Johnson & Johnson has found a private equity firm willing to pay $4.15 billion for its Ortho Clinical Diagnostics division, which provides blood-testing equipment and chemicals.
One would think that blood testing should be a booming business, but that hasn’t been the case for J&J. The company said Thursday that it has a binding offer from The Carlyle Group for the division.
It has been about a year since J&J announced it was “exploring strategic alternatives” for the division, which is corporate-speak for searching for a buyer. J&J has until March 31 to accept The Carlyle Group’s offer.
So what exactly does the Ortho Clinical Diagnostics division sell? The Associated Press has a good summary of the business:
”One division supplies equipment and chemicals to screen donated blood for HIV, hepatitis C and other serious diseases, and for typing donated blood to ensure patients get safe, compatible blood transfusions. The other division makes technology for advanced testing of blood to diagnose a range of health conditions and to monitor the effects of medication.”
One would think a blood testing equipment business would be a gold mine. Getting one’s blood drawn is pretty common, after all.
But it has not been so for J&J.
The company’s diagnostics business brought in $1.42 billion in revenue for the first nine months of 2013, a 7.8% decline from the same period in 2012. Overall 2012 revenue was $2.1 billion, down 4.4% from 2011.
J&J is not alone in this situation. Even with a slight uptick related to the U.S. Affordable Care Act bringing in new patients, the $75 billion lab testing industry will continue to slow down through 2015, according to G2 Intelligence research recounted by American Public Media’s Marketplace.
The culprit is shrinking testing reimbursements from both public and private insurers.
Richard Nicholson, of West Pacific Medical Lab in southern California, told Marketplace that the money is more in sophisticated tests such as cancer tumor profiling or genetic sequencing. “It’s like selling a Gucci purse versus a purse at JC Penny,” he said.
