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Johnson & Johnson announced Tuesday its intent to separate its orthopaedics business to enhance the strategic and operational focus of each company and drive value for stakeholders.
In a news release on the Johnson & Johnson website, it stated “the intended separation would further strengthen the focus of Johnson & Johnson as an innovation powerhouse, serving areas of high unmet needs across Innovative Medicine and MedTech, accelerating the ongoing shift of the company’s MedTech portfolio toward higher-growth and higher-margin markets.”
The transaction would establish a standalone orthopaedics business, operating as DePuy Synthes, that would be the largest, most comprehensive orthopaedics-focused company with leading market share positions across major categories, according to the release.
“This transaction enables Johnson & Johnson to further strengthen its focus and investment toward higher-growth areas where we can meaningfully extend and improve patient lives,” said Joaquin Duato, chairman and chief executive officer, Johnson & Johnson. “The planned separation reflects our long-standing commitment to portfolio optimization and value creation. We are confident that our orthopaedics business will be better positioned to improve top-line growth and operating margins as a standalone business.”
After working as a travelling salesman and settling in Warsaw, Ind., Revra DePuy had the idea to manufacture fiber splints that could be customized to fit individual patients. He founded DePuy Synthes in 1895 to sell his devices. DePuy’s decision to base his company in Warsaw is central to why the city is now hailed as the orthopaedics capital of the world, according to medicaldevice-network.com.
Following the completion of the separation, Johnson & Johnson will retain a leadership position in six key growth areas across its Innovative Medicine and MedTech segments – oncology, immunology, neuroscience, cardiovascular, surgery and vision, according to the news release. Johnson & Johnson expects that the separation would increase its top-line growth and operating margins. It remains committed to maintaining a strong balance sheet and its consistent capital allocation priorities of R&D investment, annually increasing competitive dividends, value-creating acquisitions and share repurchases.
“This move would further enhance the market-leading position for DePuy Synthes and strengthen our overall MedTech business with a focus on cardiovascular, surgery and vision,” said Tim Schmid, executive vice president, worldwide chairman, MedTech. “Through the separation process, we will remain focused on setting our talented teams up for long-term success, while continuing to serve our customers and create healthier futures for patients around the world.”
Upon completion of the planned separation, DePuy Synthes would be the largest, most comprehensive orthopaedics-focused company, with leading market share positions across major product categories, according to the release. Following the transaction, DePuy Synthes is expected to benefit from a more focused business model and be better positioned to advance patient care while delivering clinical and economic value to health care systems worldwide. DePuy Synthes would continue to address a $50 billion-plus global market opportunity and serve approximately 7 million patients annually through its products and services. For fiscal year 2024, the orthopaedics business generated approximately $9.2 billion in sales. DePuy Synthes would be expected to have an investment-grade profile and balance sheet that would allow it to build on its long history of innovation and maintain and extend its leadership position.
Johnson & Johnson also announced Namal Nawana has been appointed to serve as worldwide president, DePuy Synthes, effective immediately. Nawana will lead the business through the separation process, reporting directly to Duato, and is expected to continue to lead DePuy Synthes following the completion of the separation.
Nawana most recently served as executive chairman and founder of Sapphiros, a privately-held platform company dedicated to building the next generation of consumer diagnostic technologies. Previously, he served as chief executive officer and a member of the board of directors of Smith & Nephew Plc, a global medical technology business. Prior to that, he served as president and chief executive officer and a member of the board of directors of Alere Inc., a leading point of care diagnostics company, until its acquisition by Abbott. Before joining Alere, he spent more than 15 years at Johnson & Johnson in progressively senior leadership roles globally, including his final role at the company, worldwide president of Johnson & Johnson’s DePuy Synthes Spine business.
Duato stated, “Namal brings extensive experience leading global public companies and a demonstrated track record of success in growing medical devices businesses. We are pleased to have an executive of Namal’s caliber step into this role and are confident he is the ideal leader to guide the new DePuy Synthes into the future.”
Nawana said, “I am honored to take on this role to lead the new DePuy Synthes, a global market leader with a deep heritage of innovation and a strong commercial platform that is well positioned to succeed as a standalone company. I look forward to working together with the broader team to meet our mission and keep people around the globe moving.”
The news release states that Johnson & Johnson intends to explore multiple paths to effect the planned separation. The company is targeting completion within 18 to 24 months, subject to the satisfaction of certain conditions including, among others, consultations with works councils and other employee representative bodies, as may be required, final approval of the Johnson & Johnson Board of Directors, and the receipt of other regulatory approvals. There can be no assurance regarding the ultimate timing or structure of the proposed separation or that the transaction will be completed, according to the release.
As it pursues this separation, Johnson & Johnson will continue to operate its orthopaedics business in alignment with its current strategy, including continued investments in growth, margin improvement and innovation.
