The deal talks between Johnson & Johnson and Synthes are already winning cautious approval on Wall Street, where one analyst called this "strategically sound." In an investor note this morning, Wells Fargo analyst Larry Biegelsen writes the reported $20 billion deal "would make Johnson & Johnson the clear market leader in the fast-growing trauma market, build critical mass in the spine segment and further enhance its leading position in the overall orthopedic market."
Indeed, the health care giant, which would gain a line of hip screws, surgical tools and others devices for treating spinal and soft-tissue injuries, could use the move to shore up one of three strategic legs at a time when the others - pharmaceuticals and over-the-counter items - are under pressure. Consumer goods, in particular, have been hit hard by tens of millions of product recalls amid ongoing scandal and corporate disarray (read here). "Acquiring Synthes would boost J&J’s share of the trauma market from about 5 percent to 54 percent, and nearly double its share of the spine market to about 22 percent," Biegelsen continues. A deal, however, is not assured.
There are some other potential synergies, however. Last year, a Synthes subsidiary pleaded guilty to a felony charge of improperly promoting a bone filler to treat vertebral compression fractures of the spine, which was not approved by the FDA. How so? Through "unauthorized" clinical trials. At the time of the indictment, prosecutors noted three people died during the trials. Synthes, which pleaded guilty to a misdemeanor, and its Norian unit paid more than $23 million in fines and forfeitures (see this). Moreover, four former Synthes execs pleaded guilty and Synthes was forced to divest Norian (look here for some insight).
Meanwhile, J&J was charged earlier this month by the US Securities and Exchange Commission with violating the Foreign Corrupt Practices Act by bribing public doctors in several European countries - and paying kickbacks to Iraq - to illegally obtain business. As part of this mess, a former exec at J&J’s DePuy unit last year pleaded guilty for his role in paying $7 million in bribes to Greek doctors and was sentenced to 12 months in jail in the UK (read here and here).
In other words, both companies have had great difficulty behaving themselves. Of course, many other drug and device makers have similarly run afoul of various laws and regulations. But perhaps J&J execs decided that pursuing Synthes was like successfully inserting a hip replacement device and not experiencing any debilitating side effects. A perfect fit, if you will.
pic thx to purpleslog on flickr