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FTC clears J&J's $21.3B acquisition of Synthes

by William McConnell in Washington | Published June 12, 2012 at 11:44 AM

The Federal Trade Commission on Monday, June 11, approved Johnson & Johnson's $21.3 billion purchase of Swiss-American orthopedic devices maker Synthes Inc. and said that J&J's plan to divest the trauma device unit of its DePuy Orthopaedics Inc. subsidiary sufficiently addressed antitrust concerns in the U.S.

The $280 million divestiture to private equity-backed Biomet Inc. was approved by the European Commission in April.

The Synthes acquisition was announced in April 2011 and had been under FTC review for more than a year.

The FTC's competition concerns were limited to DePuy's DVR brand system for surgically treating serious wrist fractures. Without the sale to Waraw, Ind.-based Biomet, J&J and Synthes together would have controlled more than 70% of the U.S. market for the wrist fracture treatment systems.

"J&J and Synthes are direct competitors for these important systems used in the surgical treatment of traumatic wrist fractures," said Richard Feinstein, director of the FTC's bureau of competition. "This order will ensure that the hospitals and surgeons that use these systems to care for consumers will not face higher prices or reduced innovation in the future."

Specifically, the FTC voiced concerns about a possible reduction in competition for treatments of displaced wrist fractures, otherwise known as "volar distal radius plating systems," which are internal devices surgically implanted on the underside of the wrist to achieve proper alignment of the radius bone following a fracture. According to the FTC, distal radius fractures are among the most common types of fractures and typically occur when a person braces for a fall and breaks a portion of the radius closest to the wrist.

Older people and individuals playing sports are the most common victims. Distal radial fractures involving displacement of the radius bone almost always require surgery and volar distal radius plating systems are the primary choice of surgeons, the FTC said, because they are easy to implant, reduce recovery times and allow patients more freedom of movement than casts.

The U.S. market for volar distal radius plating systems is highly concentrated, the FTC said, with Synthes being the leading maker. Synthes, the agency said, accounted for 42% of all U.S. sales in 2010 and "has a strong clinical reputation in the trauma field."

New Brunswick, N.J.-based J&J acquired its DVR system from Hand Innovations LLC in 2006, and it accounted for 29% of U.S. sales in 2010.

If the companies were to combine the wrist treatment units, J&J would be able "to unilaterally raise prices for the systems by eliminating its only significant U.S. competitor," the FTC said. Synthes has headquarters in Switzerland and West Chester, Pa.

The FTC deemed Biomet an acceptable buyer for the Depuy assets because it is a "successful orthopedics company with a recognized brand name, an extensive nationwide sales force, and existing relationships with surgeons and hospitals," the agency said.

The agency also said Biomet's current volar distal radius plating system is "not competitively significant" but that once Biomet acquires the J&J DVR assets it will be able to replicate the competition that existed in the U.S. before the Synthes acquisition.

The sale to Biomet, which had already been approved by the FTC, must be completed within 10 days of closing the Synthes deal.

Anticipating FTC approval, J&J last week said it expected the deal to close by June 14.

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