J&J Bags its Stent Business

Johnson & Johnson is getting out of the heart stent business.

The diversified healthcare company said Wednesday it no longer will develop its Nevo heart stent and will stop production of its Cypher stent as it pulls back on a segment of its cardiovascular business that has suppressed earnings in recent years.

J&J expects to take a second-quarter charge ranging from $500 million to $600 million related to restructuring plans for Cordis Corp., the business unit that develops and sells the stents. J&J plans to end production of the Cypher and Cypher Select Plus sirolimus-eluting coronary stents by year’s end and turn its attention to expanding its portfolio of vascular solutions for endovascular and cardiology procedures, a market the company estimates is worth about $12 billion. In a news release announcing the decision to exit the stent market, J&J executives said the company’s new focus will revolve around access, diagnostic and therapeutic products for cardiology procedures, products to diagnose, access and treat lower extremity disease, and the Incraft Stent-Graft System, an investigational device for treating abdominal aortic aneuryisms.

“Due to evolving market dynamics in the drug-eluting stent (DES) business, we see greater opportunities to benefit patients and grow our business in other areas of the cardiovascular device market,” said Seth Fischer, company group chairman and worldwide chairman of Cordis Corp.

Analysts believe J&J’s decision to leave the stent market ultimately will benefit the New Brunswick, N.J.-based company by allowing it to focus on higher-growth divisions such as Biosense Webster, which develops and markets electrophysiology navigation systems and ablation therapy devices. Annual Cypher sales had reached $2.6 billion, but the stent was on track to earn merely $400 million this year, according to Gabelli & Co. analyst Jeff Jonas. Its current sales amount to about 1 percent of company profit.

Cypher has faced safety issues and competition from rival products, most notably Abbott Laboratories Inc.’s best-selling Xience. Cypher was the first stent that released a drug designed to prevent the reclogging of arteries after being implanted within the body. However, medical experts disagree over whether Cypher and other drug-coated stents cause blood clots.

Global Cypher sales fell 41 percent in the first quarter of 2011 and market share slipped 6 percentage points to 12 percent compared with the same period last year. The decline was significant, considering Cypher once was the top brand globally.

“The stents were kind of an albatross,” Jones told Reuters. He said the market share decline as well as the troubles J&J has had developing new stents (not to mention competition from rival Abbott) made the decision to abandon the stent market a relatively easy one for the company.

J&J’s decision also will be a beneficial one for its rivals. Leerink Swann LLC analyst Rick Wise claims roughly 5 percent to 10 percent of the DES market will be up for grabs next year, with Abbott, Boston Scientific Corp. and Metronic Inc. gaining nearly identical slices of the financial pie. Wise estimates Abbott’s share will climb to 40 percent of the market (from 38 percent), while Boston Scientific also will gain two market share points, going from 37 percent to 39 percent. Additionally, Medtronic’s Endeavor/Resolute stent will capture 21 percent of the market, gaining a total of 3 points, Wise contends.

“With the removal of a large, ‘troubled’ player from the market, we’re inclined to think industry dynamics—like pricing—might improve on the margin as well,” Wise wrote in a note to investors. “We also view the news positively for J&J, as the Cordis restructuring…should further drive positive operating leverage and better allow the company to focus on the business’ other, higher-growth divisions like Biosense Webster. All this should set the stage for J&J to drive better sales and operating in 2012 and beyond.”