MASSDEVICE ON CALL — Johnson & Johnson’s (NYSE:JNJ) may be looking at its proposed mega-merger with Synthes as a way to save its orthopedics business.
Officials at Swiss medical device maker — and orthopedics specialist — Synthes on April 19 confirmed Wall Street rumors that the company is being wooed by the New Brunswick, N.J.-based conglomerate for a potential $20 billion mega-merger. A consummated deal of that scale — it would be largest in J&J’s history — would also change the landscape of the orthopedics industry and, the company hopes, revive its DePuy brand, which has been beset with ballooning legal problems.
Johnson & Johnson could extract significant synergies from Synthes, writes the The Wall Street Journal. The combined companies would have a leading position in orthopedics and in trauma devices — for fractures and tumors — as well as the number two spot in spinal devices. The combination could also allow JNJ to bundle more of the products that it sells to hospitals, bumping companies like Smith & Nephew plc (NYSE:SNN), Medtronic Inc. (NYSE:MDT) and Zimmer Holdings Inc. (NYSE:ZMH) from their dominant positions in the market.
JNJ may be looking at pricing factors as well. Prices in orthopedics, one of the hardest-hit areas in the medical device field because many surgeries are elective, could fall 1 percent to 2 percent in coming years. Sales at JNJ’s devices and diagnostic division increased only 4 percent last year, the company reported.
Synthes — specializing in parts for emergency surgery — is more protected from health care cuts and grew twice as fast, helped by a large emerging-market presence, reports the WSJ.
The company makes bone screws, rods and surgical power tools and pulled in just under $3.7 billion in sales last year, making it one of the biggest medical device companies in the world. Adding a nearly $4 billion boost to its medical device unit would be a boon for JNJ, which saw net income slump to $3.5 billion for the three months ended April 3, on sales of $16.2 billion.
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