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Johnson & Johnson to slim down DePuy Synthes orthopedic portfolio

por John R. Fischer, Senior Reporter | October 20, 2023
Business Affairs
Johnson & Johnson is restructuring its orthopedics division.
In a third-quarter earnings call this week, Johnson & Johnson announced that it would be pulling out of markets and scaling back product lines it deemed “less profitable” within its DePuy Synthes orthopedics business, as part of a two-year restructuring of the entire division that it expects will cost between $700 million and $800 million.

Despite strong sales growth of 6.8% in Q3, which equated to a gain of $21.4 billion, medical device earnings fell short of Wall Street expectations, according to Reuters. The orthopedics unit earned $2.16 billion (3.4% year-over-year growth) out of the $7.46 billion made by its Medtech unit.

“We are on a journey of improvement in orthopedics. We want to be number one and number two in every segment [where] we compete,” CEO Joaquin Duato said in the October 17 call. “We are not there yet.”

J&J acquired DePuy Synthes (then Synthes) in 2012 for $19.7 billion and integrated it with its DePuy franchise.

Much of the company’s entire sales growth was attributed to the spinoff in August of its consumer health business, Kenvue, which generated $13.2 billion in cash when divested, said J&J in its Q3 2023 earnings report. The separation allows it to focus on its Pharmaceutical and MedTech divisions.

With the restructuring, the company expects a revenue dip of approximately $250 million over the next two years but says the decrease will be short-term and modest and that the revamp of the orthopedics business will improve its ability to meet demand and accelerate growth and profitability.

According to Reuters, J&J also is expected to experience greater pressure on its pharmaceutical unit as it strives to reach its goal of making $57 billion in drug sales by 2025, according to Reuters. But sales for the business (over $13 billion) were strong and partially contributed to the company raising its revenue and earnings forecasts. It now expects to make $83.6 billion to $84 billion, a 7.5% to 8% year-over-year increase from its $83.2 billion to $84 billion estimate, and adjusted earnings per share of $10.07 to $10.13, from $10 to $10.10.

Strong growth was also seen in sales for the Medtech unit’s interventional and electrophysiology solutions, and the company is optimistic about DePuy Synthes, having seen improvements in its knee products.

The company expects to complete the restructuring by the end of 2025.

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