07.22.08
Johnson & Johnson
$21.7 Billion ($61.1B total)
KEY EXECUTIVES:
William Weldon, Chairman and CEO
Dominic J. Caruso, VP, Finance and CFO
Brian Perkins, VP, Corporate Affairs
Donald M. Casey Jr., Worldwide Chairman, Comprehensive
Care Group
Nicholas Valeriani, VP, Strategy and Growth
Sheri S. McCoy, Worldwide Chairman, Surgical Care Group
NO. OF EMPLOYEES:
119,200GLOBAL HEADQUARTERS:
New Brunswick, NJWhen it comes to medical devices, there’s no ignoring the 800-pound gorilla in the room. The powers that be at New Brunswick, NJ-based Johnson & Johnson claim their device and diagnostics businesses make up the world’s largest medical technology business. Certainly, with 2007 revenues in excess of $21 billion (35% of the company’s total sales), there’s no arguing with that boast.
In 2007, J&J’s device businesses achieved total growth of 7.2% compared with 2006 (domestic sales increased 3.2% and international sales increased 11.1%—4.6% from operations and 6.5% from currency). That’s impressive expansion in light of a significant decline in the market for drug-eluting stents (DES), which took a toll on sales of the Cypher sirolimus-eluting coronary stent manufactured by the company’s Cordis division.
For example, in the second quarter of the 2007 fiscal year, Cordis sales declined 21% overall due to lower Cypher sales, and US sales were down 26%.
Despite the declining numbers, J&J is optimistic that the market is poised to turn around. During the first quarter of 2007—on Feb. 1—J&J completed the $1.4 billion acquisition of Menlo Park, CA-based Conor Medsystems, Inc., a cardiovascular device company developing controlled drug-delivery technology focused on DES to treat coronary artery disease.
The company recently announced that it plans to file with the FDA in 2010 for US approval of Cypher Elite, an improved version of J&J’s Cypher stent already on the market. Company officials also plan to seek European and US approvals for the Nevo sirolimus-eluting heart stent in 2009 and 2011, respectively.
“We have begun clinical trials on Nevo,” said Dominic J. Caruso, vice president of Finance and chief financial officer, noting that the company is using sirolimus, which is the drug used on its existing Cypher stent on the stent platform it acquired when it bought Conor Medsystems. “It’s also a redesign of the stent itself,” he added. Using Conor’s reservoir stent technology, the company can use more than one drug on a stent, including antiplatelet agents to mitigate the risk of developing blood clots, which has been a concern with the technology.
Overall, the company’s stent sales slid 34% in 2007. J&J is predicting only 1% compound annual growth for all DES worldwide between 2007 and 2012 and noted the total market for these devices would be $4 billion by 2012.
According to J&J, excluding the impact of the DES market decline, the company recorded total growth of nearly 13% across its device and diagnostics businesses. Expansion was attributed to its Vistakon unit’s disposable contact lenses; LifeScan’s blood glucose monitoring and insulin delivery products for diabetes care; Ethicon Endo-Surgery’s minimally invasive products; DePuy’s orthopedic joint reconstruction and sports medicine businesses; Ortho-Clinical Diagnostics’ professional products; and Ethicon’s wound care and women’s health products.
“We enjoy strong competitive positions across our diverse franchises, with more than 80% of [medical device and diagnostic] sales coming from businesses in the No. 1 or No. 2 market positions,” William C. Weldon, chairman and CEO, wrote in a letter to shareholders. “Our vision care business surpassed the $2 billion mark for the first time in its history.”
Part of the year’s success at J&J was due to a series of important product launches and regulatory approvals, including US approval of the Realize adjustable gastric band, a device for treatment of morbid obesity; the Animas 2020 insulin pump, which the company said is the smallest full-featured insulin pump on the market; and Genesearch breast lymph node assay, a novel molecular diagnostic tool for detecting the spread of breast cancer to lymph nodes while the patient is undergoing surgery. This assay helps breast cancer patients and their doctors avoid the challenges of a second surgery to remove cancerous lymph node tissue following results of a biopsy. It was cited by TIME magazine as the second leading medical breakthrough of 2007.
“We are well-positioned in 2008 with a robust pipeline and strategic development programs in orthopedics, biosurgicals, bariatric surgery, vision care and other major categories,” Weldon wrote.
During a June 2008 meeting with members of the investment community, various company officials outlined their growth expectations from J&J’s medical device units during the next several years, with orthopedic and surgical care products leading other sectors.
The company expects an average of 6% annual growth in revenue from its surgical care unit during the next four years, reaching $40 billion in 2012. Orthopedic products will get a 9% annual boost to $48 billion, according to J&J’s projections.
Sheri McCoy, group chairman of J&J’s Ethicon surgical business, said the company is focusing on developing less-invasive surgical products and looking to emerging markets to help fuel growth. More than half of surgical sales now come from outside the United States, according to McCoy. The focus on international sales has prompted the opening of a surgical training center in Russia this year, with plans to open one in Brazil next year. Meanwhile, the company already has a manufacturing plant in China. The push to tap emerging markets is a common theme throughout each of the company’s divisions.
Michael Mahoney, the group chairman of J&J’s DePuy orthopedic division, said the unit gets more than 40% of its revenue from outside the United States and claims the No. 2 spot in the global market, while retaining the top spot in the domestic market. Brazil, Russia, India and China had record growth last year, and the company is making investments to build on that momentum.
“We recognize the potential of the marketplace and see the opportunity to gain share,” Mahoney told analysts. The company has been introducing a range of new product platforms that include more durable materials and instruments for minimally invasive surgery. Those are both necessary to stay on top, he said, as patients in several segments are increasingly younger, including hip replacement patients, who are demanding better implants and less-invasive techniques. The DePuy unit was the largest revenue contributor within the medical device division, accounting for $4.59 billion in sales in 2007.
Overall, medical device sales are J&J’s second-largest revenue driver—behind pharmaceutical sales.
For the first quarter of 2008, the company continued to report device and diagnostics growth—however, as seen in 2007, it was limited by continued slow stent sales. The company recorded $5.7 billion in revenue for the first quarter, a 7.2% increase compared with the first quarter of 2007, with operational growth of 1.4% and a positive impact from currency of 5.8%. Domestic sales increased 0.2%, while international sales increased 13.8% (2.6% from operations and 11.2% from currency). Sales, excluding the impact of lower sales of DES, grew nearly 5% operationally, the company said.
Cordis sales were down 15% operationally, with similar results domestically and internationally. Cypher sales were approximately $400 million, down 27% on an operational basis versus the prior year. Sales in the United States of approximately $170 million were down 28%. A reduction in percutaneous coronary intervention (angioplasty or stent placement) procedures, a lower penetration rate of DES and lower prices resulted in an estimated market decline in the United States of approximately 25% versus the first quarter of 2007, according to Louise Mehrotra, vice president of Investor Relations.
But not all Cordis news was bad. Growth drivers within the Cordis franchise include the Biosense Webster electro-physiology business (cardiac navigation and therapeutic and diagnostic catheters), which achieved double-digit operational growth in the quarter, with ultrasound products continuing to be strong contributors. The neurovascular business also achieved strong growth in the quarter due to the re-launch of the Trufill DCS Orbit Coil system and the Cordis Enterprise stent in 2007.
According to Mehrotra, the DePuy franchise had operational growth of 4% when compared with the same period in 2007, with US growth at 2% and international business growing by 6% operationally. Hip growth on a worldwide basis was 9%, led by the strong results in the United States. On an operational basis, worldwide knee growth was 2%, while spine was flat, she reported. Sales for the company’s Mitech sports medicine business grew 11%.
Ethicon Endo-Surgery achieved operational growth of 6% in the first quarter of 2008, with US sales growing 3% and sales internationally growing on an operational basis by 9%. Strong results were achieved in the energy business due to the success with the harmonic scalpel. In addition, the Endocutter, a key product in performing bariatric procedures and advanced sterilization products, also contributed to growth in the quarter, company officials said during a conference call with reporters and analysts. Ethicon worldwide sales grew operationally by 1%, with US sales down 1% and sales outside the Unites States growing operationally by 3%. Sales of sutures and women’s health products were flat, while meshes and hemostasis devices achieved solid growth. The diabetes franchise grew operationally by 6% in the first quarter of 2008. The US business grew by 4%, while international grew 8% on an operational basis. Growth in the United States was driven by the strong double-digit growth of the Animas pump business. The success of the LifeScan One-Touch Ultra diabetes testing line has been the major driver of growth in international markets. J&J’s Vision Care franchise achieved double-digit operational sales growth of 12%, with sales in the United States increasing 16% and international sales rising 9%.