© Reuters. FILE PHOTO: The logo of Johnson & Johnson is seen on a Brussels’ office of the company in Diegem, Belgium September 21, 2023. REUTERS/Yves Herman/File Photo
By Bhanvi Satija and Patrick Wingrove
(Reuters) – Johnson & Johnson (NYSE:) on Tuesday said it has embarked on a two-year restructuring program for its orthopedics business after third-quarter medical devices sales fell short of Wall Street expectations, reflecting the company’s narrowed focus since spinning off its consumer health unit.
J&J said it plans to exit certain markets and stop selling some orthopedic products as part of the restructuring program.
Without consumer health and with its orthopedics business undergoing restructuring, pressure on J&J’s large pharmaceutical unit is likely to intensify as the company aims to reach its goal of $57 billion in drug sales by 2025. The company is expected to face fresh competition that year from the first biosimilar versions of it blockbuster psoriasis treatment Stelara.
J&J raised its annual profit forecast, helped by strong sales from its pharmaceutical business, and shares of the U.S. healthcare conglomerate were off about 1%.
Weakness in the medical devices unit might be playing a role in the stock move, said Guggenheim Partners analyst Vamil Divan, who called pharmaceutical sales the “most impressive” part of J&J’s quarter.
Excluding its consumer health unit, J&J now expects 2023 adjusted profit of $10.07 to $10.13 per share, up from its previous view of $10.00 to $10.10.
J&J recorded a $21-billion gain in the third quarter from the consumer health spin-off.
The company’s pharmaceutical business reported quarterly sales of $13.89 billion, with Stelara contributing more than 20% at $2.86 billion, above analysts’ estimates of $2.61 billion.
J&J has reached settlements that delayed the market entry of Stelara biosimilar rivals until 2025, which should help the drug continue to significantly contribute to overall sales.
However, European Stelara sales could start declining from the middle of next year after a key patent expires, J&J Chief Financial Officer Joseph Wolk said. “We could see a little bit of an impact.”
Sales at J&J’s medical device unit came in at $7.46 billion, shy of Wall Street estimates of $7.58 billion. The company’s orthopedic business made up about 29% of its medical devices sales in the third quarter.
Sales of the company’s devices used in abdomen surgeries were hit by a slowdown in demand for procedures such as bariatric surgery, as many obese patients turned to popular new weight-loss drugs like Novo Nordisk (NYSE:)’s Wegovy and Ozempic.
Wolk said use of those drugs could eventually drive patients to other procedures using J&J products.
“You have people today who are obese, who aren’t candidates for orthopedic, hip and knee replacements or some cardiovascular procedures, and those people now become candidates down the road,” he said.
Wolk said J&J did not “have the scientific expertise at this point” to enter the obesity drug space. He said if the “right opportunity presents itself” for a differentiated product, J&J would look at it.
J&J finalized the biggest shake-up in its 137-year history in August with the spinoff, but retained a 9.5% stake in its iconic consumer health business.
Excluding items, J&J reported a profit of $2.66 per share, topping analysts’ expectations by 14 cents, according to LSEG.
