Johnson & Johnson MedTech has launched a restructuring of its orthopedics businesses, with a plan to pull back from what the company described as less-profitable “markets, product lines and distribution network arrangements” within two years.
On the whole, J&J expects the exits to cost the company between $700 million and $800 million by the end of 2025 as it slims down operations—with expenses in its most recent quarter coming to $235 million, driven in large part by excess product inventory write-downs.
“We anticipate some short-term, modest revenue deduction in orthopedics of approximately $250 million in total over the next two years—given the market and product-line exits—but believe these actions will improve our ability to meet demand and result in accelerated growth and enhanced profitability,” J&J’s investor relations vice president, Jessica Moore, said during the company’s third-quarter earnings call with investors Tuesday.
Between July and September, orthopedics sales accounted for about $2.16 billion out of J&J MedTech’s $7.46 billion total sales, the company reported. That amounted to 3.4% in reported growth for the division compared to the year prior, or 2.6% operationally when excluding changes in international currencies. J&J CEO Joaquin Duato attributed a portion of those orthopedic revenue numbers to seasonality.
“As we have commented, we are on a journey of improvement in orthopedics,” Duato said on the investor call. “We want to be No. 1 and No. 2 in every segment we compete, and we are not there yet. But we are very confident that we are going to make improvements by investing and by growing in the highest-growth segments.”
Across the medtech sphere—with the addition of its surgical equipment and interventional solutions units—J&J said it expects 2024 procedure volumes to continue on the same trajectory compared to 2023 growth levels, with increases around 5% to 7%, according to Chief Financial Officer Joseph Wolk.
In the third quarter, interventional solutions—including electrophysiology devices and the miniaturized heart pumps it acquired from Abiomed in December of last year—brought in $1.55 billion for a 47% reported jump over the same three-month period in 2023.
Surgery, meanwhile, accounted for $2.48 billion in sales, through the company’s endocutters, biosurgery, energy devices and more. Finally, J&J Vision’s contact lenses and eye surgery hardware netted $1.26 billion. Altogether, J&J MedTech’s revenue grew 10% on a reported basis and 10.4% operationally.
Abiomed’s Impella catheter-based heart pumps also earned the company a recent warning letter from the FDA, following a trio of Class I recalls this year.
Part of the letter regarded the agency’s determination that the Impella Connect system has been used without proper premarket approval as an alarm system to alert providers of potential issues with the automated pump controllers. Abiomed has argued the system should not require a regulatory green light, since its software is only used to provide real-time information and cannot affect the function of the pump.