Johnson & Johnson announced it will restructure its orthopedics business, with plans to exit less profitable markets and product lines, CFO Joe Wolk said during the company’s third-quarter earnings call on Tuesday. The changes are intended to improve the growth and profitability of the segment, Wolk said.
The two-year restructuring program is expected to cost between $700 million and $800 million, including $235 million in costs during the third quarter from inventory write-downs. J&J reported $2.16 billion in sales from orthopedics, a 3.4% increase year-over-year, in the third quarter.
“We are in a journey of improvement in orthopedics. We want to be number one and number two in every segment [where] we compete,” CEO Joaquin Duato told investors.
“We are not there yet,” he added, saying the company plans to invest in its highest-growth segments.
For example, in J&J’s knee business, the company has a “more complete portfolio,” with revision and cementless knee products, Duato said. He added that the company is launching its Velys robot-assisted total knee replacement solution in Europe. J&J has also targeted ambulatory surgery centers as an area of growth.
Wolk said the quarter “marks a new era for Johnson & Johnson, with a sharpened focus on innovative medicine and medtech.”
In total, the company reported $7.46 billion in revenue in its medtech segment, including 12% growth in the U.S. and 8.3% growth outside of the U.S.
J&J’s interventional solutions franchise, which grew by 47% to $1.56 billion in revenue, was a major contributor. This business includes heart pump-maker Abiomed, which the company acquired last year for $16.6 billion. Abiomed contributed $311 million in sales, or 4.6% to operational growth, Vice President of Investor Relations Jessica Moore said.
Electrophysiology, another part of the interventional solutions business, grew 19% to sales of $1.16 billion. Highlights of the quarter included receiving FDA clearance to use multiple ablation devices to treat atrial fibrillation without fluoroscopy, minimizing patients’ exposure to radiation. The company also submitted a CE mark application in Europe for its Varipulse catheter, which uses pulsed field ablation (PFA) to treat heart arrhythmias. J&J plans to complete a U.S. study of the device in the fourth quarter, Wolk said, and is also studying two other PFA catheters: Thermocool SmartTouch SF dual energy and Omnypulse.
J&J, flush with cash from the Kevnue spinoff and with low levels of net debt, is in a “very good position” for potential acquisitions, Wolk said. The company still wants to ensure any purchases are a good strategic fit, meeting J&J’s scientific expertise and commercial capabilities.
“We'd much rather have an okay deal pass us by than make a bad deal,” Wolk said. “There's no deal that's too big given our credit rating, as well as our financial strength and annual cash flow generation, but as you know, we've had great success doing smaller, earlier-stage deals as well.”
He added the company was agnostic as to whether its next acquisition will be in medtech or biopharma.
J&J raised both its revenue and earnings forecasts for 2023. The company now expects total sales of $83.6 billion to $84 billion, an increase of 7.5% to 8% year-over-year. J&J’s previous forecast was $83.2 billion to $84 billion.
The company also expects adjusted earnings per share of $10.07 to $10.13, representing 12.7% to 13.3% growth year-over-year. That’s an increase from a previous range of $10 to $10.10.
“One of our key goals for us is to be a top-tier grower in medtech. When I look at the results of medtech this year, we are delivering on that,” Duato said, adding that procedural growth, the launch of new products and continuing to improve the company’s execution would help the medtech business progress in 2024.