DePuy

$5 Billion

KEY EXECUTIVES:

William Weldom, Chairman and CEO, Johnson & Johnson

David Floyd, President, DePuy Orthopaedics

Gary Fischetti, Worldwide President, DePuy Spine

Ian Lawson, Worldwide President, DePuy Mitek

P. Laxminarain, Worldwide President, Codman

NO. OF EMPLOYEES: 5,300

GLOBAL HEADQUARTERS: Warsaw, Ind.

One of the latest marketing campaigns from DePuy, unveiled in 2008, is called “Never Stop Moving.” If DePuy patients never stop moving, the likely result is that the company’s bottom line also will keep moving—upward.

Despite pricing pressures from hospitals, a more critical political climate and a changing landscape for companies’ interactions with surgeons and researchers, fiscal 2008 still posted gains compared with 2007.

DePuy is a division of Johnson & Johnson and is segmented into four divisions: Codman, DePuy Mitek, DePuy Orthopaedics and DePuy Spine. Codman & Shurtleff, Inc. manufactures neurovascular products. DePuy Mitek develops orthopedic sports medicine products, soft tissue repair devices, joint movement solutions as well as minimally invasive and arthroscopic solutions. DePuy Orthopaedic covers joint-replacement products. As the name implies, DePuy Spine manufactures spinal implants, neurosurgical devices and supplies, and biologics.

During the turbulent economic times of 2008, Johnson & Johnson was the third best-performing stock on the Dow Jones Industrial Average. For the multinational healthcare company, which makes everything from bandages to the advanced joint replacement systems, 2008 was yet another year of revenue growth—though a little more challenging.

J&J’s overall company sales for the fiscal year (ended Dec. 31) were $63.7 billion, an increase of 4.3 percent compared with 2007. Net earnings were $12.9 billion, up 6.8 percent. The company’s worldwide Medical Devices and Diagnostics (MD&D) segment, under which its orthopedic divisions fall, achieved annual sales of $23.1 billion in 2008, representing an increase of 6.4 percent, with operational growth of 3.5 percent and positive currency impact of 2.9 percent. Domestic revenue inched up only slightly by 1 percent, while international sales increased by double digits—11.3 percent (5.8 percent from operations and 5.5 percent from currency). Operating profit for the Medical Devices and Diagnostics business increased 49.1 percent from 2007, reaching $7.2 billion. As a percentage of sales, 2008 operating profit increased to 31.2 percent.

The DePuy orthopedic franchise achieved sales of $5 billion in 2008, an 8.8 percent increase compared with 2007. This growth primarily was due to DePuy’s joint reconstruction products, including hip and knee product lines. Additionally, new product launches in the Mitek sports medicine product line contributed to the growth.

DePuy released more than 20 new products in 2008. Among them, DePuy Orthopaedics Inc. introduced the Tri-Lock, a bone-preserving hip stem with proprietary Gription technology for stability. DuPuy claims a leading position in hip replacement in the U.S. market. According to the American Academy of Orthopaedic Surgeons, the demand for hip replacement is growing rapidly, with the number of primary total hip replacements expected to increase by 174 percent to 572,000 by 2030.

Other new product rollouts included enhancements to the company’s Sigma Knee System, including Sigma High Performance instruments to enhance procedure efficiency, surgical precision and flexibility, and the Sigma PS Femur, for active, high-demand patients. DePuy Orthopaedics also received approval from the U.S. Food and Drug Administration for its LCS Complete RPS Flexion Knee. According to the company, the device is engineered to offer patients optimum function with maximum durability, particularly for patients with an active lifestyle.

In the trauma sector, DePuy Orthopaedics launched the Small Fragment, Large Fragment and Distal Tibia Anatomic Locked Plating Systems (A.L.P.S.). The company recently initiated a three-year plan to become a leader in the orthopedic trauma marketplace. The A.L.P.S. Small Fragment, Large Fragment and Distal Tibia Plating Systems are titanium plate and screw systems that combine the benefits of locking screw technology with conventional plating techniques.

This hybrid plate concept allows surgeons to stabilize fractures with non-locking screws through the plate and then obtain neutralization of the construct with locking screws, the company said.

DePuy Mitek launched the Healix BR Dual Threaded Anchor System, the first suture anchor for arthroscopic rotator cuff repair made with the company’s proprietary Biocryl Rapide biocomposite material, which has been shown in pre-clinical trials to resorb and promote bone formation within the implant profile, according to Mitek officials.

Entering the growing aging-spine market, DePuy Spine introduced the Confidence spinal cement system for vertebral compression fractures.

At the beginning of the year, DePuy sold its orthopedic instrument manufacturing facility in New Bedford, Mass., to Symmetry Medical Inc. for $45 million in cash.

As part of the deal, the companies entered a supply agreement that will require DePuy to make minimum purchases from the New Bedford facility for a four-year period. Warsaw, Ind.-based Symmetry Medical manufactures instruments and cases for the orthopedic device industry. The company also produces instruments and cases for other segments of the medical device market, including arthroscopy, dental, laparoscopy, osteobiologic and endoscopy.

DePuy’s management is preparing for even tougher economic results for fiscal year 2009.

According to Dominic Caruso, J&J’s chief financial officer, over the past few years, the overall market for orthopedics has grown at roughly 8 percent or 9 percent. Now, the company estimates approximately 4 percent to 5 percent in terms of overall market growth.

“We’re seeing hospitals basically putting some pressure on the price for the products that they are willing to buy from us and that of course has been offset by some newer products that we have launched,” he said during a recent conference call with analysts. “So I would say [the market is] a little softer in terms of the ability to gain price with the current market conditions.”

For DePuy’s second quarter of 2009, hip growth on a worldwide basis was approximately 5 percent operationally, with U.S. growth at approximately 6 percent and international growth at 3 percent on an operational basis, the company reported. On an operational basis, worldwide knee growth was approximately 4 percent, with the United States up 5 percent and outside U.S. sales up 2 percent. Spine achieved strong operational growth of approximately 11 percent due to the successful launch of a number of products, company officials reported. DePuy Mitek sales grew approximately 10 percent operationally with the U.S. growth at 11 percent and international sales increasing 9 percent. Overall sales for DePuy were unchanged for the first six months of the year ($1.3 billion total) compared with last year.