Medical devices continue to drag down Johnson & Johnson ($JNJ) revenue growth, prompting executives to spend copious time analyzing the company's relative strengths in the segment on its latest earnings call.
It expects that new products will help reinvigorate its diabetes device business that's flagging under pricing pressures, while it anticipates that vision care will return to growth later this year. The conglomerate also said it's "committed to turning around" its spine and trauma businesses and expects that product launches later this year will help it to do so. The company said it has already submitted more than half of the 30 major device regulatory filings that it had committed to before the end of 2016.
In addition, like other medical device giants including Medtronic ($MDT), J&J expects to benefit from ongoing consolidation among U.S. healthcare systems and insurers. It anticipates that this trend will increase patient utilization; the company is also working to leverage its entire product portfolio with these ever-growing hospital systems.
It recently appointed Gary Pruden its Worldwide Chairman of Medical Devices, a role that he assumed in May. The company expects that he will facilitate a "much more holistic approach to the way we do business" and that this will enhance its ability to make large deals with hospital systems, J&J chairman and CEO Alex Gorsky said on a July 14 conference call.
Last quarter, medical device sales had an operational decline of 4.7% to $6.4 billion. But when acquisitions and divestitures are taken into account, that improved to a gain of 1.4%. The sale of Ortho Clinical Diagnostics by J&J to the private equity firm The Carlyle Group for about $4 billion completed a year ago, while it expects to close before year end on a $2 billion sale of vascular device unit Cordis to Cardinal Health for about $2 billion. Overall, J&J sales had an operational decrease of 0.9%, with a gain of 1.7% when acquisitions and diverstitures are taken into account.
The main drivers of medical device growth were endocutters in Surgical Care; electrophysiology business Biosense Webster, joint reconstruction in orthopedics, biosurgical sales and international contact lens sales, the company said.
"I have been particularly pleased with the performance in several areas of this business, where new innovations are driving growth, including our Biosense Webster business which has grown nearly 11% operationally through the first six months of the year. Our Endocutter business has grown 5.5% and the biosurgery business with continued strong growth of 7.5%," said Gorsky, providing some color on the call.
He added, "In diabetes, our products and strong in market execution are helping to revitalize that business, while our vision care business is on track to return to growth later in the year, when it will anniversary the impact of the price reset. In orthopedics, the business grew 1.5% operationally this year with good growth in the reconstruction and the sports medicine segment. Particularly in the second quarter here in the US, where despite the pricing dynamics in the market, we saw over 5% growth in knees and approximately 4% in hips."
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