Johnson & Johnson announced plans to spin off its entire orthopedics and sports medicine division into a standalone company, marking one of the most significant restructuring moves in the medical device industry this year. The healthcare giant revealed Tuesday that its $9 billion orthopedics business, including the well-known DePuy Synthes brand, will become an independent, publicly traded company by mid-2025.
This strategic separation comes as part of a broader corporate transformation at J&J, following last year’s spinoff of its consumer health business, now operating as Kenvue. The latest move represents a fundamental shift in how the 138-year-old healthcare conglomerate views its future business model.
“Johnson & Johnson is taking decisive action to position our company for continued success in a rapidly evolving healthcare landscape,” said Joaquin Duato, Chairman and CEO of Johnson & Johnson, in a statement. “By creating two focused companies, we believe both enterprises will deliver enhanced value for patients, providers, employees, and shareholders.”
The orthopedics division has been a core component of J&J’s medical device segment for decades. DePuy Orthopedics, acquired in 1998, and Swiss manufacturer Synthes, purchased in 2012 for $19.7 billion, have been integral to the company’s medical technology portfolio. However, the division has faced pressure in recent years, with growth lagging behind other segments.
Financial analysts have been quick to assess the implications. Morgan Stanley analyst Terence Flynn noted in a research brief that the orthopedics business has “underperformed the broader MedTech market for several years,” with revenue growth averaging just 1.5% annually since 2017. This contrasts sharply with J&J’s pharmaceutical division, which has delivered consistent high-single-digit growth.
The Federal Reserve’s ongoing high interest rate environment has created additional pressure for medical device companies to maximize operational efficiency. According to data from the Centers for Medicare & Medicaid Services, hospital capital expenditures on medical equipment dropped 7.3% last year, creating headwinds for companies selling high-ticket orthopedic implants and surgical systems.
For investors, the move appears strategic. J&J’s stock rose approximately 2% following the announcement, suggesting Wall Street’s tentative approval. The remaining J&J will focus on its pharmaceutical and other medical technology businesses, including vision care, surgery, and interventional solutions.
“This is about creating two strong, independent companies positioned to thrive in their respective markets,” said Joseph Wolk, J&J’s Executive Vice President and Chief Financial Officer, during an investor call. “The separation will allow each organization to pursue strategies tailored to their unique market dynamics and growth opportunities.”
The orthopedics market has faced significant challenges in recent years. Procedures declined during the pandemic, and the recovery has been slower than anticipated. Furthermore, hospitals have increasingly scrutinized the costs of orthopedic implants amid budget constraints. According to a recent American Hospital Association report, nearly 40% of U.S. hospitals are operating at negative margins, forcing tougher negotiations with suppliers.
Industry experts view this spinoff as potentially triggering a domino effect of similar moves across the medical technology sector. Richard Newitter, an analyst at Truist Securities, suggested that “we’re likely seeing the beginning of a broader restructuring trend in MedTech as companies seek to focus on their highest-growth segments and shed underperforming divisions.”
The new orthopedics company will face both challenges and opportunities as an independent entity. With approximately $9 billion in annual revenue, it will become one of the largest pure-play orthopedics companies globally, competing directly with Stryker, Zimmer Biomet, and Smith+Nephew.
Current DePuy Synthes Worldwide President Tim Schmid is expected to lead the new company as CEO. During a press briefing, Schmid emphasized that independence would allow for “greater strategic flexibility and focused investment in innovation that addresses the specific needs of orthopedic surgeons and their patients.”
The orthopedics market, despite recent pressures, maintains significant long-term growth potential driven by demographic trends. The American Academy of Orthopedic Surgeons projects total knee replacement procedures to grow 189% by 2040, with hip replacements increasing 157% during the same period, largely due to aging populations in developed markets.
J&J has indicated that the transaction will be structured as a tax-free spinoff to shareholders, who will receive shares in the new orthopedics company proportional to their J&J holdings. The company expects to incur between $700 million and $800 million in separation costs, according to regulatory filings.
This move follows a broader trend of healthcare conglomerates streamlining their businesses. In 2022, General Electric spun off its healthcare division, while Siemens separated its medical technology business in 2018. Similarly, Baxter International announced plans earlier this year to spin off its kidney care division.
For J&J, this separation represents the continuation of its strategic evolution from a diversified healthcare conglomerate toward a more focused pharmaceutical and medical technology innovator. The remaining Johnson & Johnson will prioritize high-growth areas including oncology, immunology, and minimally invasive surgical technologies.
As the medical device industry continues to evolve in response to economic pressures and changing healthcare delivery models, more companies may follow J&J’s lead in reshaping their portfolios to maximize value and competitive positioning in an increasingly challenging market environment.
