In order to focus on its core business of consume products, pharmaceuticals and devices, Johnson & Johnson has been assiduously reviewing its business segments, and pruning them as needed.
Back in 2011, the New Brunswick-based conglomerate made the surprising announcement that it was withdrawing from the drug-eluting stent market, a category it had created.
And just two days ago the company accepted the $4.15 billion offer from the Carlyle Group for its diagnostics business.
Based in Raritan, New Jersey, the Ortho-Clinical Diagnostics business makes in-vitro diagnostics products and operates in 130 countries. It serves clinical laboratories and the transfusion medicine community by providing total solutions for early screening, diagnosing, monitoring and confirming diseases. It is focused on supporting hospitals, laboratories and blood centers worldwide.
The fact that the business segment was suffering slower sales, another catalyst for the JNJ divestiture, belies the larger opportunity for the diagnostic segment of the medtech market.
“It is arguable that the diagnostics market represents one of the largest areas for growth in the medtech sector in coming years,” said Matt Lowe, executive vice president of global sales and marketing at MasterControl Inc., which makes a web-based quality and compliance software for life sciences companies and others, in an email.
In fact, it is not only the largest segment within medtech, it is also the fastest-growing, according to the Evaluate MedTech World Preview 2013 report. The report found the following:
|Worldwide medtech sales by device area in 2018|
|WW sales ($bn)|
|In vitro diagnostics (IVDs)||43.6||58.8||5.1%|
Another report on the global IVD market, pointed to self-testing as the biggest trend fueling the growth of the industry. Other factors influencing the growth include, “ongoing developments in analytical laboratory automation, swift progress in various fields of diagnosis such as … molecular diagnosis, immunoassays, hematology, flow cytometry, microbiology and finally, the geographical market expansion within emerging countries," according to a research report from Research and Markets.
But in the United States, reimbursement changes and a move toward evidence-based medicine is also driving the growth.
“As the government and private insurance companies demand results-based medicine, companion diagnostics become more and more important to pharmaceutical manufacturers,” Lowe added. “The right diagnostic test can determine whether or not a therapy will be effective in a given patient population, thus reducing waste in administering medicines to patients that will not benefit from the therapies. Diagnostics are the key to the future of “personalized” medicine.”
So while Johnson & Johnson trims its product offerings by getting rid of non-core, slow growing business segments including its the Ortho-Clinical Diagnostics business, the category of in vitro diagnostics has tremendous growth potential in the new healthcare paradigm.
Without that potential, it's hard to imagine a private equity firm like Carlyle Group deciding to shell out billions to run it.
[Photo Credit: iStockphoto.com user SaulHerrera]