Johnson & Johnson shareholders breathed a collective sigh of relief on Apr. 24 when the company got Food & Drug Administration approval for a key new medical device. The product, called Cypher, is a drug-coated stent, a small metal device used to prop open arteries after angioplasty. With previous stents, those arteries can become reclogged, but the drug coating on Cypher prevents that from happening.
Investors had been anxiously awaiting the approval, which came a bit later than some on Wall Street had hoped. Cypher is likely to rack up in excess of $1 billion in annual sales. J&J's stock (JNJ) rose 68 cents on the news, closing at $57.48.
For the pharmaceutical giant, Cypher's approval marks a major comeback. The company pioneered the stent market in the 1990s -- then lost it to rivals after failing to develop innovative follow-on versions to its first stent. "This reestablishes us as the No. 1 stent company," says Robert Croce, group chairman for Cordis, the J&J unit that developed Cypher. "That's an important thing for us to take back."
WINDOW OF OPPORTUNITY? It's clear J&J is looking to maximize it's current lead over competitors. Boston Scientific (BSX) is expected to hit the market with its own drug-coated stent as early as yearend. That's one reason J&J may be pricing Cypher so aggressively -- $3,195 each. While hospitals have been concerned about the increased costs the stent will bring, physicians say the demand will be extremely high. That's because some cardiologists have been holding off doing procedures on certain patients, waiting for Cypher to hit the market.
The question now is how quickly J&J can ramp up to meet demand. One disappointment was Cypher's shelf life. The FDA rated the J&J device at only six months, while the company had been hoping for at least nine months. Croce says that means some stents J&J has already manufactured won't be able to be sold. But he says J&J hopes to supply data to FDA later this year to lengthen that shelf life.
Still, J&J expects to have about 50,000 units ready to ship over the next 20 days. And Croce says in the next couple months it will be able to produce enough Cyphers to cover about half the stent procedures done in the U.S.
J&J's manufacturing is so tight, however, that it won't be able to make one of the larger sizes of the stent until the third quarter. Analysts say J&J needs to move as quickly as it can to ramp up production and grab market share ahead of rival Boston Scientific. As UBS Warburg analyst David Lothson warns: "When competition hits in eight months, all bets are off." By Amy Barrett in Philadelphia