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DePuy Synthes Sales Flat in Q3

The medical device business of healthcare behemoth Johnson & Johnson (JNJ) has had a pretty good year—that is until the third quarter. Until Q3 (ended Sept. 30) the company’s recent $21.3 billion purchase of orthopedic rival Synthes has been bolstering the overall medtech division’s performance.

For the quarter, JNJ’s medical device revenue dipped 2 percent as the company looks to sell off its diagnostics business. JNJ’s medical device and diagnostics businesses earned $6.9 billion last quarter, posting flat international sales but slowed by a 4.2 percent drop in U.S. revenue. The orthopedics business stayed roughly unchanged (down 0.3 percent) at $2.3 billion. Surgical care, the company’s second-largest segment, dipped 1.1 percent to $1.5 billion on the quarter, while third-place vision care fell 2.1 percent to $748 million. Sales of diabetes devices were harder hit, falling 11.4 percent to $557 million (U.S. sales were hardest hit, falling 27.7 percent to $237 million).

The aforementioned diagnostics unit also fell by double digits—10.5 percent to $459 million. Among the bright spots was Biosense Webster, JNJ’s electrophysiology unit, which helped the specialty surgery division increase sales 4.9 percent to $626 million. Cardiovascular device sales were up 1.6 percent to $501 million.

Thanks to the sales slip, pharmaceuticals surpassed medical devices and diagnostics as JNJ’s moneymaker for the first time in a year. CEO Alex Gorsky, who took over the helm of the company in April last year, has asked for investor patience when it comes to devices and diagnostics, saying the company is yet to reap the full benefits of its blockbuster Synthes deal and significant growth opportunities remain. Furthermore, the company eagerly is looking for device merger and acquisition targets.

Gorsky also noted that the company is gradually changing how it approaches its medical device business, making sure to study and demonstrate the economic value its pipeline devices provide before launching them. And then there’s diagnostics. Rumors began swirling earlier this year that the company was considering selling its $2.2 billion testing arm. Analysts estimate that the division could fetch up to $5 billion. JNJ’s diagnostics segment is largely focused on blood tests and viral screens, not the high-tech molecular assays that have put competitors such as Roche and Abbott Laboratories near the top of the growing industry.

According to analysts, who mostly have adopted a wait-and-see attitude, ditching the business will help the drag on revenue, sure, but it’s unlikely to spur growth elsewhere. Overall, the company’s net sales jumped 3.1 percent to $17.6 billion, driven by a 9.9 percent jump in pharmaceutical sales.

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