By Michal Fitzhugh
Johnson & Johnson's (NYSE:JNJ) decision to buy the Swiss medical device company Synthes in a $21.3 billion deal catapults it to the front of the fast-growing market for screws, plates, and other tools used to mend broken bones and address traumatic injuries.
If completed, the acquisition will be Johnson & Johnson’s biggest deal ever, dwarfing its $6.6 billion purchase of Pfizer’s (NYSE:PFE) consumer healthcare unit in 2006 and making it the fifth largest acquisition by a big pharma company during the last five years.
The orthopedics market is an important growth driver for Johnson & Johnson, which estimates the opportunity at $37 billion and rising. By acquiring Synthes, the company gains both new R&D capabilities and a global footprint, says the company's CEO, Bill Weldon.
The deal will also help better position Johnson & Johnson to address the market trend of an aging customer base, including “patient desire to remain active, increasing rates of obesity and the resulting impact on joint disease, growing treatment demands in emerging markets, and a movement toward earlier intervention,” the company says.
In the United States alone, the number of people aged 65 and older has been increasing as a percentage of the total population since 1950, according to a Congressional report on the country's changing demographic profile. The older population represented 8.1 percent of the total population in 1950. That percentage increased to 12.8 percent in 2009. By 2050, one in five people in the United States will be aged 65 or older.
Johnson & Johnson is already addressing that market with its subsidiary DePuy, the first commercial orthopedics company in the United States. But with the integration of Synthes, the company will immediately gain 50 percent of the market for sales of materials and tools for repairing skeletal injury.
The transaction is expected to close during the first half of 2012, subject to clearance under U.S. antitrust rules, approval by the European Commission and regulatory approval in certain other jurisdictions.