DePuy

$ 4.6 Billion

KEY EXECUTIVES:

Michael Mahoney, Group Chairman
Peter Batesko III, VP, Finance and CFO
David Floyd, US President, DePuy Orthopaedics
Richard Twomey, International President, DePuy Orthopaedics
Gary Fischetti, Worldwide President, DePuy Spine

NO. OF EMPLOYEES:

5,500

HEADQUARTERS:

Warsaw, IN

During a June 2008 meeting with members of the investment community, various officials from Johnson & Johnson outlined their growth expectations from the company’s medical device units during the next several years, with orthopedic products projected to get a 9% annual boost to $48 billion.

Orthopedic products are sold under the DePuy brand name, which is segmented further into the Codman, DePuy Mitek, DePuy Orthopaedics and DePuy Spine brands.

Michael Mahoney, the group chairman of J&J’s DePuy orthopedic division, said the overall unit gets more than 40% of its revenue from outside the United States and claims the No. 2 spot in the global market, while retaining the top spot in the domestic market. Brazil, Russia, India and China had record growth in 2007, and the company is making investments to build on that momentum.

“We recognize the potential of the marketplace and see the opportunity to gain share,” Mahoney told analysts. The company has been introducing a range of new product platforms that include more durable materials and instruments for minimally invasive surgery. Those are both necessary to stay on top, he said, as patients demand better implants and less-invasive techniques.

The DePuy unit was the largest revenue contributor within J&J’s medical device division last year, accounting for $4.59 billion in sales.

The powers that be at New Brunswick, NJ-based Johnson & Johnson claim their device and diagnostics businesses make up the world’s largest medical technology business. With 2007 revenues in excess of $21 billion (35% of the company’s total sales), there’s no arguing with that boast. In 2007, J&J’s device businesses achieved total growth of 7.2% compared with 2006 (domestic sales increased 3.2% and international sales increased 11.1%—4.6% from operations and 6.5% from currency).

Overall, medical device sales are J&J’s second-largest revenue driver—behind pharmaceutical sales.

One reason for DePuy’s success within J&J’s medical device division is that new products continually roll out every year. In 2007, DePuy launched 24 new products.

The DePuy Orthopaedics division, for example, launched several new hip products. The Ultamet XL and Altrx hip bearings with the Pinnacle Acetabular Cup System are technology used to recreate the hip’s natural ball-and-socket joint and help increase joint stability and range of motion in patients needing total hip replacement. The Peak FX Hip Plate System is used to stabilize hip fractures while sparing surrounding tissue (to help promote faster recovery). Further up the body, the Delta Xtend Reverse Shoulder System reverses the shoulder’s anatomy to use the healthy deltoid muscle to restore shoulder function.

DePuy’s acquisition of Hand Innovations in 2006 started paying off in 2007, as DePuy Orthopaedics launched less-invasive products for fracture surgery for the hand, wrist, foot and shoulder. At the February 2007 annual meeting of the American Academy of Orthopedic Surgeons, the company unveiled the F3 Fragment Plating System, the S3 Shoulder Nail Plating System and the Multidirectional Threaded Peg for the DVR Anatomic Plating System. (During the meeting, DePuy also launched the Global AP Adjustable Neck Shoulder Replacement System, as well as the Agility LP Total Ankle Replacement.)

The Orthopaedic division also notably launched new software platforms to be used in conjunction with hip and knee surgeries. The Ci Essential Hip System and Ci Essential Knee System were designed to let surgeons visualize parts of the body that aren’t visible through an incision, without the need for computed tomography or fluoroscopy. The company said these advantages could save hundreds of dollars and enhance implant positioning.

DePuy Spine, meanwhile, grew with product launches as well as strategic alliances and acquisitions. In January 2007, it launched the Expedium 6.35, a titanium and stainless steel screw and rod system designed to simplify the correction of spinal deformities and treatment for degenerative disc disease. In February, the Egis Anterior Lumbar Plate System, designed to treat degenerative conditions of the lumbar spine, was rolled out. In May, DePuy launched the Vertigraft VG2 TLIF Allograft, designed to facilitate graft insertion and bone growth during transforaminal lumbar spinal fusion surgery.

In terms of getting ahead via other means, Axial Biotech, Inc. and DePuy are collaborating to develop a gene-based test that would help predict the progression of scoliosis (curvature of the spine). The Spine unit also acquired assets pertaining to the treatment of vertebral compression fractures from Disc-O-Tech Medical Technologies. Furthermore, last fall DePuy and J&J invested $5 million in Series C equity financing for Biomerix Corp., a medtech company that DePuy hopes will help advance development of a new annulus repair implant following lumbar discectomy.

The Mitek unit, focused on sports medicine, notably launched the Versalok knotless anchor system, used in rotator-cuff repair; it allows surgeons to use one implant and a variety of suture-passing configurations for various tear pathologies.

The future of DePuy Orthopaedics domestically now rests in new hands. In late September, David Floyd was named as the unit’s US president. He came to J&J with more than 20 years of experience in orthopedics, especially in the reconstructive joint market, and formerly worked at companies such as Abbott Spine, AxioMed Spine Corp. (where he was president and CEO) and Centerpulse Orthopedics (for which he was US president).

One less worry he’ll have moving forward is the US Attorney’s 2005 investigation related to consulting relationships and other agreements with DePuy’s surgeon customers. DePuy paid $85 million as part of its settlement (see the “Top Companies” introduction on page 38 to learn more about the issue).

The first half of 2008 has shown that DePuy is still posting double-digit gains in a tough economic climate. US growth was only 4.1% compared with the same period in 2007, but international sales grew 20.5%. Overall, DePuy’s total global sales were $2.5 billion for the first six months, a 10.9% increase from the first half of 2007.