Johnson & Johnson’s year did not get off to a great start. Not that last year was any better. I mean the company report lagging sales in its medical device’s market. But the start of 2016, led off with the Brunswick-N.J.-based company reporting that it would lay off about 3,000 people from its medical device division. Or about 6 percent of all medical device jobs and about 2.5 percent of J&J’s global workforce - for those of you that dig percents instead of raw numbers.
Most of the layoffs would come from the orthopedics, surgery and cardiovascular segments and result in an annual savings of nearly $1 billion.
The situation with J&J’s medical device segment has been a bit bleak to say the least. Within the first nine months of 2015, sales for the firm’s medical devices dropped 2.9 percent.
After J&J’s second quarter earnings were released, Glenn Novarro, an analyst with RBC Capital Markets pointed out the company needs more differentiated products for the medical devices segment (Medical Device Daily, July 16, 2015).
During the 2Q15 earnings call, the company revealed that it struggled in spine, trauma, diabetes and vision care. J&J said medical device sales fell 12.2 percent in 2Q15 to $6.36 billion, following the sale of the company’s Ortho-Clinical Diagnostics business to the Carlyle Group (Washington) for $4 billion. That unit had generated annual sales of almost $2 billion. Analysts said the $6.36 billion in device revenue was about $80 million below consensus.
Slumping sales were blamed by the firm’s inability to keep up the pace with competitors like Medtronic plc., Boston Scientific Corp. and Abbott Laboratories (Abbott Park, Ill.).
The company has been in repair mode with its device’s segment for quite some time in my opinion. The company, once an innovator and a leader in the drug-eluting stent market, got out of the business all together and sold its Cordis unit to Cardinal Health Inc. for $1.944 billion in cash, or roughly $1.594 billion, net of the present value of tax benefits (MDD, March 3, 2015). Talk about a red flag.
J&J needs to put itself on a path of redemption now. It needs to get serious about med-tech and medical devices. Some strong acquisitions are sorely needed to boost the ailing segment and get it back on the right path.