Earlier this week, JNJ said it will buy the Swiss medical device firm Synthes for $21.3 billion. A debased U.S. dollar isn't worth much these days. Still, 21.3 billion of anything remains an impressively tall pile.
Uniquely in big pharma, JNJ has a record of megadeals that have been years ahead of peer companies. With numerous semi-autonomous groups under its corporate umbrella, JNJ hasn't made any egregious miscalculations or gotten so big and bureaucratic that it failed to meet Wall Street expectations.
As readers know, JNJ was the first big drug company to invest in both biotechnology and medical devices in major ways. So it's interesting that its executives are placing another huge bet on devices, spending a sum equal to a third of JNJ's current annual revenues.
The deal elicited the usual confident statements from senior management. JNJ's existing device business and Synthes "will create the most innovative and comprehensive orthopedics business in the world and enable us to better serve clinicians and patients worldwide,” said Bill Weldon, JNJ's chairman and CEO. Here's the release.
At this early date, while the two companies are awaiting pro forma government approval for the deal, there was no discussion of layoffs or reorganization related to the purchase. Synthes has begun staffing a development center in China, but the majority of its research activities are concentrated in developed countries.
The nuances of the Synthes deal are private. Were other big device makers bidding for it?
It's not a big stretch, however, to assume that JNJ believes Synthes has sufficiently unusual products that it will be better for JNJ to purchase Synthes outright than plan a similar research program internally. Founded by four Swiss surgeons in 1958, Synthes is a leader in implants and materials for trauma and customized reconstruction of every major type of bone, including innovative areas like the foot and skull. Synthes' second-most important segment is hardware for the spine.
Roughly sixty percent of Synthes' 2010 revenue of $3.7 billion was derived from North America; a quarter came from Europe. The company is not particularly research intensive, according to its 2011 annual report. It spends five percent of revenues on R&D, or $185 million, but a sum six times greater on sales and commercial activity. d9A2t49mkex
Indeed, in reviewing trials that Synthes has registered for journal editors in ClinicalTrials.gov, it's clear that the firm does not have a large amount of ongoing clinical activity. There are just 14 listed trials. Three of those have already been "terminated," in ClinicalTrials.gov terminology. If you divide JNJ's purchase price by 14 trials, you get a fairly impressive number of $1.52 billion per trial.
That calculation, needless to say, has no practical significance. Synthes isn't spending $1.52 billion on each project; nor will JNJ recoup that sum from every new market approval. Even so, $1.52 billion per trial is a data point that indicates how valuable a small but savvy R&D program can be. At a time when every life science firm is scrambling to create innovative therapies, the bidding for narrow, novel, well-executed clinical development programs will only accelerate.
For readers reaching for their calculators, one of the most amazing metrics for the deal is the multiple of JNJ's purchase price to the Synthes R&D budget. JNJ is paying 115 times as much for the entire company as Synthes allocates to research annually. That's a fairly juicy return on investment.
Of the eleven Synthes trials listed as active on ClinicalTrials.gov, none are especially large or long. They have a median size of 100 patients sought and a median planned duration of 37 months. The primary locations for Synthes' investigators appear to be in Western Europe and the U.S. Many of the firm's listings on the federal database have minimal information about the numbers of sites being used. But for those trials listing such data, the median number of locations where patients will be recruited is six.
One of the firm's largest ongoing projects is a hefty Phase III study. In that trial, over a period of 42 months, Synthes hopes to enroll 500 patients with neurogenic claudication who are at least 50 years old. The sites are identified in the trial's registry entry. They include regional centers for back care, elite academic locations (Cornell and Yale) and a military hospital.
Synthes' Active, Open Studies as of April, 2011
|Condition||# of Patients||Centers||Phase||Intervention||NCT #|
|Spinal Disease||510||NA||NA||Total disc replacement||NCT00295009|
|Diskectomy, Fusion, Prostheses||228||NA||NA||Total disc replacement||NCT00291018|
|Spinal stenosis||500||10||III||Interspinous Space||NCT00697827|
|Intervertebral Disk Degeneration||231||13||NA||Anterior Cervical Discectomy||NCT00443547|
|Cranial Dura Repair||99||NA||NA||SyntheCel||NCT00859508|
|Lumbar Intervertebral Disc||150||NA||NA||Interbody Fusion||NCT01323387|
|Osteochondritis Dissecans||30||1||IV||DBX Putty, Mosaicplasty||NCT01283737|
|Craniotomy||80||30||NA||PSI in PEEK||NCT01282645|
|Tibial Fractures||30||6||NA||Norian Drillable Bone Void Filler||NCT01132508|
|Degenerative Disc Disease||100||6||NA||ChronOS strip||NCT00943384|
|Tibial Fractures||100||5||NA||ETN PROtect||NCT01282294|
|The columns can be sorted by clicking on the green triangles. Source: ClinicalTrials.gov|