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Johnson & Johnson (JNJ - Analyst Report) will be selling its Ortho-Clinical Diagnostics business to The Carlyle Group for about $4 billion. The company said that it has accepted the binding offer from The Carlyle Group which was announced on Jan 16.

Johnson & Johnson said that it expects the deal to go through in mid-14. We expect updates on the deal on Apr 15 when the company announces its first quarter results.

The upcoming sale of the Ortho Clinical Diagnostics business indicates Johnson & Johnson’s increased focus on the pharma business which has been performing well. Johnson & Johnson reported pharmaceutical sales of $28.1 billion in 2013, up 10.9%.

Although some products in the pharma segment are facing generic competition, new products are steadily gaining traction and performing well. Some of the important and promising new products in Johnson & Johnson’s portfolio include Zytiga, Invokana, Stelara, Xarelto, Simponi and Invega Sustenna. Other growth drivers include Prezista, Remicade and Velcade. We believe prostate cancer treatment, Zytiga, which posted sales of $1.7 billion in 2013, has multi-billion dollar potential.

Another product with blockbuster potential is Imbruvica. Imbruvica is approved for mantle cell lymphoma and chronic lymphocytic leukemia in patients who have received at least one prior treatment.

We note that quite a few companies have been selling off non-core business segments with the intention of creating value and focusing on core areas. A case in point is Pfizer (PFE - Analyst Report) which divested its Nutrition business, sold its Capsugel unit and spun off its Animal Health segment.

Both Johnson & Johnson and Pfizer are Zacks Rank #3 (Hold) stocks. Some better-ranked stocks in the pharma sector include Salix Pharmaceuticals Ltd. (SLXP - Analyst Report) and Shire plc (SHPG - Analyst Report). Both are Zacks Rank #1 (Strong Buy) stocks.

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