Recently, Johnson & Johnson (JNJ) provided an outline of its strategies to maintain the momentum of its Medical Devices & Diagnostics (MD&D) segment. The company is one of the leading players in the $350 billion global market. With $23.6 billion in sales in 2009, the MD&D has become the largest segment of J&J.
The MD&D segment consists of many global franchisees targeted at different areas. Divisions of the MD&D segment include Cordis, DePuy, Diabetes Care, Ethicon, Ethicon Endo-Surgery, Ortho Clinical Diagnostics and Vision Care.
In 2009, barring Cordis and Diabetes Care, the other divisions of the MD&D segment recorded robust growth. DePuy, Ethicon and Ethicon Endo-Surgery posted 2009 sales of $5.4 billion (7% growth), $4.1 billion (7.3% growth) and $4.5 billion (4.8% growth), respectively.
J&J believes that advanced product launches in the areas of joint replacement, contact lenses and sutures as well as geographical expansion should enable it to grow further. The company is also targeting expansion into the high-growth areas of biosurgicals, energy, electrophysiology and other surgical specialties. In addition to depending on its pipeline, J&J will be looking at suitable acquisitions and licensing arrangements.
J&J has been in an acquisitive mode in the recent past. Ethicon acquired Acclarent in December 2009 for approximately $785 million. Acclarent develops devices to treat abnormalities associated with ear, nose and throat (ENT) with specialization in products used for sinus surgery. We believe there is huge potential for Acclarent’s business, as its balloon sinuplasty technology and other related products offer ENT patients with a better alternative compared to currently available treatment options including conventional surgical approaches.
Additional acquisitions include Finsbury Orthopedics in the area of hip implants and Gloster Europe in the area of decontamination technologies that help prevent hospital acquired infections, a significant and growing global concern.
We are pleased to note that till date 2010 has been significant for J&J’s MD&D segment as it received more than a dozen regulatory approvals. Moreover, the company is expecting to make about 80 significant submissions in the next two years.
J&J’s emphasis on the MD&D segment is well understood in a situation, when the company is struggling with its Pharmaceutical and Consumer segments. During the first quarter of 2010, although the Consumer segment recorded a 1.5% year-over-year growth, revenues would have been lower by 3.7% but for the 5.2% positive impact arising from foreign exchange movement. This segment will continue to suffer further as the recall of some OTC products, which had hampered first quarter results, are still continuing. The Pharmaceutical segment also recorded a decline in revenues.
We are Neutral on the stock. We believe the diversity and strength of the company’s underlying businesses should continue to provide strong growth in future. However, the company had to lower its 2010 guidance to reflect the impact of changes in exchange rates and the recent healthcare reform.
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