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Will J&J Dump Its Low-Performing Diabetes Device Business?

Will J&J Dump Its Low-Performing Diabetes Device Business?
J&J ditched its underperforming Ortho-Clinical Diagnostics unit in March, but diabetes devices are posting even worse sales declines. Could another divestiture be coming?

When Johnson & Johnson’s Ortho-Clinical Diagnostics business wasn’t performing up to snuff, the company unloaded it to Carlyle Group for $4 billion last month. Could its struggling diabetes device business be next on the chopping block?

Consider this: J&J's diagnostics sales were down 8.9% year over year before the divestiture. Meanwhile, diabetes care sales fell 11.7%.

The segment’s poor performance has continued into the first quarter of this year, too. Worldwide, the company's diabetes care sales fell 14.7% year over year in Q1 2014, and in the United States they plummeted 32.2%. In an earnings call today (see transcript from Seeking Alpha), J&J vice president of investor relations Louise Mehrotra blamed the especially poor performance in the United States in part on lower prices brought on by competitive bidding.

During the call, Stifel analyst Rick Wise asked J&J CFO Dominic Caruso if diabetes devices might be something the company would look to “carve out.”

Caruso’s answer, in short: Probably not.

He explained that J&J considers three criteria when evaluating its portfolio:

  • Is it No. 1 or No. 2 in the market?
  • If not, does the company have the product pipeline to bring it to No. 1 or No. 2?
  • Is it complementary to any of the company’s other businesses?

J&J’s diabetes business, Caruso said, is indeed a market leader. “They have very strong market share positions, the business is doing very well outside the U.S., continues to grow nicely,” he said.

It also complements the company’s pharmaceutical business. “We attribute the successful launch of INVOKANA [a drug for treatment of type 2 diabetes] partly to the fact that we have very good relationships with the endocrinologists as a result of our Life Scan business already,” Caruso said.

Still, he didn’t offer any insights as to what the company might be doing to turn around its struggling diabetes care business. Caruso said J&J will reveal plans for its surgery and orthopedics businesses at its upcoming medical device business review on May 22, but there wasn’t a word about diabetes.

Jamie Hartford, managing editor, MD+DI
[email protected]


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