CEO Gorsky: J&J Committed To Diabetes, But Looking To Sell Related Device Business
By Jof Enriquez,
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Johnson & Johnson CEO Alex Gorsky says the world's largest healthcare company remains "very committed" in the diabetes space, but is exploring the possibility of divesting its diabetes unit as part of a continuing restructuring of its medical device business.
"We are currently evaluating strategic options for our Consumer and Medical Device Diabetes franchise, including LifeScan, Animas, and Calibra," Gorsky said during the company's fourth quarter earnings call. "We are assessing a wide range of options including strategic partnerships and joint ventures and have not set a definitive timeline to complete this review."
Gorsky said he is proud of J&J's track record in blood glucose monitoring and insulin pumps, but "we do feel that based upon the broader market dynamics, particularly things such as pricing in certain areas has led us to the point where we say the right thing for us to do is to consider strategic options for these three particular areas of the business."
He said J&J still is very much interested in diabetes care, but going forward will concentrate more in developing new products, such as blood glucose-lowering drugs INVOKANA and INVOKANAMET, and products for areas like bariatric surgery.
In a phone interview with Bloomberg, J&J CFO Dominic Caruso said the diabetes devices being explored strategically have been hit by “significant” price declines for several years, and it’s difficult to fund future innovation.
In contrast to the diabetes unit, Gorsky said during the call that he is "very excited about the opportunities we have going forward in Vision Care," especially as J&J acquired AMO in September. J&J's eye business posted a double-digit growth rate in the fourth quarter and launched five new products.
The company announced last year that it will restructure its underwhelming medical devices business, which slowed down to almost flat in the fourth quarter, at 0.2 percent to $6.44 billion, reports CNBC. The business grew 1 percent in the previous quarter. Weaker demand for devices hurt the company's net earnings, which increased less than expected, from $3.22 billion to $3.81 billion. Helping offset dismal device sales were stronger performances by J&J's consumer goods and pharmaceutical divisions.
The near-term priority in medical devices, Gorksy said, is to accelerate growth through innovation, portfolio management, and new business models, and the goal is to return to above-market growth by the second half of this year.
This strategy — anchored on primary drivers orthopaedics, surgery, and vision care — will be achieved through continued implementation of restructuring initiatives in the hospital medical device business, which is on track to achieve savings of $800 million to $1 billion by 2018. Gorsky noted that the company’s medical device product launches doubled in 2016, with more than 12 new products shipping out, and was optimistic over strategic acquisitions made in 2016, including BME in the foot and ankle space, Coherence Medical in the atrial fibrillation space, NeuWave Medical, and Abbott Medical Optics (AMO).
Gorsky said J&J has found it much more successful and a better strategic fit to take these smaller, earlier-stage companies than making large M&A transactions. His remarks came amidst ongoing exclusive talks to acquire the pharmaceutical firm Actelion, J&J's largest deal ever, whose completion was announced Thursday morning (Jan. 26).
President Donald Trump's actions to undo the Affordable Care Act have the medical device and pharmaceutical industries feeling anxious, but Gorsky, who was among a select group of CEOs to meet Trump recently, says ACA has had little impact on J&J regardless of its fate.
"We did not see any significant impact uptick in business as a result of the implementation of the Affordable Care Act. Certainly there was not much of an impact at all in the Pharma business or our Device business because of the nature of the type of device products we have, we did not see much of an impact. So therefore, any change going in the opposite direction, we don’t think will be negative," said Gorsky, according to Seeking Alpha.