By Jof Enriquez,
Follow me on Twitter @jofenriq
Johnson & Johnson (J&J) is bent on making strategic partnerships and acquisitions of innovative platforms to drive future growth for medical devices. The company also plans to reroute funding to higher-performing devices to offset a decline in overall device sales.
J&J is "setting a strong foundation for sustainable growth with the bold actions we are taking in our Medical Devices segment," CEO Alex Gorsky told shareholders recently. "Our priority in Medical Devices is accelerating growth through the strategic investments in innovation and by transforming our go-to-market models."
Gorsky highlighted J&J’s acquisition of Coherex Medical (maker of a device to treat atrial fibrillation) and its surgical robotics joint venture with Verily (formerly Google Life Sciences) as the type of deals that J&J will continue to make in the future. Smaller deals are also in the offing, and Gorsky reiterated his preference of tuck-in deals over larger ones. But both types are on the table if the financials fit.
"In Medical Devices we've done tuck-ins as well as large. And look, I think in both cases, whether it's Pharma or Medical Devices, the smaller tuck-ins are frankly more straightforward to get done. We haven't shied – we won't shy away from large where we think it makes for a significant opportunity," says Gorsky.
J&J also recently announced a slew of smaller partnerships with organizations and developers of new technologies. These include deals with HistoSonics (histotripsy), Carbon 3D (3D printed devices), Northwestern University, through BioSense Webster (mapping and catheter ablation for atrial fibrillation), Brainlab (knee navigation), and Rainbow Medical (back pain and disc regeneration research).
In addition, J&J says it is on track to launch 30 products in the medical device segment by the end of 2016.
A company restructuring announced recently dimmed the outlook, and the plan is expected to impact the orthopedics, surgery, and cardiovascular businesses. In response, Gorsky unveiled a funding realignment to focus on high-performing orthopedic segments.
"We are reallocating resources to priority platforms like endocutters, knees, trauma, and EP. And recent history shows that when we double down in an area, we are able to accelerate meaningful innovation and outcomes, as we saw with our endocutters portfolio, which is now the fastest growing platform in our Medical Devices segment," he told analysts during the call.
According to 2015 fourth quarter results, endocutters and biosurgical products in the Advanced Surgery business, electrophysiology products in the Cardiovascular business, joint reconstruction products in the Orthopedics business, and insulin pump products in the Diabetes Care business, were the primary contributors to operational growth during the period.
The reorganization is expected to net between $800 million and $1 billion in cost savings by 2018, and the company says the move will let it adapt to a changing global marketplace and accelerate innovation.
Still, worldwide medical devices sales slid 8.7 percent to $25.1 billion compared to last year, and, unlike in past years, the business has underperformed compared to other J&J units. But an innovation-focused strategy could help lift sales anew.
"Our Medical Devices business is one that we remain very committed to. We believe that it's got an exciting future, a lot of new innovation coming, new ways of dealing with our customers. And so we think this is the right time to make sure that we're set up for growth, not only in 2016 but actually for the next 5 years and 10 years," Gorsky says.
J&J's moves in recent months and plans in the long-term suggest it intends to keep its status as largest device maker in the world, contrary to a report suggesting that it will relinquish the top position to Medtronic by 2020.