Ar­ti­fi­cial in­tel­li­gence

J&J looks to ex­pand de­vice hold­ings with Syn­thes

Modern Healthcare - - The Week In Healthcare - Jaimy Lee

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.

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