IHS Global Insight Perspective | |
Significance | United States pharma Johnson & Johnson (J&J) is to stop producing its drug-eluting stent franchises Cypher and Cypher Select Plus, (sirolimus-eluting coronary stents) by the end of 2011. The firm will also not pursue the development of Nevo, its experimental sirolimus-eluting coronary stent. |
Implications | The initiative will see a charge of USD500–600 million in its financials. J&J will instead seek to focus on Biosense Webster and its other Cordis Corporation businesses, with emphasis on electrophysiology-associated products and its vascular solutions franchise. |
Outlook | The strategic shift is the culmination of a restructuring exercise expected to witness efficiency and quality measures. The decision to exit this business in the near term could prove painful financially, but with no solid product pipeline and increasing competition from Abbott Labs (United Kingdom) and Boston Scientific (US), it could be beneficial in the medium term. |
J&J Bows Out of Coronary Stent Market
United States healthcare major Johnson & Johnson (J&J) announced a series of measures following a restructuring review of its Cordis Corporation unit, which primarily deals with interventional vascular technology products. The firm said that it is to stop making its coronary stent drug franchises Cypher and Cypher Select Plus by the end of 2011. Furthermore, development of its investigational product Nevo (sirolimus-eluting coronary stent) will no longer be pursued. The initiative will see the closure of two manufacturing facilities, namely Cashel in Ireland, where Nevo was to be produced; and San German, Puerto Rico, where the other two products are manufactured. Consolidation of its research and development teams dedicated to these franchises will occur in Fremont, California. The total job loss expected is around 900–1,000 positions.
The financial implication of the plan is that J&J expects to register an after-tax restructuring charge in the range of USD500–600 million in the second quarter of 2011, which will appear as a special item under Cordis Corporation.
Biosense Webster and Other Cordis Businesses
Instead of the drug-eluting-stent business, the focus will now shift towards its other cardio therapies sold or developed in its units Biosense Webster and Cordis. Biosense Webster primarily deals with electrophysiology products such as navigation systems and ablation therapy aimed at the advanced cardiac diagnostic, therapeutic and mapping-tools market. The market is pegged at USD2.5 billion.
Cordis, on the other hand, will look to bolster its vascular solutions franchise for endovascular and cardio procedures, focusing particularly on the newly developed Incraft stent-graft system for treating abdominal aortic aneurysm and its recently US FDA approved product Exoseal (vascular closure device). J&J says that the two businesses had a combined sales generation of USD1.9 billion, with an operational growth of 8%.
Outlook and Implications
By exiting the drug-eluting-stent business, J&J has made a strategic shift away from this market. The reasons behind this move were the changing dynamics of the drug-eluting-stent market, which the firm indicated were evolving in demand, pricing and reimbursement. J&J's waning interest in this market, however, was exacerbated by recent patent-infringement litigations involving its Cypher franchise against Boston Scientific (US), wherein the latter was awarded USD19.5 million recently by a US court. The move also highlights that Cordis's drug-eluting-stent pipeline—both marketed and under development—did not match up to the current technologies dominating the market. This included products from Abbott Laboratories and Boston Scientific. The Nevo investigational product, on the other hand, was inherited by J&J following the acquisition of Conor Medsystems for USD1.4 billion. That investment clearly seems misplaced now.
The restructuring measures highlight the increasing challenges for J&J in the global pharma and medical-devices market. There will be concerns if the closure of the facilities is related to the other manufacturing violations that the company faced in the US. This follows a series of mass withdrawals of primarily over-the-counter paediatric products, including Tylenol (acetaminophen). Although the company has denied this, it is expected that there will be further fallout from the product recall episodes, which also prompted a business review.