By Amy Barrett For Johnson & Johnson (JNJ), it's been a roller-coaster ride in the volatile, lucrative stent business. The company invented the coronary stent market in 1994, when it came out with the first, bare-metal stent, a tiny medical device that props open arteries after angioplasty. And it reinvented the market in 2003, when it introduced Cypher, a stent with a drug coating that helps prevent the artery from becoming reclogged. Now, coronary stents are a $6.1 billion business. Problem is, J&J can't seem to stay on top of the very market it created.
After its launch, Cypher quickly became a billion-dollar seller. When Boston Scientific (BSX) launched its rival Taxus stent in the U.S. in 2004, interventional cardiologists flocked to the device, because many felt it was more flexible and therefore easier to insert during surgery. But Boston stumbled later that year when Taxus was recalled. And some studies in recent years have suggested that J&J's device is more effective at preventing reclogging. That helped Cypher hold onto a big chunk of the U.S. market. And a launch of the device in Japan in 2004 gave a further boost to sales, with Cypher revenues swelling to $2.6 billion last year, from $1.9 billion in 2004. At the end of 2005, J&J's share of the worldwide coronary stent market, including both bare metal and drug-coated, stood at 43%, almost a dead heat with Boston's 44%.
PENT-UP RESENTMENT. But the situation may turn against J&J yet again. Rival device companies such as Medtronic and Guidant -- which Boston Scientific outbid J&J for earlier this year -- have been developing competing drug-coated stents. In particular, Guidant's Xience stent, which should hit the U.S. market in 2008, is expected to be a big seller.
J&J's rivals may be aided along by what Dr. Peter B. Berger, director of interventional cardiology at Duke University Medical Center, says is lingering resentment among some cardiologists toward the health-care giant. When Cypher was first launched, J&J had problems with manufacturing that prevented it from meeting the pent-up demand for the product. Cardiologists had trouble getting enough of the product. That, along with the device's steep price tag, irked many. Even "if a new stent is only as good [as Cypher] but not better," predicts Berger, "it will garner market share."
That's why it is critical for J&J to have a new and improved stent to offer physicians. But while the company has introduced a slightly better version of the Cypher stent outside the U.S., it has yet to introduce a new drug-coated stent in the states, by far the largest market in the world. This is despite the fact that back in 2003 the company vowed it would bring new improved drug-coated stents to market in a fairly short period. At the end of 2005, J&J's piece of the $3.1 billion drug-coated stent market in the U.S. was 43%, compared with Boston's 57%.
TOO MANY DISTRACTIONS. A spokesperson for Cordis, the J&J unit that markets Cypher, says part of the problem stems from the fact that the company has been devoting considerable resources to resolving manufacturing difficulties with the Food & Drug Administration. Back in April, 2004, Cordis got a scathing letter from the agency that pointed out deficiencies in a number of procedures at five plants around the world that are involved in manufacturing Cypher. The company is still working to address the FDA issues.
At the same time, J&J's whiff on the Guidant deal certainly created a major distraction. Investors largely applauded J&J's financial discipline - J&J walked away when Boston bid up the price, even as Guidant stumbled. But since J&J had hoped to put its drug on a Guidant stent, analysts figure the company may have shifted its focus away from developing its own internal, next-generation stents. The Cordis spokesman says the company won't comment on what impact the Guidant deal may have had. But he says the company continued development of its internal stents while the Guidant deal was pending.
J&J's Nick Valeriani, worldwide chairman of cardiovascular devices and diagnostics, says the company has a series of new stents in the pipeline. The company expects to launch a new and improved drug-coated stent, called Cypher NXT, in the U.S. sometime next year.Still, analysts expect new entrants will inevitably grab some market share from J&J. Looks like the roller coaster ride will continue. Barrett is BusinessWeek's Philadelphia bureau chief