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
JOHNSON & JOHNS (JNJ): Free Stock Analysis
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