J&J sees a future in Abbott’s eye care business

Abbott has been on a spending spree this year, but now it is selling, offloading its medical optics division to Johnson & Johnson for $4.33bn in cash. The reasons for Abbott’s move are clear: recent acquisitions have honed its focus on cardiovascular devices and diagnostics, and ophthalmology was surplus to requirements.

J&J’s reasons for buying seem less compelling. The company calls eye care “one of the largest, fastest-growing and most underserved segments in healthcare today”, but this is belied by recent financial results from its own vision care unit, plus Abbott Medical Optics and the ophthalmology rival Alcon (see table below). J&J obviously believes that it can use its number-one position in contact lenses to do better than Abbott.

The buy will give J&J a bigger consumer offering, with the addition of eye drops and cleaning systems, but also a foothold in cataract surgery and laser eye correction.

J&J cited the cataract offering as a particularly important driver of the deal, describing the issue as the number one cause of preventable blindness, and estimating that around 20 million people are blind from age-related cataracts and that at least 100 million eyes are affected.

And the number of cases will only grow with the ageing population, something J&J will likely be banking on for sales growth.

But Abbott’s medical optics unit has had mixed fortunes of late. Sales shrank in 2015, mainly owing to unfavourable exchange rates, but have picked up in the first half of this year. J&J vision care has seen a similar trend, and also blamed currency effects for its poor showing in 2015.

Q3 2015 Q4 2015 Full year 2015 Q1 2016 Q2 2016
Abbott Medical Optics
Sales ($m) 283 300 1,133 269 307
Year-on-year growth* -5% -4% -7% 3% 6%
J&J Vision Care
Sales ($m) 683 648 2,608 640 685
Year-on-year growth* -3% 0% -8% 1% 6%
Alcon
Sales ($m) 2,346 2,349 9,812 1,426 1,506
Year-on-year growth* -12% -13% -9% -7% -2%
*As reported in USD.

The same cannot be said for Novartis’s Alcon division which, although much bigger than J&J and Abbott’s offerings combined, continues to shrink. The pressure has been on Alcon to turn its fortunes around: Novartis’s restructuring in March, which saw its ophthalmic pharmaceuticals franchise move from Alcon to the pharmaceuticals division, fuelled the idea that the unit might be on the auction block. 

But, with J&J now out of the picture, Novartis could find it even more difficult to find a buyer. Like Abbott, Alcon markets contact lenses, cataract surgery devices and systems for laser eye surgery, but has something extra in the form of a minimally invasive glaucoma surgery (MIGS) device through the acquisition of Transcend Medical (Novartis hopes Transcend buy will relieve the pressure on Alcon, February 18, 2016). 

MIGS looks promising, but whether this will be enough to save Alcon is another matter.

Abbott, meanwhile, seems to have got the best of the latest deal – the group’s shares closed up 2% on Friday when it was announced. This is the fourth-biggest medtech acquisition of 2016 so far, and is slated to close in the first quarter.

Top 10 medtech deals agreed in 2016
Buyer Target Sector Price ($bn) Date announced
Abbott St. Jude Medical Cardiology 25.00 Apr 2016
Canon Toshiba Medical Systems Diagnostic imaging 5.98 Mar 2016
Abbott Alere In vitro diagnostics 5.80 Feb 2016
Johnson & Johnson Abbott Medical Optics Ophthalmology 4.33 Sep 2016
Danaher Cepheid In vitro diagnostics 4.00 Sep 2016
Stryker Sage Products Hospital equipment 2.78 Feb 2016
Thermo Fisher Affymetrix In vitro diagnostics 1.30 Jan 2016
Stryker Physio-Control Cardiology 1.28 Feb 2016
Zimmer Biomet LDR Orthopaedics 1.08 Jun 2016
Medtronic HeartWare Cardiology 1.02 Jun 2016

J&J is such a big beast, and vision care such a small part of its portfolio, that the purchase did not move the needle on its stock. But it is interesting that it is expanding in ophthalmology while others are getting out. It will have to hope that demographic trends translate into more cataract surgery revenue – something that is not certain with increasing payer pushback.

To contact the writer of this story email Madeleine Armstrong in London at madeleinea@epvantage.com or follow @medtech_ma on Twitter

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