07.29.15
$27.5 Billion ($74.3B total)
KEY EXECUTIVES:
Alex Gorsky, Chairman & CEO
Dominic J. Caruso, VP, Finance & Chief Financial Officer
Stephen J. Cosgrove, Corporate Controller & Chief Accounting Officer
Michel Orsinger, Worldwide Chairman, Global Orthopaedics
Gary J. Pruden, Worldwide Chairman, Medical Devices Group
Karen Licitra, Worldwide Chairman, Global Medical Solutions
Kathryn E. Wengel, VP, Johnson & Johnson Supply Chain
Charles Austin, Corporate VP, Global Supply Chain
Jesse J. Wu, Chairman, Johnson & Johnson China
NO. OF EMPLOYEES: 126,500
GLOBAL HEADQUARTERS: New Brunswick, N.J.
“Creating a strong business and building a better world are not conflicting goals—they are both essential ingredients for long-term success.”
Milton Friedman remains as controversial a figure in death as he was in life.
Renowned for his free-market ideology and conservatism, Friedman’s antistatist views—mainly, the belief that unimpeded private competition produces better results than government—are still contentious subjects, nearly nine years after his demise. Yet the most fervent debates continue to revolve around his stance on corporate social responsibility, a concept he labeled “nonsensical” and harmful to the foundations of a free society. Writing in The New York Times magazine in September 1970, the Nobel Prize laureate impenitently proclaimed that business has “only one social responsibility—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”
Friedman believed corporations are inhuman entities that cannot possibly have real responsibilities. In the ideal free market, he contended, “all cooperation is voluntary...There are not values, no ‘social’ responsibilities in any sense other than the shared values and responsibilities of individuals.”
Friedman’s unconventional business strategy initially resounded with Americans (journalist/author George Will called him “the most consequential public intellectual of the 20th century”) but support for the doctrine has dwindled considerably as companies respond to consumer demands for reputational excellence.
Numerous studies have shown that corporate social responsibility (CSR) policies influence consumer purchasing decisions. A survey by branding firm Landor Associates concluded that 77 percent of consumers believe it is important for companies to be socially responsible. “There’s a heightened awareness of the need to be, and to be seen as, a good corporate citizen,” noted Robert Grosshandler, CEO of iGive.com, which allows consumers to support their favorite charities through shopping.
Johnson & Johnson realized the value of good corporate citizenship quite some time ago. The company bible, a.k.a. its 72-year-old Credo, pledges responsibility to the “world community” as well as those in which the diversified healthcare firm operates. “We must be good citizens—support good works and charities and bear our fair share of taxes,” the Credo reads. “We must encourage civic improvements and better health and education. We must maintain in good order the property we are privileged to use, protecting the environment and natural resources.”
Like many companies, JNJ has refined its approach to CSR over the years by closely relating social causes to its core businesses, an approach scholars have dubbed “socially responsible capitalism.” Last year, for example, the company eliminated PVC (polyvinyl chloride) in its Enseal G2 Articulating Tissue sealers, and cut its energy and water consumption by 44 percent and 43 percent respectively, in disinfecting/sterilizing the DePuy Synthes TruMatch personalized Sigma Knee implants.
By embodying CSR initiatives into its business strategy, JNJ is both a good corporate citizen and a savvy investor—a combination that has helped the company continually boost its bottom line.
“Our credo is absolutely central to our culture and impacts everything we do. It reminds us that we are responsible to patients, medical professionals, consumers, families and communities worldwide, and it motivates our employees to come to work every day with the passion to make a difference in the world...” CEO/Board Chairman Alex Gorsky told Leaders Magazine last spring. “We share a belief that if we take care of those responsibilities, then everything else will take care of itself. Throughout our history, this has been true.”
And it was true last year as well. The New Brunswick, N.J.-based company grew sales 4.2 percent in 2014 to $74.3 billion, bolstered mainly by a 15 percent jump in global pharmaceutical revenue ($32.3 billion). The increase in drug sales offset a 1.3 percent slide in worldwide Consumer sales ($14.5 billion) and a 3.4 percent decrease in Medical Devices proceeds ($27.5 billion). Excluding the net impact of M&A activity, including the June 2014 divestiture of Ortho Clinical Diagnostics, the medical devices segment had underlying operational growth of 1.5 percent.
JNJ’s Pharmaceutical segment traditionally has outperformed its brethren, but executives are planning to even the score a bit by seeking approval of more than 30 major products in its Medical Devices division by the end of 2016 while also focusing on fast-growing emerging markets. Much of that focus will be centered on China and Russia, where the medtech sector is growing three to four times faster than in developed markets.
“China is important to every medical device company given the number of people and the size of the market opportunity,” Glenn Novarro, an analyst with RBC Capital Markets in New York, told Bloomberg Business. “JNJ is one of the early investors in China and it’s paying off. They are ahead of the curve.”
And the company has managed to stay ahead of the curve by avoiding the bribery probes that have snared the likes of GlaxoSmithKline, and taking advantage of the Middle Kingdom’s growing middle class, government investments, and prevalence of traditionally Western diseases. The company partnered with Waltham, Mass.-based Nova Biomedical Corp. last spring to sell its StatStrip, a blood glucose testing system, to Chinese hospitals, where 60 percent of care occurs. Wise move, considering the country now lodges roughly one-quarter of the planet’s diabetics, whose rising incomes are allowing them greater access to medical care to treat the disease.
“It’s unfortunate that a lot of Western habits are being taken up in China, and incidence of diabetes is going up,” said Ashley, McEvoy, JNJ’s group chair- man for diabetes and vision care.
JNJ is eyeing China’s $250 million vision market as well, intent on capitalizing on the government’s commitment to vision care coverage, including contact lenses for those younger than 18.
Bone plates and screws are part of the company’s “one step ahead” plan too: The firm conducted clinical trials with the bone repair devices manufactured at its Suzhou facility, and is branding them as locally made products to make them eligible for higher reimbursement from the Chinese government.
“My personal vision is to innovate more out of China, taking advantage of new thinking within R&D [research and development] to develop simpler, easier to use and more affordable products,” Michel Orsinger, worldwide chairman of JNJ’s global orthopedics group, told Bloomberg. “And we want to launch them not only in China but bring them into western countries, a reverse innovation.”
Orsinger’s vision could soon become a reality: Last fall, JNJ opened the Asia Pacific Innovation Center, a Shanghai-based medtech incubator with satellite hubs in Singapore, Australia and Japan. Armed with local science and technology experts and deal-making capabilities, the center is tasked with identifying and developing promising early-stage opportunities in drugs, medical devices/diagnostics, and consumer healthcare products.
The Center already has fostered several new collaborations in both Australia and China, including the establishment of a partnering office at Suzhou BioBAY, an incubator with more than 400 companies in the areas of drug discovery, biotech, in-vitro diagnostics, medical devices and nanotechnology. The office, according to executives, will function as an extension of the Center to work with academics and entrepreneurs on a more local basis. The Center’s partnering offices are part of a broader strategy to interact more directly with life science clusters worldwide.
“The Johnson & Johnson Family of Companies has a long standing presence in China extending back almost 30 years. Our on the ground presence across the region allows us to work side by side with our partners with speed, agility, and insight to translate innovations into new products,” noted Jesse Wu, chairman, Johnson & Johnson China. “The Asia Pacific Innovation Center supports our larger goal to address China’s specific healthcare needs, invest in local capabilities, and increase our external collaborations.”
The Numbers Game
JNJ’s Medical Devices division accounted for 37 percent of the firm’s total worldwide sales in fiscal year 2014 (ended Dec. 31). The segment houses 11 businesses under its roof, including BioSense Webster; the troubled orthopedic and neurological focused DePuy Synthes; Janssen Diagnostics; and advanced surgical care units Ethicon and Ethicon Endo-Surgery.
The division’s best performers were its orthopedic, specialty surgery and cardiovascular care franchises, the latter of which outpaced its running mates in sales growth. Cardiovascular revenue swelled 6.3 percent to $2.2 billion, due mostly to the 18 percent growth of Biosense Webster electrophysiology products.
The company overcame lingering pricing pressure to increase orthopedic revenue by 1.7 percent to $9.67 billion—roughly one-third of the Medical Devices segment’s 2014 gross. Executives attributed the gain to robust sales of trauma, sports medicine, hip and knee products, some of which made their debut last spring.
The company launched a bevy of new joint replacement parts within a two-month period, adding a rotating platform design and anatomic patella to the Attune Knee System lineup in March and debuting a hip system and anatomic shoulder in May.
The Attune rotating platform design increases the level of conformity to provide stability while delivering freedom of mobility, DePuy Synthes bigwigs noted. Rotating platform knees aim to restore more natural movement to the joint by allowing the bearing to rotate in the same manner as an anatomical knee. Rotating knees also are designed to reduce stress and wear on the implant by 94 percent.
The anatomic patella—unique to DePuy Synthes—works with the Attune knee femoral components and is compatible with both the Attune fixed bearing and rotating platform knees. It is designed to have more natural sagittal plane kinematics than traditional dome style patella components; the more natural kinematics can reduce soft tissue interaction with the femoral component and thereby help prevent soft tissue irritation, according to product spec sheets. Also, the unique kinematics of the anatomic patella are designed to increase quadriceps efficiency in deep flexion, allowing the knee to more easily flex and extend.
Less than 24 hours after unveiling its Attune enhancements, the company introduced the DePuy Synthes Advantage, a suite of provider-focused solutions that complement the firm’s product portfolio and help improve clinical and economic outcomes.
The Advantage suite features an exclusive licensing agreement with MedTrak to offer subscription-based services through a software solution called CareSense. The software allows healthcare providers to collect and analyze real-time data on the “triple aim” measures (patient outcomes, patient satisfaction and costs).
The suite also includes the Geriatric Fracture Program, a tool designed to streamline and standardize preoperative assessments to enable geriatric patients to undergo surgery within 24 hours of injury.
“By providing solutions that, for example, are designed to save time in the operating room, potentially reduce hospital stays or provide real-time analytics that lead to improved efficiency and patient satisfaction, we create value for the healthcare system as a whole,” said Gary Fischetti, company group chairman of Orthopedics.
In May, DePuy Synthes supplemented its Attune rotating platform system with the addition of the Trumatch Resection Guide and Pin Guide solution. The company also enhanced its hip and shoulder portfolios with the release of the Corail Revision Hip system and Global Unite Anatomic Shoulder.
The Corail hip is claimed to be the first tapered wedge revision stem in the United States, designed to help treat patients with mild to moderate femoral defects who need hip revisions, whereas the Global Unite shoulder allows surgeons to use the same humeral stem to repair shoulder fractures, perform total shoulder replacements or reverse total replacements using the previously implanted humeral stem without the use of a stack-on adaptor.
Though it achieved commendable victories in orthopedics, specialty surgery and cardiovascular care, JNJ couldn’t overcome the pricing pressures, foreign currency fluctuations and increased competition that victimized its other franchises last year.
Vision care sales, for instance, fell 4.1 percent to $2.81 billion and diabetes care revenue slipped 7.2 percent to $2.14 billion, although strong European sales and volume growth respectively stemmed some of the bleeding in those sub-segments.
Similarly, strong global sales of sutures and the popularity of the Echelon Flex Powered Endopath Stapler abroad kept the company’s surgical care losses to a minimum. Proceeds fell 1.5 percent to $6.17 billion, due mostly to foreign currency fluctuations and the divestiture of several women’s health products.
JNJ tried battling its sagging surgical care fortunes with the third-quarter release of the Echelon Flex GST System and Incraft AAA stent graft, but neither new product could prevent the franchise from losing money.
The Echelon Flex GST power stapler and reload system is designed to provide a better grip on tissue for the least tissue slippage during firing. Through its proprietary gripping surface technology (GST), the Echelon Flex system provides a more secure hold on tissue to deliver four times less slippage for more targeted tissue transections and the potential to eliminate one reload per procedure, an efficiency that ultimately could save money, the company said when it launched the product. Less tissue slippage during firing also can help provide more consistent staple formation across various tissue thicknesses with each reload.
JNJ’s Cordis unit launched the Incraft AAA stent graft abroad in September after winning regulatory approvals in Europe and Canada. Incraft represents a less invasive option for endovascular repair of abdominal aortic aneurysms (AAA), a condition that affects an estimated 24 million patients worldwide.
The Incraft approvals were based in part on results from the INNOVATION clinical trial, conducted in 2010, which found no cases of aneurysm enlargement, endoleaks, device- or procedure-related major adverse events, stent-graft migrations or stent fractures after two years of treatment. Only one patient had a stent occlusion, but it was attributed to shrinkage of the aneurysm.
The Incraft system is not yet approved in the United States, but has investigational device exemption consent for use in clinical trials. Cordis is also pursuing approval for the Incraft stent in Japan.
JNJ’s worst-performing franchise was diagnostics, down 49 percent year-over-year at $962 million, according to the company’s 2014 annual report. Executives attributed the decline to the $4.1 billion sale of the Ortho Clinical Diagnostics business, which booked $1.88 billion in sales in 2013. The business—now owned by global alternative assett manager The Carlyle Group—sells blood screening equipment and laboratory blood tests focused on various diseases.
Courtroom Drama
JNJ is no stranger to the judicial system. As the world’s largest and most diversified healthcare firm, it spends a considerable amount of time in the courtroom fending off legal challenges from rivals, defending its integrity and protecting its proprietary technology. A summary of the more notable cases in 2014 follows:
KEY EXECUTIVES:
Alex Gorsky, Chairman & CEO
Dominic J. Caruso, VP, Finance & Chief Financial Officer
Stephen J. Cosgrove, Corporate Controller & Chief Accounting Officer
Michel Orsinger, Worldwide Chairman, Global Orthopaedics
Gary J. Pruden, Worldwide Chairman, Medical Devices Group
Karen Licitra, Worldwide Chairman, Global Medical Solutions
Kathryn E. Wengel, VP, Johnson & Johnson Supply Chain
Charles Austin, Corporate VP, Global Supply Chain
Jesse J. Wu, Chairman, Johnson & Johnson China
NO. OF EMPLOYEES: 126,500
GLOBAL HEADQUARTERS: New Brunswick, N.J.
“Creating a strong business and building a better world are not conflicting goals—they are both essential ingredients for long-term success.”
— William Clay Ford Jr., executive chairman, Ford Motor Co.
Milton Friedman remains as controversial a figure in death as he was in life.
Renowned for his free-market ideology and conservatism, Friedman’s antistatist views—mainly, the belief that unimpeded private competition produces better results than government—are still contentious subjects, nearly nine years after his demise. Yet the most fervent debates continue to revolve around his stance on corporate social responsibility, a concept he labeled “nonsensical” and harmful to the foundations of a free society. Writing in The New York Times magazine in September 1970, the Nobel Prize laureate impenitently proclaimed that business has “only one social responsibility—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”
Friedman believed corporations are inhuman entities that cannot possibly have real responsibilities. In the ideal free market, he contended, “all cooperation is voluntary...There are not values, no ‘social’ responsibilities in any sense other than the shared values and responsibilities of individuals.”
Friedman’s unconventional business strategy initially resounded with Americans (journalist/author George Will called him “the most consequential public intellectual of the 20th century”) but support for the doctrine has dwindled considerably as companies respond to consumer demands for reputational excellence.
Numerous studies have shown that corporate social responsibility (CSR) policies influence consumer purchasing decisions. A survey by branding firm Landor Associates concluded that 77 percent of consumers believe it is important for companies to be socially responsible. “There’s a heightened awareness of the need to be, and to be seen as, a good corporate citizen,” noted Robert Grosshandler, CEO of iGive.com, which allows consumers to support their favorite charities through shopping.
Johnson & Johnson realized the value of good corporate citizenship quite some time ago. The company bible, a.k.a. its 72-year-old Credo, pledges responsibility to the “world community” as well as those in which the diversified healthcare firm operates. “We must be good citizens—support good works and charities and bear our fair share of taxes,” the Credo reads. “We must encourage civic improvements and better health and education. We must maintain in good order the property we are privileged to use, protecting the environment and natural resources.”
Like many companies, JNJ has refined its approach to CSR over the years by closely relating social causes to its core businesses, an approach scholars have dubbed “socially responsible capitalism.” Last year, for example, the company eliminated PVC (polyvinyl chloride) in its Enseal G2 Articulating Tissue sealers, and cut its energy and water consumption by 44 percent and 43 percent respectively, in disinfecting/sterilizing the DePuy Synthes TruMatch personalized Sigma Knee implants.
By embodying CSR initiatives into its business strategy, JNJ is both a good corporate citizen and a savvy investor—a combination that has helped the company continually boost its bottom line.
“Our credo is absolutely central to our culture and impacts everything we do. It reminds us that we are responsible to patients, medical professionals, consumers, families and communities worldwide, and it motivates our employees to come to work every day with the passion to make a difference in the world...” CEO/Board Chairman Alex Gorsky told Leaders Magazine last spring. “We share a belief that if we take care of those responsibilities, then everything else will take care of itself. Throughout our history, this has been true.”
And it was true last year as well. The New Brunswick, N.J.-based company grew sales 4.2 percent in 2014 to $74.3 billion, bolstered mainly by a 15 percent jump in global pharmaceutical revenue ($32.3 billion). The increase in drug sales offset a 1.3 percent slide in worldwide Consumer sales ($14.5 billion) and a 3.4 percent decrease in Medical Devices proceeds ($27.5 billion). Excluding the net impact of M&A activity, including the June 2014 divestiture of Ortho Clinical Diagnostics, the medical devices segment had underlying operational growth of 1.5 percent.
JNJ’s Pharmaceutical segment traditionally has outperformed its brethren, but executives are planning to even the score a bit by seeking approval of more than 30 major products in its Medical Devices division by the end of 2016 while also focusing on fast-growing emerging markets. Much of that focus will be centered on China and Russia, where the medtech sector is growing three to four times faster than in developed markets.
“China is important to every medical device company given the number of people and the size of the market opportunity,” Glenn Novarro, an analyst with RBC Capital Markets in New York, told Bloomberg Business. “JNJ is one of the early investors in China and it’s paying off. They are ahead of the curve.”
And the company has managed to stay ahead of the curve by avoiding the bribery probes that have snared the likes of GlaxoSmithKline, and taking advantage of the Middle Kingdom’s growing middle class, government investments, and prevalence of traditionally Western diseases. The company partnered with Waltham, Mass.-based Nova Biomedical Corp. last spring to sell its StatStrip, a blood glucose testing system, to Chinese hospitals, where 60 percent of care occurs. Wise move, considering the country now lodges roughly one-quarter of the planet’s diabetics, whose rising incomes are allowing them greater access to medical care to treat the disease.
“It’s unfortunate that a lot of Western habits are being taken up in China, and incidence of diabetes is going up,” said Ashley, McEvoy, JNJ’s group chair- man for diabetes and vision care.
JNJ is eyeing China’s $250 million vision market as well, intent on capitalizing on the government’s commitment to vision care coverage, including contact lenses for those younger than 18.
Bone plates and screws are part of the company’s “one step ahead” plan too: The firm conducted clinical trials with the bone repair devices manufactured at its Suzhou facility, and is branding them as locally made products to make them eligible for higher reimbursement from the Chinese government.
“My personal vision is to innovate more out of China, taking advantage of new thinking within R&D [research and development] to develop simpler, easier to use and more affordable products,” Michel Orsinger, worldwide chairman of JNJ’s global orthopedics group, told Bloomberg. “And we want to launch them not only in China but bring them into western countries, a reverse innovation.”
Orsinger’s vision could soon become a reality: Last fall, JNJ opened the Asia Pacific Innovation Center, a Shanghai-based medtech incubator with satellite hubs in Singapore, Australia and Japan. Armed with local science and technology experts and deal-making capabilities, the center is tasked with identifying and developing promising early-stage opportunities in drugs, medical devices/diagnostics, and consumer healthcare products.
The Center already has fostered several new collaborations in both Australia and China, including the establishment of a partnering office at Suzhou BioBAY, an incubator with more than 400 companies in the areas of drug discovery, biotech, in-vitro diagnostics, medical devices and nanotechnology. The office, according to executives, will function as an extension of the Center to work with academics and entrepreneurs on a more local basis. The Center’s partnering offices are part of a broader strategy to interact more directly with life science clusters worldwide.
“The Johnson & Johnson Family of Companies has a long standing presence in China extending back almost 30 years. Our on the ground presence across the region allows us to work side by side with our partners with speed, agility, and insight to translate innovations into new products,” noted Jesse Wu, chairman, Johnson & Johnson China. “The Asia Pacific Innovation Center supports our larger goal to address China’s specific healthcare needs, invest in local capabilities, and increase our external collaborations.”
The Numbers Game
JNJ’s Medical Devices division accounted for 37 percent of the firm’s total worldwide sales in fiscal year 2014 (ended Dec. 31). The segment houses 11 businesses under its roof, including BioSense Webster; the troubled orthopedic and neurological focused DePuy Synthes; Janssen Diagnostics; and advanced surgical care units Ethicon and Ethicon Endo-Surgery.
The division’s best performers were its orthopedic, specialty surgery and cardiovascular care franchises, the latter of which outpaced its running mates in sales growth. Cardiovascular revenue swelled 6.3 percent to $2.2 billion, due mostly to the 18 percent growth of Biosense Webster electrophysiology products.
The company overcame lingering pricing pressure to increase orthopedic revenue by 1.7 percent to $9.67 billion—roughly one-third of the Medical Devices segment’s 2014 gross. Executives attributed the gain to robust sales of trauma, sports medicine, hip and knee products, some of which made their debut last spring.
The company launched a bevy of new joint replacement parts within a two-month period, adding a rotating platform design and anatomic patella to the Attune Knee System lineup in March and debuting a hip system and anatomic shoulder in May.
The Attune rotating platform design increases the level of conformity to provide stability while delivering freedom of mobility, DePuy Synthes bigwigs noted. Rotating platform knees aim to restore more natural movement to the joint by allowing the bearing to rotate in the same manner as an anatomical knee. Rotating knees also are designed to reduce stress and wear on the implant by 94 percent.
The anatomic patella—unique to DePuy Synthes—works with the Attune knee femoral components and is compatible with both the Attune fixed bearing and rotating platform knees. It is designed to have more natural sagittal plane kinematics than traditional dome style patella components; the more natural kinematics can reduce soft tissue interaction with the femoral component and thereby help prevent soft tissue irritation, according to product spec sheets. Also, the unique kinematics of the anatomic patella are designed to increase quadriceps efficiency in deep flexion, allowing the knee to more easily flex and extend.
Less than 24 hours after unveiling its Attune enhancements, the company introduced the DePuy Synthes Advantage, a suite of provider-focused solutions that complement the firm’s product portfolio and help improve clinical and economic outcomes.
The Advantage suite features an exclusive licensing agreement with MedTrak to offer subscription-based services through a software solution called CareSense. The software allows healthcare providers to collect and analyze real-time data on the “triple aim” measures (patient outcomes, patient satisfaction and costs).
The suite also includes the Geriatric Fracture Program, a tool designed to streamline and standardize preoperative assessments to enable geriatric patients to undergo surgery within 24 hours of injury.
“By providing solutions that, for example, are designed to save time in the operating room, potentially reduce hospital stays or provide real-time analytics that lead to improved efficiency and patient satisfaction, we create value for the healthcare system as a whole,” said Gary Fischetti, company group chairman of Orthopedics.
In May, DePuy Synthes supplemented its Attune rotating platform system with the addition of the Trumatch Resection Guide and Pin Guide solution. The company also enhanced its hip and shoulder portfolios with the release of the Corail Revision Hip system and Global Unite Anatomic Shoulder.
The Corail hip is claimed to be the first tapered wedge revision stem in the United States, designed to help treat patients with mild to moderate femoral defects who need hip revisions, whereas the Global Unite shoulder allows surgeons to use the same humeral stem to repair shoulder fractures, perform total shoulder replacements or reverse total replacements using the previously implanted humeral stem without the use of a stack-on adaptor.
Though it achieved commendable victories in orthopedics, specialty surgery and cardiovascular care, JNJ couldn’t overcome the pricing pressures, foreign currency fluctuations and increased competition that victimized its other franchises last year.
Vision care sales, for instance, fell 4.1 percent to $2.81 billion and diabetes care revenue slipped 7.2 percent to $2.14 billion, although strong European sales and volume growth respectively stemmed some of the bleeding in those sub-segments.
Similarly, strong global sales of sutures and the popularity of the Echelon Flex Powered Endopath Stapler abroad kept the company’s surgical care losses to a minimum. Proceeds fell 1.5 percent to $6.17 billion, due mostly to foreign currency fluctuations and the divestiture of several women’s health products.
JNJ tried battling its sagging surgical care fortunes with the third-quarter release of the Echelon Flex GST System and Incraft AAA stent graft, but neither new product could prevent the franchise from losing money.
The Echelon Flex GST power stapler and reload system is designed to provide a better grip on tissue for the least tissue slippage during firing. Through its proprietary gripping surface technology (GST), the Echelon Flex system provides a more secure hold on tissue to deliver four times less slippage for more targeted tissue transections and the potential to eliminate one reload per procedure, an efficiency that ultimately could save money, the company said when it launched the product. Less tissue slippage during firing also can help provide more consistent staple formation across various tissue thicknesses with each reload.
JNJ’s Cordis unit launched the Incraft AAA stent graft abroad in September after winning regulatory approvals in Europe and Canada. Incraft represents a less invasive option for endovascular repair of abdominal aortic aneurysms (AAA), a condition that affects an estimated 24 million patients worldwide.
The Incraft approvals were based in part on results from the INNOVATION clinical trial, conducted in 2010, which found no cases of aneurysm enlargement, endoleaks, device- or procedure-related major adverse events, stent-graft migrations or stent fractures after two years of treatment. Only one patient had a stent occlusion, but it was attributed to shrinkage of the aneurysm.
The Incraft system is not yet approved in the United States, but has investigational device exemption consent for use in clinical trials. Cordis is also pursuing approval for the Incraft stent in Japan.
JNJ’s worst-performing franchise was diagnostics, down 49 percent year-over-year at $962 million, according to the company’s 2014 annual report. Executives attributed the decline to the $4.1 billion sale of the Ortho Clinical Diagnostics business, which booked $1.88 billion in sales in 2013. The business—now owned by global alternative assett manager The Carlyle Group—sells blood screening equipment and laboratory blood tests focused on various diseases.
Courtroom Drama
JNJ is no stranger to the judicial system. As the world’s largest and most diversified healthcare firm, it spends a considerable amount of time in the courtroom fending off legal challenges from rivals, defending its integrity and protecting its proprietary technology. A summary of the more notable cases in 2014 follows:
- Baxter International lodged a patent infringement complaint against JNJ in January 2014, accusing its rival of violating six patents protecting Baxter’s biosurgery products, including Floseal, used to control bleeding during surgery. The suit contends JNJ’s hemostasis delivery devices, including its SurgiFlo product line, directly compete with Baxter’s biosurgery products. Floseal and SurgiFlo are indicated for use in surgical procedures as an adjunct to hemostasis when control of bleeding by ligature or other conventional methods is ineffective or impractical, according to the suit.
- Cordis Corp. left the coronary stent market two years ago, but has been embroiled in a patent infringement battle with Israeli medical device company Medinol Ltd. over the Cypher and Cypher Select stents it no longer makes. Medinol, which won a $750 million decision over erstwhile partner Boston Scientific Corp. in 2005, accused Cordis in March 2013 of violating four patents with the Cypher stents, according to court documents and regulatory filings. The lawsuit, filed in U.S. District Court for Southern New York, sought a jury trial, judgments of infringement and willful infringement, damages and triple damages for willful infringement, legal fees and pre- and post-judgment interest, according to the documents. The patents cited covered articulated stent technology. For its part, Johnson & Johnson argued that it never sold any of the Cypher products. After a trial in January 2014, a federal judge dismissed the case, ruling that Medinol registered its complaint too late. The judge also denied a motion by Medinol to vacate the judgment and grant a new trial. Medinol is appealing the September decision.
- Covidien plc (now part of Medtronic plc) added another chapter to its patent war history with JNJ, securing a new victory against its subsidiary, Ethicon Endo-Surgery Inc. Covidien sued Ethicon over the summer, claiming the Harmonic ACE+7 infringed upon three of its patents. A U.S. District Court judge agreed, granting Covidien a preliminary injunction in mid-October that prevents Ethicon from manufacturing, marketing and selling an ultrasonic surgical device. Naturally, Ethicon appealed and won an interim stay of the injunction from a federal appeals court.
- In addition to its ongoing brouhaha with Covidien, Ethicon also was forced to defend itself against a slew of liability lawsuit over vaginal mesh products. In February 2014, the company scored a small victory after a federal district judge in Charleston, W.V., ruled the company’s pelvic mesh device did not cause injury. But in September, a federal jury in West Virginia—after a two-week trial—ordered JNJ to pay $3.27 million to a woman who claimed the device caused undue pain and serious side effects. The case was the second to go to trial among thousands that have been consolidated before U.S. Federal Judge Joseph Goodwin.