FTC Puts Conditions on Johnson & Johnson’s Proposed Acquisition of Synthes, Inc.
J&J Required to Sell System for Treating Distal Radius Wrist Fractures to Biomet, Inc.
The Federal Trade Commission will require Johnson & Johnson (J&J) to sell its system for surgically treating serious wrist fractures, resolving charges that J&J’s proposed $21.3 billion acquisition of Synthes, Inc. would illegally reduce competition for these systems. J&J intends to sell its system, known as DVR, along with the rest of its product line for treating traumatic injuries, to Biomet, Inc.
The case is the most recent example of the FTC’s ongoing effort to promote competition in the health care sector, which benefits U.S. consumers by keeping prices low and quality and choice of products and services high. J&J and Synthes together would have more than 70 percent of the U.S. market for the wrist fracture treatment systems, according to the FTC.
“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.”
J&J, headquartered in New Brunswick, New Jersey, is a broad-based maker of health-care related products. In 2011, J&J had global sales of $65 billion and U.S. sales of nearly $29 billion. J&J’s Medical Devices and Diagnostics segment produces a system for treating these displaced wrist fractures, known as volar distal radius plating systems.
Synthes, a medical device company headquartered in Solothurn, Switzerland and West Chester, Pennsylvania, is the leading producer of skeletal treatment devices in North America. A unit of Synthes sells a rival volar distal radius plating system. In 2011, Synthes had global sales of $3.97 billion and U.S. sales of $2.14 billion.
According to the FTC’s complaint, J&J’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. There are other treatments available, but none is considered to be as useful as the plating systems.
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. J&J acquired its DVR system 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 FTC contends that the deal as originally proposed would violate federal antitrust laws and allow J&J to unilaterally raise prices for the systems by eliminating its only significant U.S. competitor.
The proposed order settling the FTC’s charges preserves competition in the U.S. market for volar distal radius plating systems by requiring J&J to sell its U.S. DVR assets to a qualified buyer within 10 days of when the deal is consummated.
J&J has selected Biomet as the buyer of these assets. While the Commission’s competitive concern with this transaction is limited to volar distal radius plating systems, J&J 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 J&J’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.
The Commission vote to accept the consent agreement package containing the proposed consent order for public comment was 5-0. The FTC will publish a description of the consent agreement package in the Federal Register shortly. The agreement will be subject to public comment for 30 days, beginning today and continuing through July 12, 2012, after which the Commission will decide whether to make the proposed consent order final.
Interested parties can submit written comments electronically or in paper form by following the instructions in the “Invitation To Comment” part of the “Supplementary Information” section. Comments can be submitted electronically by clicking here. Comments in paper form should be mailed or delivered to: Federal Trade Commission, Office of the Secretary, Room H-113 (Annex D), 600 Pennsylvania Avenue, N.W., Washington, DC 20580. The FTC is requesting that any comment filed in paper form near the end of the public comment period be sent by courier or overnight service, if possible, because U.S. postal mail in the Washington area and at the Commission is subject to delay due to heightened security precautions.
NOTE: The Commission issues an administrative complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the respondent has actually violated the law. A consent order is for settlement purposes only and does not constitute an admission by the respondent that the law has been violated. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of up to $16,000.
The FTC’s Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to email@example.com, or write to the Office of Policy and Coordination, Bureau of Competition, Federal Trade Commission, 601 New Jersey Ave., Room 7117, Washington, DC 20580. To learn more about the Bureau of Competition, read Competition Counts. Like the FTC on Facebook, follow us on Twitter, and subscribe to press releases for the latest FTC news and resources.
Mitchell J. Katz,
Office of Public Affairs
Mark D. Seidman,
Bureau of Competition