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J&J’s Device Unit Is Its Quiet Success Story

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The medical device unit has withstood divestitures, a pandemic, and sagging sales. But now, 3Q21 earnings show Johnson & Johnson's device unit is on the rebound.

One of the biggest stories coming out of Johnson & Johnson’s earnings isn’t necessarily the impact of its single-dose COVID-19 vaccine.

Yes, the vaccine did contribute to $502 million in revenue – but perhaps one of the biggest takeaways from the New Brunswick, NJ-based company’s 3Q21 earnings is the continued success of its once beleaguered medical device unit.

J&J said the device unit brought in $6.6 billion – an 8% rise when compared to this time last year. The company’s unit suffered in 2020 when elective surgeries were either canceled or rescheduled because of the pandemic.

The company’s pharma unit brought in $12.9 billion in revenue up 13.8% from 3Q20. Its consumer unit generated $3.7 billion in revenue up about 5.3% from this time last year.

Because of its performance overall, J&J raised its guidance for fiscal 2022, saying it now expects adjusted earnings per share in the range from $9.77 to $9.82, up from its previous range from $9.60 to $9.70.

“Our third-quarter results demonstrate solid performance across Johnson & Johnson, driven by robust above-market results in Pharmaceuticals, ongoing recovery in Medical Devices and strong growth in Consumer Health,” Alex Gorsky, J&J chairman and CEO said in a release.

Gorsky is set to step down from the position Jan. 3, 2022, and serve as executive chairman. Joaquin Duato will be Gorsky’s replacement.

The company missed consensus estimates, but Mike Matson, an analyst with Needham & Co., said this was probably going to be the norm for most medtech companies during the pandemic.

“Management commentary was cautiously optimistic about medical device procedure volume recovery in 4Q21 despite near-term issues including COVID-19 and hospital labor shortages,” Matson wrote in research notes. “We expect most of the companies in our coverage universe to miss consensus estimates in 3Q21 given the impact of COVID-19 on procedure volumes. However, we note that the J&J results seem to indicate that OUS markets performed better than the US market in 3Q21 so we expect companies with greater international exposure to at least partially offset domestic weakness.”

J&J relationship with its medical device unit has been a rollercoaster ride. Recall in 2016, activist investor Artisan Partners Limited Partnership, which at the time owned some $445 million of the company's stock, pushed for the company to spin off its medtech unit.

The company even went through a period of divestitures – selling its LifeScan insulin pump business to Platinum Equity for $2.1 billion. One of its well-known divestitures was selling Cordis, its drug-eluting stent business, to Cardinal Health for $2 billion. Interestingly enough, Cardinal Health sold Cordis to Hellman & Friedman for $1 billion in August.

 

 

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