Johnson & Johnson CFO: How the company will re-gain orthopedic market share and leverage Amazon, Google partnerships

Written by Laura Dyrda | December 07, 2018 | Print  |

Johnson & Johnson Executive Vice President and CFO Joe Wolk was interviewed during the Citi 2018 Global Healthcare Conference Dec. 5. He touched on the company's overall financial situation, future M&A and where the company will innovate in orthopedics and spine.

"While we generate a lot of cash on an annual basis, I think it was close to $18 billion last year, that does present a big opportunity with just a little bit of movement of the dial and coming much more up-to-speed and up-to-date with some of the technologies out there where we can manage our working capital a little bit better," said Mr. Wolk, as transcribed by Seeking Alpha. "And that will free up some space and some capital for things that we've done really well in terms of licensing or smaller acquisitions or tuck-in acquisitions that have really catapulted our growth over the last number of years."

He mentioned that despite growth in the medtech business, orthopedics, which is responsible for $27 billion of revenue, experienced a "waving within [the] portfolio." As a result, Johnson & Johnson is approaching execution differently today than five years ago.

"A few years back, we looked to restructure and downsize," said Mr. Wolk. "We probably did that a little bit too fast and not in the appropriate way. We're putting resources back to high areas of growth. We had gaps in our portfolio. If you look at spine and if you look at the cadence of innovation, we were a little bit behind with our Attune Revision platform."

In the coming year, the company will focus on it's cementless technology to catalyze future growth. Johnson & Johnson has experienced a market share loss, according to the interviewer, and the cementless field includes big competitors.

"It really emerged this time last year with respect to concerns over tibia loosening around the Attune Knee platform," said Mr. Wolk. "At that point in time, we did not have the revision platform available for patients and there was, I believe, unfounded chatter that our knees were experiencing a higher rate of tibia loosening. If you actually look at four independent registries, our tibia loosening rates are at or better than the competition. But when we didn't have a revision platform out there, it did give people reason to pause."

Mr. Wolk expects the company's entrance into the cementless market in 2019 will have an impact on its financials mid-year.

In 2018, the company met its goal to launch 15 to 20 new products, and it aims to increase that to 20 to 25 new products next year. The company aims to continue strengthening several medtech markets with strong potential for the future.

"The most significant play we have that I think has a lot of runway, both in the short-term as well as in the much longer term, is the robotics platform," said Mr. Wolk. "We actually like to think of it more as a digital platform with robotic capabilities."

Through Johnson & Johnson's partnership with Verily, Google's health unit, the company aims to develop platforms that can generate data showing improved outcomes with robotic technology. However, he did allude to the low market penetration of around 5 percent to 10 percent of all general surgeries in the U.S., including robotic technology.

"What we're doing is we're playing for the long game," said Mr. Wolk. "We see this at the end of the next decade, not that it's going to take that long to be material to J&J, but that's how we are thinking about this. How can you have an integrated network that's much more impactful on the healthcare system overall that leads to better efficacy and lower cost."

Finally, Mr. Wolk also addressed Amazon's entrance into the healthcare market.

"Amazon, for us, it's a friend right now," said Mr. Wolk. "We've got a great partnership with them through our consumer business. And if they can actually provide medical supplies or drugs that are cheaper to the overall cost of the healthcare system, that's a good thing for us overall, the pharmaceutical and medical device industry."

He expects to see more collaboration with IT companies, where Johnson & Johnson can bring healthcare expertise for improved outcomes and lowering costs.

More articles on orthopedic devices:
Zimmer Biomet & Stryker battle over $248M patent infringement lawsuit: 5 things to know
Spineology welcomes 2 new board members
Stryker's M&A strategy for the next 5 years: Where is spine headed?

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