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How JNJ Plans to Address the Portfolio Gaps in its Spine Business?

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Overview

Johnson & Johnson (JNJ) reported total sales of ~$19.7 billion in 3Q17. Its Medical Devices segment registered a sales growth of ~7.1%, but the orthopedics division reported flat sales.

Knee and spine sales witnessed a decline in sales growth in 3Q17. The spine sales decline was driven by market share losses in the US, as JNJ has struggled to meet the gaps in its product portfolio.

Players that have strengthened their market presence and are gaining market share include Medtronic (MDT), Zimmer Biomet Holdings (ZBH), and Stryker (SYK). The company’s spine sales have been weak for a number of quarters.

Factors impacting JNJ’s spine sales

Market share loss driven by portfolio gaps has been one of the major drags on JNJ’s sales. But according to Johnson & Johnson, spine sales have been weak for the past few quarters due to the impact of both internal and macroeconomic factors.

On the macroeconomic front, JNJ estimates that the overall spine market is experiencing lower procedure volumes. In 3Q17, JNJ’s spine sales were weak in US and North American markets, but Asian and Latin American markets were estimated to have reported good performances.

What to expect ahead?

Johnson & Johnson expects to gain momentum in its spine sales in subsequent quarters, as the company strives to fill its portfolio gaps with new and innovative product launches. In June 2017, JNJ acquired Sentio, a company that markets innovative spine surgery technology. In January 2017, JNJ acquired Interventional Spine Expandable Cage Technology, and on October 25, JNJ’s Depuy Synthes (JNJ’s medical device subsidiary) announced the launch of its Viper Prime System and the Concorde Clear MIS Discectomy Tool for minimally invasive spinal fusion surgery, which is performed to treat degenerative disc disease in the back.

Investors interested in an opportunity to participate in the potential uptrend in JNJ’s performance can invest in the Vanguard S&P 500 ETF (VOO). JNJ makes up ~1.7% of VOO’s total portfolio holdings.

Next, we’ll take a look at JNJ’s recent decision to exit the insulin pumps market.

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