J&J a Step Closer to Synthes - Analyst Blog

By Zacks Equity Research,

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Johnson & Johnson ( JNJ ) recently agreed to sell its system for treating distal radius wrist fractures to Biomet, Inc. The company was required to do so by the Federal Trade Commission (FTC) in relation to the upcoming acquisition of Synthes.

Concerns had been raised regarding a reduction in competition for these systems once the Synthes acquisition goes through. According to the FTC, Johnson & Johnson and Synthes' combined share in the US market for wrist fracture treatment systems would have exceeded 70%.

By requiring Johnson & Johnson to sell its system, known as DVR, the FTC is ensuring that higher prices will not be charged for these products and that there will be innovation in this field. The US market for volar distal radius plating systems is highly concentrated with Synthes and Johnson & Johnson holding a 42% and 29% share, respectively, as of 2010.

Johnson & Johnson said that it will be selling its entire trauma portfolio, including DVR, to Biomet.

With the company agreeing to the FTC's requirements, the $21.3 billion Synthes acquisition should go through shortly. Through this acquisition, Johnson & Johnson is looking to strengthen its medical device portfolio. The products of both companies should complement each other.

Synthes has a strong global footprint with manufacturing facilities in the US, Europe and China and a solid pipeline of new products and technologies. Synthes' global sales came in at $3.97 billion in 2011, with US sales coming in at $2.14 billion.

Neutral on Johnson & Johnson

We currently have a Neutral recommendation on Johnson & Johnson, which carries a Zacks #3 Rank (short-term Hold rating). While we expect the company to continue facing headwinds in the form of pricing pressure, manufacturing issues and US healthcare reform, we believe Johnson & Johnson's diversified business model, lack of cyclicality, and strong financial position will continue helping the company pave its way through tough situations.

JOHNSON & JOHNS (JNJ): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: FTC , JNJ

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