J&J Sees Growth In 2017, Looks For Bolt-On Deals, Launches Texas Startup Accelerator

By Jof Enriquez,
Follow me on Twitter @jofenriq

Johnson & Johnson (J&J) is expecting above-market growth in 2017 for its medical device business, and is looking for bolt-on acquisitions to further solidify its already strong presence in the orthopedics, general surgery, and cardiovascular product segments.

J&J CFO Dominic J. Caruso says robust growth in the medical device business will continue despite a slowdown, with fewer hospital admissions and hospital surgical procedures during the summer months. He says a rebound in the number of hospital procedures, beginning in September, is expected to drive the trajectory upward into next year.

"Going into 2017, I expressed confidence in our Medical Devices business growing faster, and quite frankly, you know we have a plan for that business to return to growth at above market for the Medical Devices sector and it's continuing to improve. What gives me confidence there is that the area that we focused the most on, the growth platforms and priority platforms, just this quarter they grew at 9 percent, and within those, three of those in particular, electrophysiology, energy and endocutters, each grew at double-digit growth. So we obviously have very robust growth coming in the priority platforms, which we expect to continue and drive us to above market growth in 2017," Caruso told analysts during the earnings call.

J&J reported sales of $17.8 billion for the third quarter of 2016, an increase of 4.2 percent, compared to the third quarter of 2015. The figures were buoyed by improvement in margins for the Medical Worldwide Device business, which posted sales of $6.2 billion for the third quarter of 2016, representing an increase of 1.1 percent versus the prior year. Pharmaceutical worldwide sales rose strongly by 9 percent over 2015 levels, to $8.4 billion.

The medical device business was driven by 16 percent worldwide growth in Electrophysiology (within Cardiovascular), on account of the growing number of atrial fibrillation procedures performed. Orthopedics sales growth was driven by joint reconstruction and U.S. trauma, particularly from continued success of the TFNA nailing system in trauma, the ATTUNE platform in knees, and the CORAIL primary stem in hips. Within Advanced Surgery, endocutters increased 14 percent, energy rose 10 percent, and biosurgicals grew 7 percent. The Hospital Medical Devices business expanded 4 percent in the third quarter. Vision Care sales were up by 5.5 percent worldwide due to new product launches.

J&J acquired Abbott's eye business in September, and Caruso feels "excited about Abbott Medical Optics' strong and differentiated surgical ophthalmic portfolio, particularly in cataract surgery" and, along with its world-leading ACUVUE contact lens business, should "help J&J become a broad-based leader in vision care."

For the medical device business going forward, Caruso said the company is "looking for additional bolt-on acquisitions" in orthopedics and general surgery (like the acquisition of biotech startup NeuWave Medical), as well as certain cardiovascular areas, such as structural heart, but will be "very disciplined about doing a transaction where the valuation seem pretty high."

J&J executives credit the company's continued growth to R&D investments and commercial productive innovation. Related, the same day J&J announced its third quarter results, the company said it will open its latest startup accelerator, a partnership with Texas Medical Center (TMC) to develop and commercialize breakthrough medical devices.

"Working together, we are creating a globally competitive innovation ecosystem here, and the new Center for Device Innovation @ TMC will enable us to expeditiously bring discovery and innovation to fruition, directly improving the health of patients," said Robert C. Robbins, M.D., President and CEO, TMC, in a news release.