Johnson & Johnson was once the biggest seller of medical devices, but its presence in the sector is dwindling. The latest announcement of 3,000 job cuts in its medtech division seems to be a continuation of a strategy to get out of more commoditised areas and focus on newer, potentially disruptive technologies.
J&J is sparing its consumer devices, vision and diabetes care franchises, suggesting that the cuts will hit the orthopaedic, surgical and cardiovascular divisions – orthopaedics in particular is an area that has become almost generic, with companies competing on price.
The lay-offs are not too surprising in the context of J&J’s recent medtech woes. Medical devices were once its largest unit, but sales have been overtaken by the company’s pharma business, and continue to drag: in the first nine months of 2015 medtech revenues fell 10%. Full-year results are due on January 26.
And while rivals like Medtronic are acquiring, J&J has been selling off units including its Ortho-Clinical Diagnostics and Cordis interventional cardiology franchises.
J&J says the money it saves from the restructure – pegged at $200m this year and up to $1bn by 2018 – will allow it to invest in “new growth opportunities and innovative solutions”.
The company has been making a big bet on emerging technologies with its J&J Innovation Centers and JLABS incubators, which provide investment for early-stage companies in the medtech, pharma and consumer arenas (Interview – J&J looks to external innovation to secure the future, October 14, 2015).
Another area of excitement is robotic surgery, where J&J has teamed up with Google's life sciences division – now known as Verily – to form Verb. But details of the project are scant and the companies have not said when they expect to launch any new products, leaving the market leader Intuitive Surgical unconcerned (Medtechs at JP Morgan take different tacks, January 15, 2016).
Among the divestments, J&J has not been completely averse to device acquisitions: in November it bought the left atrial appendage occlusion device developer Coherex Medical for an undisclosed fee. Unlike Boston Scientific’s rival LAA device, Watchman, Coherex’s WaveCrest is not approved in the US.
J&J highlighted the fit with its Biosense Webster division, which sells products for atrial fibrillation and has been one of the rare bright spots for the group’s device offering of late. LAA closure devices are used to prevent stroke in atrial fibrillation patients who cannot or will not take anticoagulants.
More deals could be on the cards, some analysts believe, with J&J sitting on $37bn in cash. But at the recent JP Morgan healthcare conference the group's chief executive, Alex Gorsky, hinted that smaller buys were more likely, and it is unclear whether the company is prioritising pharma or device M&A.
Pharma has been hogging the attention lately, and medtech now accounts for just 36% of J&J’s overall 2015 sales – a figure that looks unlikely to increase with the latest cuts. And, while investing in early stage technology should be applauded, it will be some time before it becomes clear whether J&J’s strategy will pay off.