Johnson & Johnson (JNJ) plans to leave the market for the drug-coated heart stents it pioneered, in a restructuring that will close two factories and cut as many as 1,000 jobs.
The manufacture of Cypher and Cypher Select Plus stents and development of a new model will end this year, the New Brunswick, New Jersey-based company said in a statement today. Boston Scientific Corp. (BSX), the current stent market leader, rose 2.8 percent in New York trading.
J&J, once the world’s leading maker of the artery-clearing devices, has lost ground to Boston Scientific and Abbott Laboratories (ABT) in a $4 billion-a-year global stent market where competition has dragged down prices, said Jeff Jonas, an analyst in Rye, New York, with Gabelli & Co. Inc., which owns J&J shares. J&J suspended a clinical trial last year for its proposed next-generation model, Nevo, after difficulties with a catheter used to insert the device in patients.
“The market’s just so unattractive for drug-eluting stents right now and expectations for Nevo weren’t very high,” Jonas said in a telephone interview. “This is just them finally throwing in the towel.”
Stents are tiny mesh tubes used to prop open arteries after they’ve been cleared of fat clogging the flow of blood. J&J introduced Cypher in 2003 as the first stent with a drug coating designed to prevent new blockages from forming. The company’s Cordis unit sold $627 million in drug stents last year, down from $2.62 billion in 2006, according to data compiled by Bloomberg.
The move will let J&J focus on other cardiovascular devices with better prospects for growth, Jonas said.
Not including drug stents or the impact of foreign-exchange rates, Cordis’s other products generated $1.9 billion in sales in 2010, up 8 percent over the previous year, J&J said.
The restructuring will lead to a charge of $500 million to $600 million in this year’s second quarter, J&J said in a second statement. Cordis said it will close plants in Cashel, Ireland, and San German, Puerto Rico, and consolidate research and development teams in Fremont, California.
J&J gained Nevo in its 2007 purchase of Conor Medsystems Inc. for $1.33 billion. The charge to earnings probably includes a writedown of goodwill and intangible assets from that deal, Gabelli’s Jonas said.
Johnson & Johnson fell 94 cents to $66.16 at 4 p.m. in New York Stock Exchange composite trading. SurModics Inc. (SRDX), the supplier of the coating for J&J’s stents, declined $2.29, or 17 percent, to $11.01 in Nasdaq Stock Market composite trading, its biggest drop since November.
Boston Scientific, based in Natick, Massachusetts, rose 19 cents to $6.93 in New York trading.
“One less drug-eluting stent player means pricing could become more stable,” said Tao Levy, a Collins Stewart LLC analyst in New York, in a note to clients today. Boston Scientific may gain $175 million in sales from J&J’s pullout in 2012 and 2013, he said.
J&J is the world’s second-largest seller of medical products, trailing only New York-based Pfizer Inc. (PFE)
Cordis will continue making cardiac mapping and navigation systems and devices that treat the irregular heartbeat known as atrial fibrillation through its Biosense Webster unit. While leaving the heart-stent business, Cordis said it will stay in the market for devices to keep open diseased arteries elsewhere in the body.
“Due to evolving market dynamics in the drug-eluting stent business, we see greater opportunities to benefit patients and grow our business in other areas of the cardiovascular device market” said Seth Fischer, Cordis’ worldwide chairman, in the statement. “We will continue to bring innovative cardiovascular solutions to patients in the future.”
The decision to stop developing Nevo was due to concerns about the stent market and had nothing to do with the device’s potential, said Sandy Pound, a Cordis spokeswoman, in a telephone interview.
J&J has solved Nevo’s catheter difficulties and is “considering all options” for the stent, including selling or licensing its rights, she said. She declined to comment further.
Cypher, once the market leader, held 12 percent of worldwide sales in this year’s first quarter, down from 20 percent a year earlier, Louise Mehrotra, J&J’s vice president for investor relations, said on an April 19 conference call.
J&J’s statement said its market share has been hurt by “unlicensed competition from products that infringe Cordis patents.” The company has spent years in court battling Boston Scientific, Abbott and Minneapolis-based Medtronic Inc. (MDT) over intellectual property in the field. Abbott, based in Abbott Park, Illinois, makes the world’s best-selling stent, Xience.
Pound, the Cordis spokeswoman, said J&J would continue to press the lawsuits.
The U.S. Food and Drug Administration sent a warning letter to J&J on Feb. 16 saying the Puerto Rico plant had released devices to the market that didn’t meet design specifications. The agency said violations at the site could lead to fines, product seizures or delayed approval of other devices.
J&J is working to resolve issues at the plant, where Cypher stents will be made until year’s end, Pound said. The warning letter had nothing to do with the decision to exit the market and close the factory, she said.
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