the medical-device segment is still a growing field, and it's one area where J&J clearly wants to broaden its influence. Therefore, despite

leaving Guidant in the hands of

Boston Scientific

(BSX) - Get Report

, J&J probably hasn't made its last attempt to become a powerful force the so-called electrophysiology market.

"The best thing for J&J to do now is sit back and reflect on how Boston Scientific is going to incorporate Guidant," says WBB Securities analyst Steve Brozak. "Sometimes the best deals are the ones you don't make."

Earlier this week, Guidant said it would accept Boston's $80-a-share offer that values the company at $27 billion instead of J&J's final $71-a-share proposal.

With the New Jersey company's pharmaceuticals business being hit by competition from generics and uncertainty as to how much of a growth driver its new drugs might be, J&J needs to be successful in the medical-devices sector to see that its future sales and earnings continue to expand, Brozak says.

Consider that for the most recent fourth quarter, J&J reported $12.6 billion in sales. Of the total, its medical-devices and diagnostics segment accounted for $4.8 billion, an improvement of 3.7% from the previous year. Meanwhile, revenue from its pharmaceuticals division fell 6.1% to $5.5 billion.

One of the star performers at the device unit has been the Cypher stent, an instrument used to prop open clogged arteries. The stent has proven popular, and the company appears pleased with its progress, but if J&J wishes to remain sprightly, the Cypher alone won't be enough to keep it young at heart.

Thirsting for Clues

J&J of course isn't in imminent danger of being drained of life and withering up as if ambushed from behind in some corporate version of

Nosferatu. After all, it oversees more than 200 operating businesses, had revenue of $50.5 billion last year and has a market cap of $175 billion.

But an internal slowdown isn't beyond the realm of possibility. "Top-line growth is the key to the JNJ story at this point," Bear Stearns medical-devices analyst Rick Wise wrote in a recent research note. He says J&J "faces significant hurdles to resuming a sustained double-digit growth trajectory."

While the company reported growth above 10% from 2000 to 2005, Wise is predicting a 4% average sales gain from 2005 to 2010. Wise has a peer-perform rating on J&J. The company has been a non-investment-banking client of Bear Stearns.

Since Guidant is out of the picture, suggestions have been raised about other possible acquisition candidates for J&J, both inside and outside the heart-device realm.

Edwards Lifesciences

(EW) - Get Report

is one name that's popped up among analysts as a possible target. Edwards makes devices used to repair faulty heart valves.

"Edwards Lifesciences is an interesting company, and probably the leading heart-valve company in the world, and that's great, but it's not a tremendously fast-growing field," says Stanford Group medical-technology analyst John Putnam. Essentially, Edwards doesn't have nearly the same growth profile as a

St. Jude Medical

(STJ)

or Guidant, Putnam says.

Although it's Edwards' company policy to decline comment on possible mergers and acquisitions, it's "always going to evaluate options in term of buying and being bought, in order to do what best for shareholders," says company spokesman Barry Liden.

The Swiss biotech

Serono

( SRA), a maker of treatments for multiple sclerosis and psoriasis, might be another option. According to a report this week in the

Financial Times

, J&J has asked Citigroup to advise it on whether it should consider making a formal bid for Serono.

Serono, with a market capitalization of around $20 billion, has been looking for a buyer, but the

Financial Times

says there's no guarantee of a J&J bid.

However, "Serono ... has been on the block for a while, and everyone has seemed to have passed," Putnam says.

Novartis

(NVS) - Get Report

and

GlaxoSmithKline

(GSK) - Get Report

, for instance, were also said to have studied a potential Serono takeover.

Serono declined to talk about possible discussions with J&J and says it doesn't comment on market rumors and speculation. J&J also says it won't discuss rumors.

Continuing to Evolve

Throughout the Guidant ordeal, some analysts said that acquiring St. Jude Medical might be a better deal for J&J.

While Guidant's stock was held back by last year's recalls, St. Jude's shares steadily climbed as the company gained market share amid its rival's struggles. According to Bruce Nudell of Bernstein Research, St. Jude started off the year with 15% of the market for implantable cardioverter defibrillators and ended it with an estimated 20% share. Bernstein has received non-investment-banking compensation from St. Jude.

St. Jude's fourth-quarter

earnings did disappoint Wednesday, but that was mostly because of costs associated with the acquisitions of Advanced Neuromodulation Systems, which makes devices used to treat chronic pain, and Savacor, a privately held company developing heart-failure diagnostic devices.

According to Brozak, J&J would have to make a substantial offer if it wants to acquire another heart-device maker, especially one of St. Jude's caliber. On the basis of J&J's original $76-a-share offer for Guidant, Putnam says St. Jude's shares, recently trading at $49.15, could be worth an acquisition price of $60 or more.

St. Jude says its policy is not to comment on possible mergers and acquisitions. WBB Securities and the Stanford Group don't own St. Jude shares, nor do they have investment-banking relationships with the company.

There is a chance the stock could erode because of "nervousness in the future of the ICD market," Putnam says, but that would only make it more attractive to potential investors. "But until there is some clarity in the current ICD environment, we continue to rate STJ's shares a hold."

At any rate, the script for this story doesn't seem to be finished yet.