The Rise and Fall of a Blockbuster Market

The announcement was virtually ignored by the mainstream media. Compared with Dubya’s wars in the Middle East, the tragic loss of a space shuttle, and the alarming spread of a mysterious pneumonia-like illness in Asia, the approval of a new cardiac device seemed downright blasé. Product approvals rarely make for interesting sound bytes unless that product is a game-changer, and the latest release from global healthcare conglomerate Johnson & Johnson (JNJ) appeared about as revolutionary as electric wheelchairs or designer band-aids. It certainly didn’t hold the promise of a truly pioneering accomplishment like the Human Genome Project, which was completed just 10 days before JNJ’s news came out (talk about bad timing) and had been heralded by British Prime Minister Tony Blair as a “breakthrough that takes humankind across a frontier and into a new era.” United Kingdom science minister David Sainsbury believed the development would give humanity the ability to achieve all it ever hoped from medicine, and Nature editor Henry Gee giddily predicted that by 2099 DNA sequencing would “allow us to alter entire organisms out of all recognition to suit our needs and tastes…[and] will allow us to fashion the human form into any conceivable shape. We will have extra limbs if we want them—maybe even wings to fly.”

JNJ’s new product was far less remarkable. It couldn’t grow limbs or wings, and it wasn’t meant to be a ticket to immortality. Yet the U.S. government’s April 24, 2003, approval of the Cypher Sirolimus-eluting stent arguably was as radical as DNA mapping due to its transformation of interventional cardiology treatment.

“I believe, and my staff believes, this is really a revolutionary new technology,” former Medicaid chief Thomas A. Scully told The New York Times shortly before the U.S. Food and Drug Administration (FDA) became a believer as well.

Most medtech firms tend to fancy their innovations subjectively, truly convinced that every new product or procedure will reshape the industry. In JNJ’s 2002 annual report, former CEO and Board Chairman William C. Weldon called the company’s new drug-eluting stent—available in more than 50 countries at the time—a “breakthrough technology that will have a significant impact on the health and well-being of patients.” JNJ rival Boston Scientific Corp. used the same terminology to describe Cypher’s competitor, claiming its Taxus stent system would redefine both the company and the industry.

Such pitches are common in business, intended mostly to grab the attention of a fickle and easily-distracted media. But in this particular instance, the public relations jargon from both JNJ and Boston Scientific was grounded in truth—their inventions really did have the potential to transform an industry. Drug-eluting stents, in fact, are considered one of the most transformational cardiovascular innovations of the last decade.

The stents, at least in part, owe their existence to Andreas Roland Grüentzig, the German cardiologist credited with developing the balloon angioplasty procedure for opening up blocked arteries. Grüentzig—an escapee from East Germany destined for a stonemasonry career under Communism—used a double-lumen catheter fitted with a polyvinylchloride (PVC) balloon to stretch narrow, plaque-filled arterial walls. His choice of material was far more effective than the rigid catheters or cumbersome “caged” balloons available in the mid-1970s—the treated PVC section easily expanded to a cylinder that maintained its shape and size under steadily increasing force, thereby allowing high-pressure radial momentum to dilate a vessel without overstretching or rupturing it. Grüentzig performed the first coronary angioplasty in October 1978 on a Munich policeman with stenosis of the left anterior descending artery and an aversion to surgery.

The success of that first procedure eventually led to the widespread use of angioplasty in the 1980s for fixing any blockage in the body’s maze of circulatory tunnels (or any tubular organ susceptible to stenosis, including the biliary tree, the genitourinary and gastrointestinal tracts, and arteriovenous fistulas).

Though balloon angioplasty was an effective treatment for stenosis (the abnormal narrowing of a vessel), it wasn’t foolproof. In many cases, the newly expanded arteries didn’t stay stretched but rather snapped back like a rubber band, forcing patients to undergo emergency repeat procedures.

JNJ released a bare metal stent in 1994 to prevent that jounce. Its tiny, mesh-like device resembled a Slinky and was designed to permanently prop open narrowed cavities. The stent was an immediate hit with doctors, who by that time, had become increasingly frustrated with the long-term prospects of balloon angioplasty. Within six months of the procedure, up to 40 percent of angioplasty patients needed their arteries cleared again or underwent bypass surgery.

Bare metal stents, made of durable materials such as stainless steel and cobalt chromium, had better results. But they were vulnerable to restenosis as well—more than 20 percent of patients with the devices returned for repeat procedures or bypass surgeries, thanks to scar tissue that grew inside the stent’s web of girders. The stents particularly were ineffective in diabetics, whose blood vessels tended to scar more heavily.

The scarring. Of course. It was the scarring, stupid.

The cliché didn’t quite have the ring of a presidential campaign slogan but it nevertheless inspired the development of drug-eluting stents in the dawn of the 21st century. It was the scarring that was leading to restenosis, technologists finally realized; thus, minimizing scarring essentially would eliminate (or at the very least, significantly reduce) arterial re-narrowing.

All researchers had to do was find the right scarring combatant.

JNJ went with Sirolimus, used in patients undergoing kidney transplants, while Natick, Mass.-based Boston Scientific chose Paclitaxel, a mitotic inhibitor used in cancer chemotherapy, and Medtronic Inc. recruited ABT-578 (licensed from Abbott Laboratories), which hampers cell division by blocking the function of the mTOR protein.

“It has the potential to change the landscape…” Stanford University School of Medicine professor Michael Drake said of JNJ’s Cypher stent several months before its FDA approval. “…not only for patients but also the economics. It’s a really big business.”

Drug-eluting stents were indeed a big business: Within a year of its release, the Cypher captured 60 percent of the worldwide market and generated hundreds of millions of dollars in sales for JNJ. By 2005, nearly 90 percent of all stents being implanted in patients were drug-eluting devices and the worldwide appetite for the product seemed insatiable. The global market, estimated at $1.69 billion in 2003, was growing 15.4 percent annually at the time, enticing companies like Terumo and Abbott Laboratories to develop their own versions of the drug-eluting stent (DES).

“That was the onset of the stent wars,” John Babitt, Ernst & Young’s medtech leader for the Americas, told Medical Product Outsourcing. “You had a migration from balloon angioplasty to [bare metal] stents to drug-eluting stents. There was a real flood of capital at the time that went into a lot of stent companies.”

That capital and the products it spawned sent DES sales through the roof. Global revenue peaked at $4.5 billion in 2009, while the U.S. market nearly doubled in seven years, going from $1.1 billion in 2003 to $2 billion in 2010, according to industry data. JNJ reaped the biggest reward, garnering $2.62 billion in DES sales before the market sank from oversaturation, pricing pressures, clinician-corporate relationship scrutiny, a sour economy and conflicting studies about the clinical efficacy of stents. A 2007 study found that heart patients routinely implanted with bare metal and drug-eluting stents were no healthier than those treated with drugs alone. Patients who received stents and were treated with statins and other drugs during a five-year clinical trial had better blood flow to their hearts than those treated only with drugs, according to the research. But the stented patients did not live longer or have fewer heart attacks, the study said.

A report two years later from the Duke Clinical Research Institute in Durham, N.C., contradicted those findings, claiming that patients with drug-eluting stents were less likely to suffer a heart attack or die prematurely than those with bare metal devices (the research was based on data from more than 262,000 coronary artery disease patients older than the age of 65 who received stents between 2004 and 2006).

By the time the 2009 study came out, however, DES sales were starting to wane. Cordis, the business unit of JNJ that developed and commercialized the Cypher, sold $919 million in DES that year, a 65 percent decrease from its sales peak in 2006. Revenue fell an additional 32 percent in 2010 to $627 million and an additional 60 percent in 2011 to $254 million.

The decline proved too humbling (or perhaps humiliating) for JNJ, which practically created the DES market. The company officially stopped making the Cypher and Cypher Select drug-coated stents in 2011 and turned its attention to diagnostic devices and non-cardiac stents instead. “The remaining cardiovascular business is attractive,” Gabelli & Co. analyst Jeff Jonas told Reuters when J&J announced its decision. “The stents were kind of an albatross.”

And not just for JNJ. Stent sales have steadily declined at Boston Scientific as well, with DES revenue slipping 11.8 percent between 2009 and 2011 and bare metal device sales plummeting 35 percent during that same time. Its industry-redefining stent, the Taxus, comprised less than one-third of the company’s total DES sales, generating just $420 million in 2011.

While the global DES market is not in danger of crashing and burning anytime soon (quite the contrary, actually—some estimates project the market to reach $6.27 billion in the next two years), the softening sales are indicative of a shift in the types of technologies in which companies are now willing to invest. Dollars once spent on stents, pacemakers and cardioverter defibrillators are now going to areas like renal denervation, transcatheter aortic valve replacement, atrial fibrillation and home healthcare.

“I think we’ll see a lot of innovation in the minimally invasive surgical side. More and more procedures are going to move out of the hospital into an outpatient clinic and also into the new frontier, which is the home,” Ernst & Young’s Babitt noted. “Medical device companies are going to need to look at diagnostics and information as being a real differentiator to engage patients and they’ll have to look at the consumer as a whole new market. As patients start paying more for their own healthcare, they’re going to start choosing. So this is a golden opportunity for the medtech sector to move out of the hospital and into the alternative site opportunities.”