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Johnson & Johnson to Buy Robotics Startup Auris Health for $3.4B

Xconomy New York — 

[Updated 2:07 p.m. See below.] Johnson & Johnson is acquiring medical robotics developer Auris Health for $3.4 billion in cash, a deal that builds on the company’s stated plans to become a player in “digital surgery.”

Privately held Auris has commercialized a robotic system cleared by the FDA to assist surgeons in diagnosing and treating lung conditions. According to the agreement announced Wednesday, the Redwood City, CA-based medical device startup could gain up to $2.35 billion in additional payments if it hits pre-specified, but undisclosed, milestones.

Shares of Johnson & Johnson (NYSE: JNJ) held steady Wednesday morning, hovering around Tuesday’s $134.16 closing price.

Auris’s robotic system, called Monarch, employs slender, flexible instruments that are inserted through a patient’s airway to examine tissues and organs. Using a hand-held controller, surgeons can use the device to access hard-to-reach parts of the lungs with greater control and precision. Auris was founded by CEO Frederic Moll, a medical device industry veteran best known as the co-founder of surgical robot giant Intuitive Surgical (NASDAQ: ISRG).

Last March, the FDA cleared Auris’s device for lung procedures. Lung cancer is the first target, but the company has said it plans to develop the technology for additional procedures as well.

Johnson & Johnson’s medical devices division sells a wide range of products used in diabetes care, diagnostics, and surgery. These devices accounted for $27 billion in 2018 revenue. But the company has been maneuvering to address the ways it says surgery will be done in the future.

A little more than three years ago, J&J formed a company called Verb Surgical in collaboration with Google subsidiary Verily Life Sciences. The goal was to develop new robotic technologies for surgery. Wednesday’s Auris deal comes nearly a year after J&J acquired Orthotaxy, a privately held company based in France that is developing software for robotic-assisted knee surgery. In a prepared statement, Ashley McEvoy, J&J’s executive vice president, worldwide chairman, medical devices, said that the company is committed to the Verily partnership on Verb. She added that the Auris acquisition complements the company’s efforts with both Verb and Orthotaxy.

During a conference call last month discussing 2018 financial results, J&J CEO Alex Gorsky told analysts that robotic technologies are part of the company’s transition into digital surgery, which he described as a “critical element to our future success, not just in the near term, but as we look to the next decade and beyond,” according to a transcript from Seeking Alpha.

[The following two paragraphs added with more details and analyst comments.] Auris and J&J are already acquainted. Last May, the companies entered a collaboration agreement intended to pair the Auris robotic system with J&J’s Neuwave technology, which uses microwaves to ablate, or destroy, damaged or diseased tissue. The goal of the partnership was to treat such tissue in the lungs. J&J acquired this ablation technology in a 2016 acquisition.

In a research note, SVB Leerink analysts wrote that the Auris acquisition reinforces J&J’s committment to robotics, while providing an earlier entry into that market with an already commercialized product. J&J also told the SVB Leerink analysts that the Auris acquisition does not change timelines for its other robotics platforms; launch of a Verb product is expected by the end of next year. But the deal does give the company a product that will compete directly with an Intuitive Surgical device expected to launch mid-year. J&J told SVB Leerink the Auris system will offer surgeons a better view of the surgical field, offering a competitive advantage.

Auris has raised more than $700 million in financing, most recently a $220 million round of funding last November that the company said would support commercialization of Monarch and additional research and development.

When the Auris deal is complete, Moll will join J&J. The companies expect to close the acquisition by the end of the second quarter of this year.

Photo by Auris Health