The calendar has finally caught up with Johnson & Johnson ($JNJ). Quarter after quarter, the healthcare giant watched its $21.3 billion Synthes acquisition prop up otherwise flagging medical device sales, but it’s all come full circle in Q3, leaving J&J’s slumping med tech revenue down 2% as the company looks to sell off its diagnostics business.
J&J’s medical device and diagnostics segment brought in $6.9 billion last quarter, posting flat international sales but dragged down by a 4.2% drop in U.S. revenue. The Synthes-bolstered orthopedics business stayed roughly unchanged at $2.3 billion, but diabetes devices plummeted 11.4% to $557 million, and J&J’s seemingly unwanted diagnostics arm tanked 10.5% to $459 million.
Surgical care, J&J’s second-largest segment, dipped 1.1% to $1.5 billion on the quarter, while third-place vision care slipped 2.1% to $748 million. Among the bright spots were Biosense Webster, J&J’s electrophysiology unit, which helped the specialty surgery division grow 4.9% to $626 million.
Thanks to the sales slip, pharmaceuticals surpassed med tech as J&J’s breadwinner for the first time in a year. CEO Alex Gorsky 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. Furthermore, J&J still has its eye on M&A in the device world, and the company is gradually amending how it does business in med tech, Gorsky said, making sure to study and demonstrate the economic value its pipeline devices provide before launching them.
And then there’s diagnostics. Gorsky launched a thousand rumors earlier this year when he said J&J was considering selling its $2.2 billion testing arm, and analysts figure the company could fetch up to $5 billion for the business. But whether that’ll mend profits or please investors remains to be seen. J&J’s diagnostics segment is largely focused on blood tests and viral screens, not the high-tech molecular assays that have put competitors Roche ($RHHBY) and Abbott Laboratories ($ABT) near the top of the growing industry. Ditching the business will expel a drag on revenue, sure, but it’s unlikely to spur growth elsewhere.
On the whole, J&J’s net sales jumped 3.1% to $17.6 billion, driven by a 9.9% leap in pharma sales.