J&J Doubles Down on Digital Surgery
The healthcare conglomerate finishes what it started with Google, when it created the Verb Surgical joint venture.
“We are building a truly differentiated digital surgery ecosystem to change the standard of care for generations to come.” — Ashley McEvoy, Worldwide Chairman of Medical Devices, Johnson & Johnson
As we look at the future of healthcare, the application of data, robotics and machine learning are poised to fundamentally change the surgery equipment industry.
Healthcare conglomerate Johnson & Johnson is making sure, through massive investment in R&D and a series of recent acquisitions, that it does not miss out on the opportunity to furnish the operating room of the future. By absorbing Verb Surgical, a soft tissue digital surgery platform that it founded with Google, J&J takes a decisive step in that direction.
Who is Johnson & Johnson?
Founded in 1886, Johnson & Johnson is a Fortune 50, $80 billion American health care conglomerate that began by manufacturing and selling ready-to-use surgical dressings and other medical products and devices. Started by three brothers–James, Robert, and Edward Johnson–the company’s humble beginnings gave soon way to large-scale successes.
J&J introduced to market the first commercial first aid kits for civilians, that had initially been designed to help railroad workers, and eventually became standard practice in treating injuries. In 1894, the company’s baby business was born with the launch and sale of maternity kits. These kits were intended to make childbirth safer for mothers and for their babies. Johnson’s Baby Powder also began to sell in the same year and rapidly grew in popularity.
Ethicon, one of J&J’s subsidiaries, a manufacturer of surgical sutures and wound closure devices, was incorporated as a separate company later in 1949 for the purpose of expanding and diversifying J&J’s product line. Following World War II, Ethicon’s market share in surgical sutures soared to 70% across the globe.
In 1959, J&J acquired McNeil Laboratories in the US and Cilag Chemie in Europe. These acquisitions allowed the company to gain a presence in the pharmaceutical industry for the first time in their history. TYLENOL Elixir for Children, a McNeil product, was their first prescription, aspirin-free, pain reliever. With J&J’s acquisition, Tylenol became available without a prescription only one year later and became known as the pain reliever doctors and pediatricians recommend in the majority of cases.
Johnson & Johnson Now
Today, J&J is an $80 billion conglomerate with 130,000 employees, hundreds of subsidiaries and a range of products under three main business units: Consumer Health, Medical Devices and Pharmaceuticals. Over the course of its history, Johnson & Johnson has grown both organically and through acquisitions, absorbing in the process several dozens companies and brands in a variety of categories and rolling them up into its strategic business units.
In just the last 10 years, J&J appetite for M&A has certainly not diminished. On the contrary, the company acquired 20 entities ranging from biotech to medical devices to pharmaceuticals to cosmetics, culminating with the purchase of Actelion Pharmaceuticals for $30 billion, the largest in the company’s history.
Stepping into the role of CEO in 2012, Alex Gorsky has set a course of broad diversification, doubling down on M&A as a powerful tool to grow and diversify.
Who is Verb Surgical?
With a combination of offerings in robotics, advanced visualization, advanced instrumentation, and data analytics, Verb Surgical is a digital surgery platform located in the San Francisco Bay Area.
Founded in 2015, Verb is a joint-venture project by Johnson & Johnson’s Ethicon division and Google’s life science-focused subsidiary Verily. Verily itself is a spinoff of sorts, since it was started as Google Life Sciences inside Google’s new business incubator Google X and became an independent subsidiary of Alphabet Inc. as part of the reorganization of Google in 2015. Verily’s stated mission is “to make the world’s health data useful so people enjoy healthier lives.”
“I couldn’t be more bullish around how J&J is going to create value in this space.” — Ashley McEvoy, EVP Medical Devices, Johnson & Johnson
Verb surgical is built on five technological pillars of robotics, advanced instrumentation, enhanced visualization, connectivity, and data analytics & machine learning. Verb Surgical’s “Surgery 4.0” technology enables surgeons to perform procedures in ways which they were not able to before.
The company uses a purpose-built machine learning platform to learn, refine and relay surgical best practices, which could provide any of Verb Surgical’s connected devices with the knowledge and experience of the world’s best surgeons.
Verb Surgical has been developing a general surgery robot that is capable of open and laparoscopic operations for anything between the pelvis up to the neck. Verb premiered the first prototype to its industry partners and benefactors in early 2017.
The Deal
On December 20th, 2019, Johnson & Johnson purchased their remaining stake in Verb Surgical for an undisclosed sum. The deal is said to close within the first half of 2020.
Why it Matters
In July 2019 Verb Surgical hired Kurt Azarbarzin, a 30-years veteran executive in the medical device and surgery equipment industry, as its new CEO.
At the same time, J&J seems determined in its pursuit of the promise of robotics surgery. In 2018, the company acquired Orthotaxy, a Frech orthopedic robotics startup that was developing a system for knee replacement. In 2019, it paid $3.5 billion for Auris Health, maker of the Monarch endoscopic surgery robotic platform.
Verb’s soft tissue robotics technology would represent another critical piece of JnJ investment to, as Ashley McEvoy, EVP and worldwide chairman of Johnson & Johnson’s medical device segment put it during a recent analyst call, “change the standard of care, not just for the next 10 years, but to 20 years and 30 years.”
In May 2019, Verily announced that it had formed a strategic alliance with Novartis, Otsuka, Pfizer and Sanofi to “transform clinical research.” Project Baseline, the initiative behind the partnership, aims to use patient and clinical trial data to “explore novel approaches to generating real-world evidence […] to collect, organize and activate health information from electronic health records, sensors and other digital sources.”
With Johnson & Johnson notably absent from the Project Baseline list of partners and with Verb Surgical approaching a stage where execution centers around the ability to bring the technology to market, it is not improbable that the early development-oriented collaboration between J&J and Verily had run its course.
“With Verb Surgical’s talent and technology, we will strengthen our portfolio and our ability to deliver our digital ecosystem to make a clinical difference for patients,” says Frederic Moll, CEO of Auris Health
This transaction positions J&J as a legitimate force in the developing industry for surgery robotics technologies. The development of these technologies has the potential to upend an entire industry. As other examples has shown, companies that fail to take aggressive steps, as these new transformative technologies take hold, risk being left behind. Johnson & Johnson seems determined not to take that risk.
TL;DR
- Johnson & Johnson acquired Verb Surgical on December 20th, 2019.
- Founded in 2015, Verb Surgical is a digital surgery platform that gives surgeons the opportunity to perform at a higher level.
- Verb was a joint venture between Johnson & Johnson and Verily, a Google life science data company.
- Verily contributed primarily image and data analytics software to Verb.
- As Verb prepares to a commercial launch it makes sense that it becomes fully integrated in J&J medical devices business unit.
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