Johnson & Johnson Agrees to Spin Off Bone Fracture System to Complete Takeover of Synthes, Inc.

This posting was written by E. Darius Sturmer, Editor of CCH Trade Regulation Reporter.

The FTC will require Johnson & Johnson to sell its system for surgically treating serious wrist fractures, under the terms of a proposed consent order resolving charges that Johnson & Johnson’s proposed $21.3 billion acquisition of Synthes, Inc. would illegally reduce competition for these systems.

Johnson & Johnson has announced its intention to sell the system, along with the rest of its product line for treating traumatic injuries, to Biomet, Inc.

If the deal were allowed to proceed as originally proposed, the Commission stated, Johnson & Johnson and Synthes together would have more than 70 percent 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."

According to the FTC's June 11 complaint, Johnson & Johnson’s proposed acquisition of Synthes would harm competition in the U.S. market for volar distal radius plating systems, internal devices that are surgically implanted on the underside of the wrist to achieve proper alignment of the radius bone following a fracture.

Distal radius fractures, in which a portion of the radius closest to the wrist is broken, typically happen when someone braces for a fall, and are among the most common types of fractures. Such fractures most often occur when an older person falls or when people are playing sports. While many people with distal radial fractures can be treated with conventional casts, if the radius bone is displaced, surgery almost always is required. Volar distal radius plating systems are the primary option for surgeons because they are easy to implant, reduce recovery times, and enable patients to move more freely than casts.

The complaint alleges that the U.S. market for volar distal radius plating systems is highly concentrated. Synthes is the leading maker of volar distal radius plating systems in the United States, accounted for 42 percent of all U.S. sales in 2010, and has a strong clinical reputation in the trauma field.

Johnson & Johnson acquired its system—known as DVR—from Hand Innovations in 2006, and it was among the first anatomically contoured volar distal radius plating system. Many surgeons still consider the DVR system to be the best volar distal radius plating system available, and it accounted for 29 percent of all system sales in 2010.

The proposed order settling the FTC's charges preserves competition in the U.S. market for volar distal radius plating systems by requiring Johnson & Johnson to sell its U.S. DVR assets to a qualified buyer within 10 days of when the deal is consummated.

While the Commission's competitive concern with this transaction is limited to volar distal radius plating systems, Johnson & Johnson has opted to sell its entire trauma portfolio, which includes the DVR assets, to Biomet, a successful orthopedics company with a recognized brand name, an extensive nationwide sales force, and existing relationships with surgeons and hospitals.

Biomet's current volar distal radius plating system is not competitively significant, and the FTC believes that Biomet, once it acquires the DVR assets, will be able to replicate the competition in the U.S. market for such systems that existed before Johnson & Johnson's acquisition of Synthes.

The proposed order will allow the FTC to appoint an interim monitor to oversee the sale of the DVR assets to Biomet, and to appoint a trustee to sell the assets if they are not successfully divested by J&J within the time required.

Details of the FTC's complaint and proposed consent order—In the Matter of Johnson & Johnson, FTC Dkt. No. C-4363—appears here on the FTC website.