Johnson & Johnson Announces Comprehensive Restructuring of Orthopaedics Business and Files Preliminary Prospectus for DePuy Synthes Spin-off

Oct 18, 2023 19:37 CST Updated 19:37

Johnson & Johnson

Healthcare Product Manufacturers, Health Service Providers

October 17,Johnson & Johnson announced a two-year plan while releasing its Q3 financial report.Orthopedics Business Restructuring Plan, Including Exiting Low-Profit "Markets, Product Lines, Distribution Networks"。

Johnson & Johnson CFO Joe Wolk said that the company hopes to accelerate the growth of its orthopedics business and improve profitability through these reforms.

Orthopedic Business Restructuring

Focus on "Spine, Sports Medicine"?

Johnson & Johnson expects that this restructuring plan will cost between $700 million and $800 million by the end of 2025, including $235 million in costs incurred in the third quarter due to inventory write-downs.

CEO Joaquin DuatoExpressed,Johnson & Johnson is continuously advancing in the orthopedics field and aims to become one of the top players in every细分 market., and although this goal has not yet been achieved, there is great confidence; therefore, high growth will be realized by continuing to invest in the fastest-growing market segments.

For example, Johnson & Johnson's knee joint business has "a more complete product portfolio."Including revision and cementless knee products; in addition, Johnson & Johnson's Velys robotic-assisted total knee arthroplasty solution is about to launch in Europe; the system has been used globally in 30,000 surgeries.In addition, Johnson & Johnson is also focusing on ambulatory surgery centers as a growth area.

Joaquin DuatoRepresents,In the orthopedics field, Johnson & Johnson has a very strong team.The key is the right product mix.。

From its latest business performance, in Q3 2023, itsOrthopedics business revenue of $2.164 billion (+3.4%),

Among them, hip joint revenue was $375 million (+6.5%), knee joint revenue was $338 million (+6.7%), and trauma revenue was $742 million (+3.5%).Spine and Sports Medicine Revenue $710 Million (+0.2%)。

Spine and Sports Medicine Business Seems to Be the Focus of Johnson & Johnson's Transformation.

On March 6 this year, according to foreign media reports, news emerged from within the Johnson & Johnson groupWill Restructure Sports Medicine Products, Trauma, and Limbs Businesses Globally, and Cut at Least 1,000 Jobs Worldwide。

In terms of regional performance, in Q3, its orthopedics business generated revenue of $1.349 billion (+3.1%) in the U.S. and $815 million (+3.9%) overseas.

Q3 Spine and Sports Medicine grew by 2.3% in the U.S. but declined by 2.6% overseas.

China Orthopedic Market

Foreign Investment Hit Hard by Centralized Procurement

Previously in the first half of 2023, Johnson & Johnson's orthopedic knee business saw a 5.1% decline in revenue in the international market, which was mainly attributed to the impact of China's volume-based procurement in its financial report.

Orthopedic implants are the fourth largest medical细分领域 in China.

September 2021,Artificial JointNational procurement officially opened for bidding in Tianjin; the procurement volume is approximately 550,000 sets, accounting for about 80% of China's total demand, and will be implemented in 2022.

Before the centralized procurement, according to the "Weigao Orthopedics Prospectus" on the Chinese market's artificial joint landscape, Zimmer Biomet, Johnson & Johnson, and Aikon Medical ranked in the top three; additionally, Smith & Nephew accounted for about 6%, and Weigao Orthopedics accounted for approximately 4%; the overall localization rate in China was less than 40%.
After the centralized procurement, the new pattern is measured by the winning bid volume: AK Medical accounts for 16% (first place), Zimmer Biomet 14%, Johnson & Johnson 13%; Smith & Nephew 9%, Wego 8%; the overall localization rate in China is about 50%.

September 2022,SpineNational procurement officially opened for bidding in Shanghai; the procurement volume is approximately 1.21 million sets, accounting for about 50% of China's total demand, to be implemented in 2023.

Before the centralized procurement, according to the "Weigao Orthopedics Prospectus," in the Chinese market spinal landscape, foreign enterprises represented by Johnson & Johnson, Medtronic, and Stryker accounted for more than 60% of the market share; Chinese manufacturers Weigao Orthopedics accounted for 8%, and Sanyou Medical accounted for 4%.
After the centralized procurement, there is no statistical data available yet as the execution only began in Q2 of 2023. Based on the winning bids, Weigao emerged as the biggest winner with over 20 products awarded; "Medtronic + Kanghui" ranked first among foreign enterprises with 10 + 9 products awarded, Johnson & Johnson won 11 bids, and Stryker "strategically withdrew."

In October 2023, the fourth round of national procurement for medical consumables entered the quantity-reporting phase.Sports MedicineWill enter the national procurement for the first time.

It can be seen that the impact of national procurement on foreign-funded enterprises is still significant. Although it is unclear whether Johnson & Johnson's recent adjustment in its orthopedic business will involve the Chinese market, several foreign orthopedic giants have already chosen to adjust their operations in China.

For example,

In March, ZimVie, a company spun off from Zimmer Biomet's spinal and dental business, announced that it plans to completely withdraw its spinal business from the Chinese market due to the impact of the national spinal implant procurement policy.

In September, Stryker provided an explanation in its semi-annual financial report regarding the status and impact of its success in China’s volume-based procurement bidding. The company mentioned that it failed to secure a bid in the spinal products volume-based procurement project conducted in the third quarter of 2022, and as a result, is exiting the spinal business in China.

Previously, the chief financial officer of Medtronic also stated that the impact of volume-based procurement on the company exceeded that of many competitors. The company also predicted that by the end of the fiscal year 2024...Its business in the Chinese market will have80%Affected by bulk procurement。

However, this does not mean that foreign giants will "give up" on the Chinese market. Instead, they are further expanding into the incremental market through innovative transformations.

For example, in June this year, the Stryker Mako SmartRobotics™ system was commissioned and inaugurated at a hospital in Hangzhou.Orthopedic surgical robots are a "new technological revolution" in the medical field, and Stryker also made significant advancements after acquiring Mako.We have been pushing it as a key business.

In the future, the next battleground in orthopedics may be in the fields of minimally invasive surgery and surgical robotics.

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