J&J looks to expand device holdings with Synthes
Johnson & Johnson plans to pay $21.3 billion in cash and stock in part to capitalize on the expectation that an aging and heavier population will need more artificial parts.
The company said its move to buy Synthes, an orthopedic medical device company with headquarters in Solothurn, Switzerland, and West Chester, Pa., reflects Johnson & Johnson’s concerns that patients have cut back on office visits and some surgical procedures during the economic downturn.
Johnson & Johnson, based in New Brunswick, N.J., cited the aging population, an increasing patient desire to remain active, higher rates of obesity, growing demands in emerging markets and the trend toward earlier intervention as factors in the acquisition.
Rick Wise, an analyst with Leerink Swann, said other consolidations in the medical device sector could be expected. “In a growth-challenged world, where companies are striving to bring their products to market more efficiently, where hospitals are clearly seeking stronger, broader, deeper partners, that secular trend that I’ve seen over several decades will continue,” Wise said in an interview.
Synthes says it is a leader in the $5 billion trauma market, in which Johnson & Johnson’s medical device unit, the Depuy Family of Cos., has a much smaller presence. Johnson & Johnson executives said during a call with analysts April 27, the day a definitive agreement was announced, that they expect the trauma business to grow 7%, while the spine business—another area in which Synthes specializes—is expected to grow by 2% in 2011.
The demand for trauma devices is less affected by the “macroeconomic environment we’ve been dealing with,” William Weldon, chairman and CEO of Johnson & Johnson, said during the call. “If people have an injury like this or need to be treated for trauma, they are going to be treated,” Weldon said.
Alex Gorsky, vice chairman of Johnson & Johnson’s executive committee, added during the call that “emerging markets, in particular, are growing at about two to three time the rates as developed markets are” and “trauma is really the foundation of orthopedic surgery in the emerging markets.”
Gorsky asserted that the acquisition will likely lead to increased competition and that Johnson & Johnson does not believe federal antitrust authorities will demand divestitures before clearing the deal. If there are divestitures, he said, they will not “materially impact the transition.” The deal is expected to close in the first half of 2012.