Does J&J Have Better Days Ahead for Its Device Business?

Johnson & Johnson's CEO says the medical device industry is at a "tipping point."

Nancy Crotti

Medical device sales continued to lag for Johnson & Johnson in the second quarter of 2015, though CEO Alex Gorsky sees plenty of future opportunities for the health product manufacturing giant.

The New Brunswick, NJ-based company saw medical device sales drop 12.2% year-over-year in the quarter to $6.4 billion, the company reported Tuesday. The decline follows last year's $4 billion sale of J&J's Ortho-Clinical Diagnostics (OCD) business to the Carlyle Group. OCD, which makes blood testing equipment, had generated annual sales of almost $2 billion.

The strong dollar contributed to the company's woes, as did lower sales in trauma and spine products, the company said. Chairman and CEO Alex Gorsky vowed to improve those businesses, citing 11% growth in the company's Biosense Webster business in the first half of the year and new spine and trauma products that the company plans to introduce this year.

"Our endocutter business has grown 15.5% and our biosurgery business with continued strong growth of 7.5%,"Gorsky added in a conference call transcribed by Seeking Alpha. "In diabetes, our products and strong in-market execution are helping to revitalize that business."

Gorsky also cited J&J's Ethicon subsidiary's partnership with Google to advance the field of surgical robotics. The collaboration, announced in March and facilitated by Johnson & Johnson Innovation in California, will focus on creating new robotic surgery tools that integrate best-in-class medical device technology with robotic systems, imaging, and data analytics.

Overall second-quarter sales were $17.8 billion for J&J, down 8.8% versus the second quarter 2014. Profits were $4.5 billion, representing a 6.3% year-over-year decrease after special items were figured in.

J&J continues to look hard at its businesses to determine which it might cut loose to improve earnings. The company expects the $2 billion sale of Cordis to Cardinal Health to close by the end of the year. Based in Fremont, CA, Cordis is a $780 million-a-year business, with sales split almost evenly between cardiology devices such as sheaths, wires, and guides--and balloons and endovascular products including both self-expanding and balloon-expanding stents.

"We are at the tipping point, where technology is becoming the medium through which healthcare can become a more effective and efficient system. The opportunities this creates for Johnson & Johnson to become a healthcare technology innovator are immense," Gorsky said. "We are working with and talking to nearly every major technology company and many early stage companies. We are collaborating with retailers like Walgreens and CVS, where care is increasingly delivered, health plans like Aetna and Kaiser Permanente, and health systems such as Jefferson Health and Premier to leverage technology digital tools and our health and wellness expertise."

Nancy Crotti is a contributor to Qmed and MPMN.

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