J&J's Medtech Biz Slumps

The company is faced with the prospect of slimming its medical device division to restore growth.

Brian Buntz

Johnson & Johnson's anemic medical device business in the most recent quarter and the strong U.S. dollar have dimmed the company's outlook for the year. The company's medical device division had quarterly sales of $6.3 billion--an 11.4% drop compared with a year prior. Part of the drop was a short-term result of selling off of less-profitable medtech assets while the rest came from pricing pressures and an uptick in competition.

The company had better news to report when it came to utilization of its technology, owing to an increase in surgical procedures, hospital admissions, and physician office visits, Barrons explained. Its atrial fibrillation and diabetes units also fared well, posting 12% and 10% growth, respectively.

In an earnings call, the company also stated it was excited about its partnership with Google to develop surgical robotics systems. It may be years, however, before that collaboration results in a product launch.

The company's pharmaceutical business fared well in the most recent quarter, helping to make up for losses in other business units, according to The Wall Street Journal. The sales of the company's pharma division ticked up 3% over the first quarter of last year, hitting $7.7 billion. Lukewarm sales of its Olysio hepatitis drug, however, dampened that division's growth somewhat.

The fact that J&J is doubling down on pharma while its medtech business falters is not a new trend for the company. In 2013, we had similar news to report.

A more recent challenge to the company, however, is the strong dollar, which is problematic for J&J as half of its sales come from abroad.

Together with its slow sales, excluding pharmaceuticals, the company's first-quarter profit was down 8.6% compared with the same quarter last year.

In the past, the company has looked to acquisitions to help fuel growth, while selling off less profitable business units. In 2012, it acquired Synthes for nearly $20 billion. More recently, the company is seeking to broaden its portfolio of pharmaceutical offerings. It had hoped to acquire a company named Pharmacyclics, but AbbVie ended up being the winning bidder for that company.

In 2011, the company sold its drug-eluting stent business, which was a niche the company helped establish in the early 2002, as it did with the cardiac stent business in the 1990s.

Meanwhile, the company is considering trimming the size of its medtech business. It recently received a $2 billion offer for its Cordis division from Cardinal Health. When J&J acquired Cordis in 1996, the price tag was roughly $1.9 billion and it was one of the biggest acquisitions the firm had ever made.

Last year, J&J also sold off its Ortho-Clinical division to the Carlyle Group for $4 billion.

Bank of America analysts are predicting more divestitures to come for the company, adding that they are likely necessary to restore growth to the company.  

Brian Buntz is the editor-in-chief of MPMN and Qmed. Follow him on Twitter at @brian_buntz.

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