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Johnson and Johnson CEO Alex Gorsky
Gorsky

Medical device sales up 4% for Johnson & Johnson last year


By Jaimy Lee
Posted: January 21, 2014 - 4:15 pm ET
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Johnson & Johnson reported that annual sales of medical devices and diagnostics rose nearly 4% in 2013 to $28.5 billion from $27.4 billion in 2012, with increased demand for orthopedic implants boosting sales in the third and fourth quarters.

It remained unclear whether the increase in sales of hip and knee implants indicate renewed interest from patients who may have put off procedures during the recession due to concerns about out-of-pocket expenses and taking time off from work during a period of high unemployment.

Utilization data about implant procedures is still “somewhat mixed,” said Johnson & Johnson Chairman and CEO Alex Gorsky during a call with analysts. Rates of these procedures remained flat over the course of last year, but physicians' visits rose slightly, between 1% to 2%, at the end of 2013, he added.

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“We're cautiously optimistic,” Gorsky said.

The stabilizing surgical environment bodes well for other large medical technology firms, according to a research note from Rick Wise, an analyst with Stifel. But stabilization may still not mean an acceleration in volume in 2014, he noted.

Overall company net income hit $13.8 billion in 2013, up from $10.5 billion in 2012, Johnson & Johnson said. Fourth quarter net earnings reached $3.5 billion compared with $2.6 billion in the same quarter the previous year.

The company, one of the largest manufacturers of joint implants, reported that domestic sales of hips grew 5% in the fourth quarter of 2013, while knee implant sales rose 9%. Other factors may be at play, however, including the orthopedic market's “fourth-quarter dynamic,” which occurs when patients seek to utilize their health plan benefits before the end of the year. Worldwide, fourth quarter sales for its medical devices and diagnostics division fell 1% to $7.3 billion, the company reported.

It's not the first time that the company has hinted that elective procedures such as joint implant surgeries may be on the rise. Former Johnson & Johnson CEO William Weldon in 2012 said: “You can only put these procedures off for so long. There's going to be a bolus of people that will come back in the market over time. I don't know if it's going to be in 2012 or in 2013, but I don't think the market is going to decline as precipitously as it had previously.”

Johnson & Johnson's medical devices and diagnostics division, which makes up 40% of the company's business, reported sales of $28.5 billion in 2013, a 3.9% increase compared to 2012. The pharmaceuticals business had annual sales of $28.1 billion last year, up 10.9%, while the consumer healthcare products business reported a 1.7% increase in sales to $14.7 billion during the same period.

Worldwide sales for 2013 went up 6.1% to $71.3 billion, compared to 2012.

The medical devices and diagnostics business has undergone a number of significant changes in recent years. The company acquired Synthes, another large device maker in 2011, and has faced thousands of lawsuits over the metal-on-metal hip implants manufactured by its Depuy orthopedics unit. It agreed to a $2.5 billion settlement in November.

Johnson & Johnson also announced last week that it planned to divest its laboratory testing business to the Carlyle Group for $4 billion. About 85% of the company's sales from its medical devices and diagnostics unit come from products that hold either the No. 1 or No. 2 positions in their respective market. As a result, the divestiture is not expected to have a “significant impact on the profit of the business,” Gorsky said.

The company also remains dedicated to renal denervation technology that it is developing. Medtronic, which was also developing a renal denervation device, said earlier this month that the device had failed in clinical trials, raising questions for other manufacturers developing similar devices for patients with treatment-resistant hypertension.

“We have our own approach,” Gorsky said. “We remain hopeful in this area.”

Covidien announced this morning that it was pulling out of the renal denervation market. News reports have said that Boston Scientific and St. Jude Medical will continue to pursue approval of their renal denervation devices.

Follow Jaimy Lee on Twitter: @MHjlee


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