On February 13th, Johnson & Johnson announced it entered in a definitive agreement to acquire Silicon Valley surgical robotics company Auris Health for $3.4 billion in cash. The deal is considered to be one of the 10 largest venture-backed private deals and highlights J&J’s efforts to become a global leader in surgical robotics.
Companies Overview
JOHNSON & JOHNSON
Founded in 1886 and headquartered in New Jersey, Johnson & Johnson is an American multinational operating in the Healthcare industry. Johnson & Johnson is a holding company, which has more than 134,000 employees and 260 operating subsidiaries conducting business in virtually all countries of the world. The Company’s primary focus is on products related to human health and well-being. The Company is organized into three business segments: Consumer, Pharmaceutical and Medical Devices.
Consumer
The Consumer segment includes a broad range of products used in the baby care, oral care, beauty, over-the-counter pharmaceutical, women’s health and wound care markets.
Pharmaceutical
The Pharmaceutical segment is focused on six therapeutic areas: Immunology, Infectious Diseases and Vaccines, Neuroscience, Oncology, Cardiovascular and Metabolism, and Pulmonary. Medicines in this segment are distributed directly to retailers, wholesalers, hospitals and healthcare professionals for prescription use.
Medical Devices
The Medical Devices segment includes a broad range of products used in the orthopedic, surgery, cardiovascular, diabetes care and eye health fields. These products are distributed to wholesalers, hospitals and retailers, and used principally in the professional fields by physicians, nurses, hospitals, eye care professionals and clinics.
AURIS HEALTH
Founded in 2007 and based in the Silicon Valley, Auris Health, formerly known as Auris Surgical Robotics, is an American medical company that develops robotics technology for medical applications, especially for the field of robotics surgery. The Company is pioneering the next era of medical intervention by developing platforms that enhance physician capabilities, evolve minimally invasive techniques, and create new categories of care that redefine optimal patient outcomes. The Company is committed to transforming medical intervention by integrating robotics, micro-instrumentation, endoscope design, sensing, and data science into one platform. Every element of Auris Health’s technology is driven by patient-specific design aimed at maintaining the integrity of the human body. The Company is backed by leading technology investors including Mithril Capital Management, Lux Capital, Coatue Management, and Highland Capital.
Industry overview
Some of the key players in the robot universe are Intuitive Surgical Inc (NASDAQ:ISRG), Medtronic, Johnson & Johnson (NYSE:JNJ), Google Life Sciences, Stryker Corporation (NYSE: SYK), Transenterix Inc (NYSE:TRXC), Mazor Robotics, and Hansen Medical. Intuitive Surgical leads the surgical robotics market with its da Vinci surgical robot, that generates close to $3.5 billion in annual revenue and has a $64 billion market cap. The growing demand for minimally invasive surgeries has catapulted the expansion of the market for surgical robots and there is rapid consolidation in the MedTech space. According to data provider Accuray Research, the global medical robots’ market is expected to grow to 26.2 billion by 2025.
“We believe the M&A trend will continue not just in surgical robotics, but within the entire robotics, automation and artificial intelligence (RAAI) value chain spanning nearly every sector of the market,” said director of research at ROBO Global (September 2018). “It’s an extremely active area of M&A and we see more action in the future as large companies like Medtronic look to acquire their way into the robotics and artificial intelligence revolution,” he added.
According to Bain, compared to other industries, healthcare has been slow to embrace digitalization. But that is changing as participants recognize the enormous potential of techniques and tools such as advanced analytics, machine learning, smart devices and autonomous robotics. The larger companies within a healthcare segment are best positioned to take advantage of digital advances, while smaller firms that can’t afford these improvements risk falling behind. Small companies anxious to avoid missing out on digitalization can make attractive acquisition targets for funds pursuing a buy-and-build strategy that merges small assets with large, digitally enabled platforms. Funds can also find choice assets among the medtech and healthcare IT (HCIT) companies that supply the devices and systems that make digitalized care possible.
While digital can bring huge benefits in terms of efficiency, funds need to be hypervigilant that the companies in which they invest have rigorous safeguards to protect confidential patient data. A breach can destroy customer trust and cloud perception of an asset’s value.
Deal rationale
Over the last years, J&J has restructured its product portfolio and has sold some divisions such as diabetes care, as it tries to focus on and improve sales of better-performing businesses like cancer treatments.
According to Ashley McEvoy, executive vice-president of medical devices at J&J, the company is thereby aiming to “simplify surgery” to reduce complications, improve outcomes and make it safer.
Therefore, J&J has been making efforts to get into healthcare robotics when it invested in robotic surgery startup Verb Surgical, a joint venture with Google-parent Alphabet. And in May last year, J&J announced a co-development and commercialization agreement with Auris that would combine J&J’s Neuwave platform with Auris main product Monarch.
The recent acquisition is the logical next step of J&J’s expansion into the healthcare robotics market that is expected to reach nearly $12 billion by 2023, and analysts support J&J’s latest deal: “We are encouraged to see J&J moving more aggressively in the robotics field, which has been a gap for its medical device business,” Wells Fargo analyst Larry Biegelsen said.
In addition to the new technology with all its potential applications, J&J may also benefit in the future from having a new expert among its team, since Frederic Moll will be joining J&J upon completion of the transaction. He is often referred to as a forefather of robotic surgery because he cofounded market leader Intuitive Surgical ($61 billion market cap) and he should now help J&J to compete with it.
For Auris, joining J&J and gaining access to the expertise and resources of the world’s largest healthcare organization will help to gain scale in the competitive market and to accelerate product innovation.
Deal Structure
J&J’s Ethicon unit acquired Auris Health for $3.4 billion in cash. Auris Health could receive an additional 2.35 billion if certain milestones are reached.
Frederic Moll, founder and chief executive of Auris will join J&J when the deal closes.
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J&J was advised by JPMorgan Chase & Co. while Auris was assisted by Centerview Partners.
Sources and References:Financial Times, Bloomberg, Forbes, Reuters, Press release, Bain Report
To contact the authors:
Marie Alix Latournerie mariealix.latournerie@gmail.com
Marco Monaco marco.monaco@studbocconi.it
Giovanni Recordare giovanni.recordare@studbocconi.it
Robin Höpfl robin.hoepfl@studbocconi.it
Bocconi Students M&A Circle 
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