Brian Buntz

March 21, 2016

3 Min Read
Johnson & Johnson Unveils Plan to Boost Its Medtech Segment

The healthcare conglomerate has identified six business niches segments to invest in to boost its medical device segment.

Brian Buntz

Johnson & Johnson has seen the profitability of its consumer-product and medical device sectors flag in recent years, prompting activist investor Artisan Partners Limited Partnership to pressure the firm into spinning off those business units.

The company's executives recently shared their vision for growing its medical device business with a six-pronged plan that includes boosting its consumer medical devices business and expanding into emerging markets.

The company has traditionally been aggressive with medtech mergers and acquisitions without seeing significant movement in its profitability. Earlier this year, Artisan Partners noted that the company had spent more than $150 billion on mergers and acquisitions in the past decade, including spending $17 billion for Pfizer's consumer business in 2006 and $19 billion for Synthes in 2012. After that, the company spent some $5 billion on restructuring costs related to the Synthes merger, yet the profitability of J&J's medical device segment has lagged at approximately the same level of profit it made in 2010.

The company plans on continuing to make investments in specific market segments, according to the company's CFO Dominic Caruso at the Barclays Global Healthcare Conference in Miami, Florida. "There's actually six particular areas that we're very excited about. Endo cutters and there we see very good growth. Our energy instrumentation [segment is likely to see] good growth." Caruso said he was also optimistic about the company's investment in robotic surgery with its partnership with Google. In addition, he also was upbeat about knee technologies. "We think there is an additional innovation in knees," he said in a SeekingAlpha transcript. "There continues to be good innovation and areas of growth in trauma and, finally, the electrophysiology business has been fantastic for us and will continue to be that way."

The company also plans to sell more medical devices in the emerging markets using a prescription model. "So the power of brand really matters because of healthcare professionals actively engaged in their care," says Ashley McEvoy, J&J's group chairman for diabetes and vision care. "Given the chronic nature of their need states, consumers are also actively engaged and really exceeds to the value some iconic equities to create value."

The company's vision care and diabetes business units have outperformed most of the company's other medical device business segments. Vision Care, for instance, grew at a rate of 17% in the United States and 8% internationally in the most recent year. The companies diabetes segment is faring well, too. Last year, its One TouchVerio glucometer was the fastest growing glucometer on the market.

Earlier this year, Johnson & Johnson announced that it was trimming some 3000 jobs, or 4 to 6 percent of its total workforce, and result in between $800 million and $1 billion cost savings to fund new investments.

"Our medical device business had quite frankly underperformed in the market for a couple of years, we just announced the restructuring of that business and we think that business is on the right path to accelerate growth with innovation and also some costs reduction," Caruso said.

Some observers speculate that J&J could eventually exit the medical device business, but recent comments from CEO Alex Gorsky indicate otherwise. He told shareholders that the company is "setting a strong foundation for sustainable growth with the bold actions we are taking in our Medical Devices segment. Our priority in Medical Devices is accelerating growth through the strategic investments in innovation and by transforming our go-to-market models."

Learn more about cutting-edge medical devices at BIOMEDevice Boston, April 13-14, 2016.

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