Dive Brief:

• Johnson & Johnson’s spinoff of its consumer health business has positioned the company to achieve top-tier medtech growth and profitability, according to analysts at RBC Capital Markets.  
• J&J recently split off its consumer health unit to make a standalone company, turning itself into the only global healthcare company with pharma and medtech in a single portfolio. RBC analysts expect the new structure to support the growth of a “bellwether” healthcare stock.
• On the medtech side, the analysts identified J&J’s leadership position in 11 categories, shift to fast-growing markets, investment in robotics and capacity for M&A as factors that position it to outperform its peers.

Dive Insight:

The RBC analysts praised J&J’s current medtech portfolio, noting that the company is a leader in 11 categories and has 12 platforms with sales of more than $1 billion. The portfolio is the result of a “clear winning strategy,” they wrote in a note to investors. Pursuing the strategy, J&J has increased the proportion of its portfolio that is in high-growth markets from 14% to 50% since 2018.

J&J has targeted emerging opportunities in pulsed field ablation (PFA), surgical and orthopedic robotics, and heart failure. The analysts predict that J&J will face market share loss in radiofrequency and cryoablation as PFA takes over, but expect it to benefit overall because of its broad portfolio and leadership in electrophysiology.

In heart failure, the $16.6 billion acquisition of Abiomed gave J&J control of a portfolio focused on the Impella heart pumps. The Abiomed franchise is growing at more than 20% a year, and the analysts “see much runway for portfolio, indication, and geographic expansion that should continue to support growth at a high-teens [compound annual growth rate] through 2028.”

In surgical robotics, they expect J&J’s investment in Monarch and the Ottava multi-port system to establish it as a key player alongside Intuitive Surgical and Medtronic. J&J’s commitment to orthopedic robotics appears to be paying off, too. The analysts’ checks with key opinion leaders suggest that the Velys system “is being well adopted and driving implant pull-through.” 

J&J used M&A to establish its positions in heart failure and robotics markets, and it has the capacity and appetite to strike more deals. Joe Wolk, CFO of J&J, has said the company has a “voracious” appetite for M&A, with a preference for early-stage deals and agreements that move it into adjacent spaces, such as when it bought Abiomed to expand into heart failure.  

Some of the M&A budget will go into the pharma side of the business. The loss of exclusivity on Stelara, a treatment for conditions including Crohn’s disease, will hurt the pharma unit, but the analysts have identified Tremfya, Erleada and Spravato as products that can outperform expectations and help J&J hit its target of $60 billion in sales by 2025.