Betting on Surgical Robots: Johnson & Johnson's Quest to Reclaim the Global MedTech Crown in China

Johnson & Johnson had long held the top position as the global leader in medical devices, but it was overtaken by Medtronic—amid Medtronic’s aggressive M&A activities and J&J’s sluggish growth in its traditional businesses—slipping from first to second place worldwide.

In fiscal year 2018, Medtronic’s total medical device revenue amounted to RMB 200.9 billion, compared with RMB 181.0 billion for Johnson & Johnson. This marked the second consecutive year that Medtronic surpassed Johnson & Johnson in the medical device sector.（Note: Medtronic recently released its fiscal 2019 financial results, with global revenue reaching approximately RMB 211.1 billion, a year-on-year increase of 3.92%; however, as Johnson & Johnson has not yet released its annual report, a year-over-year comparison for the same period is currently not feasible.)

Upon closer examination, M&A transactions are the core driver behind the shift in rankings. Since its nearly $50 billion merger with Covidien in 2014, Medtronic has directly challenged Johnson & Johnson’s dominant position, sparking a wave of mergers and acquisitions across the pharmaceutical and medical device industry. In recent years, Johnson & Johnson has simultaneously acquired new assets and divested existing businesses, gradually ceding its top spot to Medtronic through these continuous strategic adjustments.

In February this year, Johnson & Johnson acquired Auris Health, a medical device company with cutting-edge surgical robot technology, for $3.4 billion in cash, demonstrating J&J MedTech's determination to return to its peak.

“Today, the success of surgery remains closely tied to the skill level of individual surgeons, but the potential of surgical robots lies in their ability to potentially deliver optimal surgical outcomes for every patient.” Dr. Moll, founder of Auris Health and known as the “Father of Surgical Robots,” described the role of surgical robots in the future of healthcare in this way.

According to BCG Boston Consulting Group’s estimates, the global medical robotics market was valued at $11.4 billion by 2020. The incidence of chronic diseases such as cardiovascular, neurovascular, and oncological conditions continues to rise. The growing prevalence of chronic diseases will create a larger market for surgical robots.

Today, Dr. Moll has become the Chief Development Officer at Johnson & Johnson MedTech, helping Johnson & Johnson further expand into the field of surgical robotics.

Can Johnson & Johnson MedTech Reclaim Its Top Spot? The Key May Lie in Orthopedics, the Chinese Market, Surgical Robots, or a Combination of Factors. This Article Examines the Development History and Strategy of Johnson & Johnson MedTech, with a Focus on Its Exploration of Surgical Robotics.

Since its inception in New Jersey, USA, in 1886, Johnson & Johnson MedTech has undergone three major phases of development: initiating with suturing products, focusing on minimally invasive surgery, and vigorously advancing AI-powered robotic-assisted surgery.

From its founding to the 1870s, Johnson & Johnson focused on its sterile suture business.

In 1886, Robert Wood Johnson, together with his brothers James and Edward, founded Johnson & Johnson in the United States, aiming to establish the first company to mass-produce sterile surgical dressings and sutures, thereby launching Johnson & Johnson’s more than 130-year legacy of innovation.

In 1949, Ethicon was established, with its core business consisting of traditional suture products.

In 1969, ETHICON launched the first synthetic sterile suture—PROLENE polypropylene suture—which has remained the industry standard to this day. Subsequently, ETHICON introduced disposable skin staplers, changing the rules of the game in the industry; its development of new coated sutures further solidified Johnson & Johnson’s dominant position in the suture business.

Starting in the 1880s, Johnson & Johnson’s medical devices entered their second phase of development, focusing primarily on minimally invasive surgery while diversifying into orthopedics and sterilization.

Building on its suturing business, ETHICON has achieved even more remarkable performance in minimally invasive surgery. In 1988, ETHICON performed the first minimally invasive cholecystectomy, maximizing the potential of laparoscopic surgery. Over the following 30 years, Johnson & Johnson continuously launched new minimally invasive surgical devices, making significant contributions to the revolution in surgical procedures. Additionally, the company established the Endo-Surgery Institute to help surgeons master minimally invasive surgical techniques.

Additionally, in the field of orthopedics, DePuy launched the first mobile-bearing knee system in 1980. Subsequently, it introduced Natural Hip Sockets for artificial hip joints and developed injection therapies targeting osteoarticular pain.

In 1987, Johnson & Johnson's ASP sterilization product line was established, and five years later, it launched its first low-temperature gas plasma sterilization device.

In 2015, Johnson & Johnson entered into a strategic partnership with Google, leveraging Ethicon’s extensive experience in minimally invasive surgery and Google’s artificial intelligence technology to jointly explore advanced surgical solution platforms. This marked Johnson & Johnson MedTech’s formal entry into the AI sector, ushering in its third phase of comprehensive development.

This company, which has stood firm through 130 years of turbulence, is seizing the opportunity and embracing the era of surgical robots.

Frederic Moll, MD, is currently the Chief Development Officer at Johnson & Johnson Medical Devices Companies (JJMDC) and the founder and former CEO of Auris Health, a medical robotics company that became part of Johnson & Johnson’s MedTech segment this February.

Dr. Moll is hailed as the "Father of Surgical Robotics." In response to such acclaim, Dr. Moll quipped, "Just don't call me Grandpa."

Great medical achievements are rooted in his genes: both parents were pediatricians, and his mother was the first female graduate of Yale School of Medicine. However, when he was only 14 years old, he experienced a period of hardship that was almost unimaginable. During a family vacation on San Juan Island, his mother went missing in a boating accident, and shortly thereafter, his father passed away at the age of 54 due to a heart attack.

Whether driven by a sense of mission to carry on the legacy or by the helplessness felt after the loss of loved ones, Dr. Moll, despite his initial confusion, ultimately heeded the inner calling to pursue medicine. He began his medical career at the University of Washington School of Medicine, progressing from his first laparoscopic surgery to performing remote surgeries at Stanford, before finally focusing his attention on the field of robotic surgery. In 1995, he created the first robotic surgical system.

At that time, Frederic Moll became one of the co-founders of Intuitive Surgical, the parent company of the da Vinci Surgical System. Intuitive Surgical is a world-renowned medical device company that went public in 1995. As both a pioneer and a dominant player in the surgical robotics market, it has developed the da Vinci Surgical System, which has been widely used in prostatectomies, heart valve repairs, and obstetric and gynecological surgeries.

On the 11th anniversary of Google’s IPO, Wall Street conducted a study on corporate return on investment (ROI). Among the 6,000 companies listed on U.S. stock exchanges at that time, only 13 achieved an ROI higher than Google’s, with Intuitive being one of them.

In 2009, Dr. Moll decided to launch Auris Health. Leveraging Auris Health’s robotic platform technology for diagnostic and therapeutic procedures in the lungs, Johnson & Johnson will advance its commitment to combating lung cancer and expand its digital surgery portfolio across multiple surgical specialties.

Despite Dr. Moll’s enthusiasm for robotics, he maintains that the purpose of surgical robots is not to replace surgeons. A father of three daughters, Dr. Moll is a human-centric idealist who enjoys listening to 1960s rock music and reading detective and historical fiction.

In fact, Dr. Moll’s greatest motivation is not merely the thrill of developing new technologies, but more importantly, providing better medical services to patients. “We have great scientists and robust infrastructure, enabling us to deliver the highest quality of care. However, these services currently reach only a subset of the population, not everyone.” He believes that surgical robots have the potential to reduce performance variability among individual surgeons and ensure optimal surgical outcomes for every patient.

With the support of Auris and Dr. Moll, coupled with its prior collaboration with Verily and the acquisition of orthopedic robotics company Orthotaxy, Johnson & Johnson believes these resources will better enable it to fulfill its commitment to digital surgery.

VCBeat (WeChat ID: vcbeat) has observed that mergers and acquisitions in the medical device industry have become increasingly frequent over the past three years, with transaction values growing exponentially.

In fact, divestitures and mergers and acquisitions (M&A) are key elements in the strategic layout of medical device giants. Divesting businesses allows companies to focus on their core operations, maintain industry influence, and ensure stable profit margins. Meanwhile, M&A activities can strengthen competitiveness, provide technological supplementation or reserves, expand product pipelines, or capture blue-ocean markets.

Johnson & Johnson is no exception. VCBeat has reviewed Johnson & Johnson’s medical device acquisitions and divestitures over the past three years.

Since 2017, Johnson & Johnson has been continuously expanding its acquisition list of medical device companies.

In April 2017, Johnson & Johnson acquired the Irish medical device company Neuravi and its portfolio of neurovascular therapy technologies.

In July 2017, Johnson & Johnson acquired the spinal surgery company Sentio, officially entering the new orthopedic product field of minimally invasive spine surgery.

In February 2018, Johnson & Johnson announced the acquisition of Orthotaxy to develop the next-generation robotic-assisted surgical platform for orthopedics.

In September 2018, Johnson & Johnson Medical announced the acquisition of Emerging Implant Technologies, a German manufacturer of 3D-printed spinal implants, with the aim of expanding its orthopedic applications.

In February this year, Johnson & Johnson acquired Auris Health, a medical device company with cutting-edge surgical robot technology, for $3.4 billion in cash. Although Auris's currently commercialized products can only be applied to lung cancer, the main purpose of Johnson & Johnson's acquisition was to complement the Orthotaxy orthopedic-assisted surgical robot acquired earlier.

While strengthening its MedTech segment, Johnson & Johnson is also accelerating the divestiture of other businesses, initiating a “fire sale” of its medical device portfolio.

Since 2017, Johnson & Johnson has successively announced the cessation of operations and withdrawal from its Animas insulin pump business and Codman neurosurgery business. To date, after divesting its diagnostics, cardiovascular stent, diabetes care, and sterilization/disinfection businesses, Johnson & Johnson’s medical device segment has remained focused on orthopedics, surgery, and vision care, with a strategic emphasis on advancing surgical robotics technology.

These measures clearly demonstrate Johnson & Johnson MedTech’s determination to enter the AI medical device sector, particularly in the field of surgical robots.

Gary Pruden, President of Global Medical Devices at Johnson & Johnson, believes that surgical robots currently on the market are not technically robots; they are merely extensions of surgeons’ hands and eyes and lack autonomous thinking capabilities. Johnson & Johnson aims to develop more groundbreaking surgical robots in the future to provide greater assistance to physicians.

According to the annual financial report, Johnson & Johnson’s total revenue in 2018 amounted to $81.582 billion. Of this, medical device sales for the year reached $27 billion, representing a 1.5% year-over-year increase; meanwhile, pharmaceutical business revenue totaled $40.7 billion, a 12.4% increase from the previous year.

The medical device business experienced slower growth, primarily due to the divestiture of the diabetes care business, LifeScan, and the impact of acquisitions. Growth was mainly driven by electrophysiology products within the Interventional Solutions segment, the application of contact lenses and wound closure products in general surgery, and endocutters and biosurgical products within the Advanced Surgery business.

Johnson & Johnson’s Decision to Acquire Surgical Robots Driven by Two Key Factors: First, to Consolidate Its Existing Business, Create Growth Highlights, and Stimulate Sluggish Operations; Second, the Surgical Robotics Sector Itself Exhibits Significant Growth Momentum.

The surgical robot market was once monopolized by Intuitive Surgical’s da Vinci system, but Johnson & Johnson’s strong entry is set to inject fresh vitality into this field.

Johnson & Johnson’s current flagship product lines consist of two segments: the traditional suturing and minimally invasive surgery business led by Ethicon, and the global orthopedics business managed by DePuy Synthes.

Surgical robots are an emerging business that Johnson & Johnson is continuously strengthening.

In 2018, Johnson & Johnson and Verily, a subsidiary of Alphabet, established the joint venture Verb Surgical and acquired Orthotaxy, a French company specializing in robot-assisted orthopedic surgery. Orthotaxy offers differentiated robotic-assisted surgical solutions. Currently, this proprietary technology is still in the early stages of research and development for total knee arthroplasty and partial knee arthroplasty. Johnson & Johnson MedTech plans to expand its applications and promote its use across a broader range of orthopedic procedures.

The acquisition of Auris Health by Johnson & Johnson this year will be even more strategically significant.

Like the renowned da Vinci Surgical System, Auris Health’s robotic platform is also remotely controlled by surgeons from a console. The surgeon operates the robot within a three-dimensional map generated from a series of two-dimensional CT scans, utilizing electromagnetic sensors, accelerometers, and even automated video-tracking localization devices.

In March 2018, Dr. Frederic Moll publicly announced that the Monarch robotic endoscopy platform, a revolutionary product under Auris Health, had received FDA approval. While the platform was initially targeted at treating lung cancer, the FDA’s clearance of the device for diagnostic and therapeutic bronchoscopy procedures demonstrates that the design of the Monarch platform extends beyond a single indication.

The Monarch platform features a familiar, controller-like interface that enables physicians to navigate flexible robotic endoscopes through the peripheral lungs while enhancing reach, visualization, and control. By integrating computer-assisted navigation based on patient-specific 3D lung anatomical models with conventional endoscopic views, the Monarch platform provides physicians with continuous bronchoscopic visualization throughout the procedure.

Furthermore, the Monarch system does not rely on outdated single-hand interfaces that require users to manipulate the endoscope through twisting; instead, it enables more ergonomic control via a gamepad-like device.

Following the acquisition of Auris Health, Auris’s Monarch platform will be integrated with Johnson & Johnson’s Neuwave Flex microwave ablation system, bringing robotic surgical technology for airway procedures and lung cancer diagnostic surgery to Johnson & Johnson and expanding its digital surgery business.

Additionally, the agreement reached between Johnson & Johnson and Auris Health stipulates that Johnson & Johnson will make an additional payment of $2.35 billion to Auris if its business achieves specific milestones, at which point Auris will be integrated into Ethicon, Johnson & Johnson’s largest medical device subsidiary. This clause also indirectly reflects Johnson & Johnson’s intention to integrate Auris’s technological capabilities with Ethicon’s strengths in minimally invasive surgery, thereby embarking on a transformation toward AI-assisted healthcare.

In terms of geographic revenue distribution, the Asia Pacific (China) and Africa regions were Johnson & Johnson’s fastest-growing markets in 2018, with a growth rate of 10.5%, followed by Europe at 9.5%. China plays a crucial role in Johnson & Johnson Medical’s global growth strategy. It is projected that China will become the world’s largest healthcare market over the next decade. Johnson & Johnson’s investment in and emphasis on the Chinese market are evident.

Meanwhile, the development of surgical robots in China has also caught up with the bonus period, gradually becoming the darling of policies and capital. In November 2018, the National Medical Products Administration revised the "Special Review Procedure for Innovative Medical Devices," approving the market launch of 21 innovative medical devices, including orthopedic surgical robots, to reduce clinical treatment costs.

According to data from the Qianzhan Industry Research Institute, the market size of domestic medical service robots in China reached USD 520 million in the first half of 2018. According to forecasts by the China Investment Advisor Industry Research Center, the compound annual growth rate (CAGR) of the smart medical robot market from 2017 to 2021 is approximately 15.04%, and the global market size is expected to reach USD 20.7 billion by 2021.

Johnson & Johnson’s long-time rival, Medtronic, has spared no effort in the highly promising innovative field of surgical robots.

In December 2018, Medtronic acquired medical device company Mazor Robotics and its robot-assisted surgical platform for $1.7 billion, and announced that the first product jointly produced by the two companies had received FDA approval, thereby bringing the acquisition to a successful conclusion.

Meanwhile, Medtronic is also actively expanding its robotics business in the Chinese market. According to Gu Yushao, Senior Vice President of Medtronic globally and President of Greater China, the introduction of Mazor is currently underway with intensive efforts.

Although Medtronic gained an early advantage, Johnson & Johnson’s aggressive acquisition of Auris has brought the two competitors back to the same starting line. While Johnson & Johnson China has not yet disclosed new developments in robotics, the Chinese market is poised to become a key market for the Auris surgical robot, given the large population of lung cancer patients in China.

Furthermore, Johnson & Johnson MedTech has also established its presence in the Chinese market across orthopedics, minimally invasive surgery, and suturing businesses.

On January 23, 2019, Ethicon’s new manufacturing facility, built with an investment of $180 million, was completed in the Suzhou Industrial Park and is expected to commence official operations by the end of the year. The new production capacity in Suzhou is also regarded as a significant milestone in Johnson & Johnson Medical’s accelerated expansion of its supply chain in China.

On June 27, 2019, a business unit under Johnson & Johnson (China) Investment Ltd. announced the opening of JLABS@Shanghai, the largest Johnson & Johnson medical innovation incubator globally in terms of floor space and the first JLABS in the Asia-Pacific region. Located in the Zhangjiang Hi-Tech Park in Shanghai, JLABS@Shanghai covers a total construction area of over 4,400 square meters and was jointly established by Shanghai Zhangjiang Pharmaceutical Valley Public Service Platform Co., Ltd. and Johnson & Johnson Innovation.

JLABS@Shanghai can accommodate nearly 50 innovative entities, covering fields including pharmaceuticals, medical devices, consumer health, and medtech. To date, 31 companies have moved in, including three winners of the Shanghai Lung Cancer QuickFire Challenge innovation competition.

“We aim to help meet China’s growing healthcare needs, and by staying closely connected with patients, we are better positioned to do so. Lung cancer is the leading cause of cancer-related deaths in China, claiming more than 700,000 lives annually. This will be a key initial focus, but not the only one,” said Sharon Chan, Head of JLABS@Shanghai. “We are seeking the brightest and most talented individuals in the most impactful and game-changing scientific fields, which may include oncology, immunology, neuroscience, as well as cardiovascular and infectious diseases.”

The establishment of JLABS@Shanghai Innovation Center reflects Johnson & Johnson’s emphasis on the Chinese market. Johnson & Johnson is poised to build a healthcare innovation incubator ecosystem in China, fostering its own cluster of medical innovation industries to meet the rapidly growing healthcare demands of the Chinese market.

The battlefield for medical devices may still be fraught with tension. How will the industry giants further strategize their presence in the Chinese market, and who will emerge as the leader in the future? Only time will tell.