Johnson & Johnson
CEO: Alex Gorsky
Based: New Brunswick, NJ
2016 sales: $25.1 billion
2015 sales: $25.1 billion
* Fiscal year ended Jan. 1, 2017
Johnson & Johnson started 2016 by cutting 3,000 jobs, part of a restructuring move to shore up its lagging medical device businesses. The cuts, in its orthopedics, surgery and cardiovascular units, made up 2.5% of its overall workforce and 6% of its medical device employees.
When the company announced the reorg in late 2015, CEO Alex Gorsky said it would be “reallocating resources to priority platforms” in order to “accelerate meaningful innovation and outcomes."
But the makeover was too little too late for activist investor Artisan Partners, which called on the conglomerate to split into three separate companies to free its pharma business from the “faltering” consumer and medical device units.
In June, Chief Financial Officer Dominic Caruso found himself defending the company’s decision not to hive off its “underperforming” units. The device and consumer units, he said, act as a hedge on the pharma business, and that size will ultimately help, not hinder, the device unit as U.S. hospitals transition to value-based care.
J&J’s Orthopedics and Surgery divisions posted modest growth from 2015 to 2016—0.8% and 0.9% respectively. But this was an improvement over the 4% and 5% slowdowns they posted in 2015. Vision Care grew 6.8%, while Cardiovascular and Diabetes Care declined 9.2% and 7.2% respectively. Diagnostics dropped 23%, but this stems from J&J’s 2014 divestiture of Ortho-Clinical Diagnostics.
As it started the year, J&J said it would look for “focused and strategic investments,” like its robotic surgery joint venture with Verily, and its acquisition of atrial fibrillation player Coherex Medical, to boost its device unit. Among the first deals it announced were partnerships with Aspect Biosystems, to develop a 3D-printed artificial meniscus, and with Rest Devices, to develop a sleep-coaching app to help parents ensure their babies sleep more soundly. And to ramp up early and mid-stage product development, both at J&J and its partner companies, it announced a new Center for Device Innovation at Texas Medical Center.
As for M&A, the company bolstered its Ethicon subsidiary with its acquisition of NeuWave Medical, which already had its soft tissue microwave ablation technology in the majority of the top cancer centers in the U.S. And in May, its DePuy unit picked up BioMedical Enterprises and its shape-changing bone-fixation devices, part of the effort to inject innovation into J&J’s device businesses.
In September, the company bought its way into cataract surgery with its $4.3 billion acquisition of Abbott Medical Optics ahead of the latter’s St. Jude Medical buyout. Its Vision Care unit enjoyed a 6.8% bump in sales in 2016 and J&J expects the AMO deal to buoy these numbers further.
The Diabetes Care business has been a hot topic. It struck a deal with Welldoc in March to integrate its diabetes management platform into J&J’s LifeScan blood glucose monitor and launched a wearable insulin patch in June it picked up in its acquisition of Calibra Medical. But pricing pressure in the U.S. has stymied growth and prompted the company to consider “strategic options” for Calibra, LifeScan and Animas.
This decision doesn’t necessitate a sale; J&J said that joint ventures and operating partnerships are also on the table. But whatever the company decides to do with its diabetes device businesses, Gorsky promised that J&J would stay “very committed” to diabetes. Its Janssen subsidiary markets Invokana and the combo drug Invokamet, while Ethicon makes surgical tools, including ones used in bariatric surgery.
Both suits accused the company of failing to tell doctors and patients about serious problems linked to the devices. And the fallout is showing no signs of letting up as a vaginal mesh trial involving more than 700 patients started this July in Australia.