Johnson & Johnson to Spin Out Orthopedics Business, Reshaping Medtech Landscape

Johnson & Johnson (J&J) announced plans to spin out its orthopedics business into a standalone company called DePuy Synthes, marking a significant shift in the medical device industry. The move, expected to be completed within 18 to 24 months, aims to sharpen J&J's focus on higher-growth areas such as cardiovascular and robotic surgery.

Strategic Realignment for Growth

J&J CEO Joaquin Duato emphasized that the decision "further sharpens our focus as a healthcare innovation leader and accelerates the shift of our medtech portfolio to areas of greatest unmet need and higher growth." The orthopedics unit, which generated $9.2 billion in sales in 2024, has seen relatively slower growth compared to other segments of J&J's medtech division.

Tim Schmid, J&J's worldwide chairman of medtech, explained the rationale behind the spinoff: "We've been on a journey over the last several years to really aggressively move our portfolio into higher-growth markets. This decision to separate ortho is the next major step in that direction. Ortho is a great business but, frankly, one that participates in lower-growth markets."

The move follows J&J's recent acquisitions in the cardiovascular space, including the $16.6 billion purchase of Abiomed and the $13.1 billion acquisition of Shockwave Medical. These investments highlight the company's commitment to expanding in high-growth medtech sectors.

DePuy Synthes: A New Orthopedics Leader

Upon separation, DePuy Synthes is poised to become the largest player in the $50 billion orthopedics market. The new company will compete directly with established firms like Stryker and Zimmer Biomet.

J&J has appointed Namal Nawana as the worldwide president of DePuy Synthes, effective immediately. Nawana, who previously served as CEO of Smith & Nephew and has experience leading J&J's spine business, will guide the company through the separation process and beyond.

The orthopedics business has a strong market position in several areas. J&J holds more than a 50% share in the orthopedic trauma market and significant positions in reconstruction procedures, with approximately 17% of global knee procedures and about 25% of global hip procedures.

Industry Impact and Market Reactions

Analysts expect the spinoff to have both short-term and long-term effects on the orthopedics market. Initially, competitors may benefit from potential disruptions during the separation process. However, in the long term, DePuy Synthes is expected to become a stronger competitor with increased focus and flexibility.

Edward Jones analyst John Boylan commented, "We think spinning off slower-growing DePuy should allow J&J to focus more of its attention on its attractive and growing cardiovascular businesses within its MedTech unit. DePuy could place more resources on innovation and penetration of its surgical robot as a stand-alone business."

The announcement, coupled with J&J's third-quarter earnings report, led to a 2% decline in the company's share price on the day of the announcement. However, many analysts view the move as strategically sound for long-term growth.