JNJ Set to Jettison Cordis?

If the rumors currently swirling are true, Johnson & Johnson is preparing to sell what was once one of its golden geese. There have been market rumblings that the company has been on the chopping black for nearly a year.

The move is part of the New Brunswick, N.J.-based healthcare product behemoth’s strategy to shed its underperforming assets. Cordis makes medical devices such as cardiovascular stents and catheters and employs almost 5,000 people. A decade ago, it was a market-leading golden child for JNJ as one of the pioneers in the drug-coated stent market. JNJ acquired Cordis in 1996 for $1.8 billion.

But rapid and fierce competition, along with research that raised questions about drug-coated stents’ true efficacy compared to traditional stents led to shrinking sales and market share for Cordis. In 2011, the company got out of the drug-coated stent business. Cordis now focuses on other areas.

According to a recent report by Bloomberg, Cardinal Health Inc. is “the leading suitor” of companies interested in buying Cordis. JNJ is looking for a purchase price around $2 billion.

Officials from JNJ and Cardinal declined to respond to the Bloomberg report.

According to David Lewis, a managing director and medical device market analyst for Morgan Stanley, the potential Cordis sale is consistent with JNJ’s efforts to streamline its device holdings.

“A divestiture would be in-line with management’s efforts to prioritize its medical device business and focus on faster growth assets where JNJ has strong competitive positioning,” Lewis wrote in a research note. “Cordis has a dominant franchise in catheters as well as market share in balloons, guidewires and vascular closure devices.”

Johnson & Johnson recently sold its Ortho-Clinical Diagnostic unit—which makes diagnostic tests—to a private-equity group for $4 billion.

In 2014, JNJ’s medical device sales were $27.5 billion, a decrease of 3.4 percent from the prior year. Excluding the net impact of M&A activity, including the sale of Ortho Clinical Diagnostics, J&J’s medical device business had underlying operational growth of 1.5 percent. The company’s pharmaceutical sales, by contrast, increased 14.9 percent to $32.3 billion in 2014.

When JNJ’s CEO Alex Gorsky was asked about the potential sale of Cordis during an earnings conference call in January, he said that the company remained interested in staying in the cardiovascular device market, but that it would be “focusing” its strategy.

“We think can really make a difference for patients, where we think the markets are promising for the future in terms of reaching more patients, expanding share, volume growth, some pricing stability,” he said. “And so, we’re going to continue to evaluate our portfolio to make sure that we’re consistent with our strategy and as it relates to cardiovascular.