Is the Johnson & Johnson job cut an ominous sign for the medical device industry? 5 key thoughts

Spinal Tech

Johnson & Johnson plans to cut around 3,000 jobs over the next two years as the company restructures its medical device business.

Does this hint at disaster for the industry? No, say analysts at Kalorama.


"The device market overall is growing at a stable if modest rate," said Publisher of Kalorama Information Bruce Carlson. "Slower than a decade ago, but still at a rate that many competitors can operate in. The announcement says more about J&J as a company and where it strategically wants to go than about the device industry."


Here are five key thoughts:


1. The global medical devices market was $370 million last year and is expected to grow at a 3 percent average growth rate annually.


2. Medtronic became the number one medical device company last year, overtaking Johnson & Johnson after merging with Covidien. While Medtronic was finalizing one of the largest medical device company mergers — $13.5 billion — Johnson & Johnson has prioritized its consumer and pharmaceutical divisions in recent years.


3. Johnson & Johnson sold its Ortho Clinical unit to Carlyle Group and Cordis unit to Cardinal Health, which reduced its medical device division. The current restructuring is aimed at the company's remaining orthopedics, surgery and cardiovascular businesses.


4. Johnson & Johnson's subsidiary DePuy Synthes has been a giant in the industry, but recently struggled after cost controls have been applied to implant products. Kalorama reports the orthopedic devices market is expected to grow 1.3 percent through 2019.


5. Johnson & Johnson is expected to report its 2015 financial results in the coming days and the analysts anticipate current device sales are under-performing. The company reported a drop in international and overall sales in orthopedics during the third quarter. Worldwide orthopedic sales hit $2.1 billion, a 7 percent decrease. However, United States sales were up 3.1 percent reaching $1.3 billion.


"J&J remains a large device player," said Mr. Carlson. "Vision Care and Ethicon biological wound care products are among devices in its umbrella performing well. It's large cash position also means it could buy another better-performing device unit and there's media speculation to that effect."


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