E.U. Clears JNJ Acquisition of Synthes It worked. After unloading its DePuy Orthopaedics Inc. traum

E.U. Clears JNJ Acquisition of Synthes
It worked. After unloading its DePuy Orthopaedics Inc. trauma division to make way for Synthes Inc., Johnson & Johnson (JNJ) has won the approval of European antitrust authorities to go through with the acquisition. DePuy is being acquired by Warsaw, Ind.-headquartered Biomet Inc.

JNJ announced its intent to buy Switzerland-based orthopedic device company Synthes almost a year ago, but European regulators feared the move would give JNJ a virtual monopoly in the orthopedics sector. JNJ wanted to fold Synthes into DePuy Orthopaedics to create, according to the company, possibly the world’s largest orthopedics business.

“The proposed acquisition would remove a competitor from some markets which are already concentrated,” Joaquin Almunia, the antitrust chief in the European Union (EU), said in a prepared statement last fall when regulators began their investigation of the proposed merger. “The commission needs to make sure that effective competition is preserved in order to maintain innovation and prevent harm to patients.”

Facing such scrutiny from the European regulators, JNJ decided to sell its DePuy unit, a compromise that has proven successful.

According to a statement released April 19 by the commission, its concerns were based on “very high combined market shares of the merging entities in these markets, the rather mature character of the products, and the strong position of the AO Foundation, a highly reputed Swiss-based surgeon-led organization with an exclusive relationship with Synthes.”

Though it has been approved, the acquisition still may prove troublesome for JNJ. Synthes has had its fair share of legal trouble—in 2009, the company settled charges with New Jersey prosecutors that its clinical investigators did not disclose their financial interests; and late last year, Synthes sued several former employees and their hiring companies, claiming raids on staff, breaches of confidentiality agreements, and violations of patents. Even as recently as last month, the company and four former executives were sued in California by the families of two patients who died on the operating table allegedly from the misuse of bone cement the company had developed. Several executives who admitted their involvement in an illegal clinical trial of the bone cement have been sent to jail.

Of course, it’s worth noting that DePuy has been fighting criticism due to its metal-on-metal hip implants that were recalled en masse in 2010. The hip implants gained a lot of attention for leaving metal debris in the implant area. There still are patients currently using the device, and David Floyd, DePuy president at the time of the recall, acknowledged that use would be a concern.

Now that the acquisition deal has materialized, Synthes’ baggage is now JNJ’s. The healthcare conglomerate, however, hopes to gain a stronghold in the trauma sector that it didn’t have before, so the payoff could be worth it.

“We are pleased the European Commission has granted conditional clearance of Johnson & Johnson’s acquisition of Synthes,” JNJ spokeswoman Lorie Gawreluk told Medical Product Outsourcing. “We expect to fulfill our commitment to the Commission with the divestiture of the DePuy Orthopaedics Trauma business to Biomet in the second quarter of 2012, upon receipt of regulatory approvals and other customary closing conditions. The merger agreement requires clearance from five regulatory bodies prior to closing. To date, we have received clearance from four of those bodies, representing Japan, Canada, China and the E.U. We are actively working with U.S. regulatory authorities and continue to expect the transaction to close in the second quarter of 2012.”

The outside date is set at June 25.

The Biomet acquisition of DePuy is valued at $280 million, while Synthes will be sold to JNJ for $21.3 billion.