07.31.12
$5.8 Billion
KEY EXECUTIVES:
Alex Gorsky, CEO & Executive Committee Chairman
Gary Fischetti, Company Group Chairman, DePuy Family of Companies
Andrew Ekdahl, President, DePuy Orthopaedics
Gordon Van Ummersen, Worldwide President, Trauma & Extremities, DePuy Orthopaedics
Mark Hanes, Worldwide Director, Hip Development, DePuy Orthopaedics
Namal Nawana, Worldwide President, DePuy Spine
Patrick Brady, Worldwide Vice President of Manufacturing, DePuy Family of Companies
Roger Boggs, Worldwide Director, Professional Education & Services, DePuy Orthopaedics
NO. OF EMPLOYEES: 6,400
GLOBAL HEADQUARTERS: Warsaw, Ind. & Raynham, Mass.
No profession has mastered the art of the comeback quite like the business world. Some of the most inspirational entrepreneurial rebirths have been hatched by the likes of Frederick W. Smith, the founder, president, chairman and CEO of FedEx, who bounced back from a failed 1984 attempt at electronic mail distribution to grow his core delivery business into a $40 billion empire, and Donald Trump, the outspoken, big-thinking real estate mogul who climbed out of a $4.4 billion bankruptcy hole in the early 1990s to reclaim his spot among the planet’s richest inhabitants (Forbes recently estimated his worth to be nearly $3 billion). Of course, these and other corporate comeback tales pale in comparison to perhaps the greatest reincarnation in business history: that of Steve Jobs, the cold, often controlling Apple Computer visionary who was fired from his own struggling company in 1985 only to resurrect it more than a decade later through creative thinking, savvy business moves (that $150 million investment from rival Microsoft was pure genius) and cornering the market on all gadgets named “i.”
Though it has none of the fairy tale-like attributes of Jobs’ return to glory, the comeback fable penned last year by healthcare conglomerate Johnson & Johnson is nonetheless impressive, particularly in light of the company’s recent series of costly missteps.
Worldwide sales at the New Brunswick, N.J.-based firm reached $65 million last year, a 5.6 percent increase compared with the $61.5 billion J&J generated in 2010. Adjusted earnings rose 4.4 percent to $13.9 billion, while adjusted earnings per share climbed 5 percent to $5, according to the company’s 2011 annual report.
“Several years ago, we set out to build on our strong foundation and sustain our track record of growth, even as we prepared to address a daunting challenge: the patent expirations for two of our major drugs, Risperdal (risperidone) and Topamax (topiramate). We also prepared ourselves for other market issues to which we had a good line of sight,” former Board Chairman/CEO William C. Weldon told shareholders in a farewell letter published within the company’s 2011 annual report. The 63-year-old retired in April 2012 after spending a decade as chief executive; he was succeeded by Alex Gorsky, a former army captain and endurance athlete who had led the firm’s Medical Devices & Diagnostics (MD&D) business unit since 2009.
“Additional developments could not be as easily foreseen: the severe economic decline; the tightening of consumer spending and healthcare budgets; over-the-counter (OTC) product quality issues at McNeil Consumer Healthcare and the recall of the DePuy ASR Hip System,” Weldon’s letter continued. “Our company was severely tested. As 2011 came to a close, we moved through a turning point. The headwinds from patent expirations, tough portfolio choices, litigation matters and OTC product quality issues had been, or were being addressed…We have turned the corner on a particularly difficult period.”
J&J may indeed have turned a corner on a difficult past, but its future is far from trouble-free. The 2010 ASR recall promises to haunt the company for quite some time, thanks to thousands of civil lawsuits that eventually could cost the firm billions of dollars in legal settlements. Lawsuits also are piling up over the Pinnacle Acetabular Cup System, an ASR model predecessor that was approved by the U.S. Food and Drug Administration (FDA) in 2000. The Pinnacle was designed to have more flexibility and range of motion than previous hip implants, but studies have shown it to be prone to early failure. In fact, studies have proven that all-metal implants such as the Pinnacle, the ASR XL Acetabular and the ASR Hip Resurfacing systems can cause severe pain and lead to implant dislocation, which ultimately necessitates revision surgery.
J&J’s DePuy Orthopaedics Inc. franchise has acknowledged a 13 percent failure rate with its ASR implants, more than quadruple the average 0.5-3 percent failure rate found in most implants currently on the market. Such high failure ratios, as well as the ASR recall and those of other defective metal implants, prompted the FDA to conduct a two-day expert advisory panel meeting in June 2012 to evaluate the overall safety of metal-on-metal devices.
Despite two 12-hour sessions, the advisory panel reached no formulative conclusions. “Metal-on-metal, ceramic-on-ceramic and metal-on-ceramic are unforgiving couples,” Michael B. Mayor, M.D., of Dartmouth Medical School’s Thayer School of Engineering, told his fellow panel members. “They all show evidence of impact loads delivered by the edge of the acetabular component onto the surface of the head in the form of edge stops and gouges. Those are fairly severe alterations of articular surface.”
Still, all the brouhaha over the ASR recall (93,000 worldwide, including 37,000 in the United States) and controversy over the efficacy of all-metal implants affected DePuy’s 2011 revenue. J&J reported a 4 percent rise in DePuy franchise sales last year to $5.8 billion but acknowledged the unit was buoyed by sales from its Mitek sports medicine and trauma product lines as well as newly-acquired merchandise from its $480 million acquisition of Micrus Endovascular Corporation in 2010. DePuy folded Micrus Endovascular into its Codman & Shertleff Inc. business to compliment its existing line of neuro devices, which includes bare platinum coils, vascular reconstruction products and access devices.
DePuy tried to soften the blow of the still-virulent ASR recall with several new product launches in 2011. The first debuts occurred in February during the American Academy of Orthopaedic Surgeons annual meeting in San Diego, Calif., where its subsidiary, DePuy Mitek Inc., introduced the industry to its Healix Transtend Implant System and the Vapr Vue System with Coolpuse technology.
The Healix Transtend system, with its 4-millimeter percutaneous cannula and mix of titanium, PEEK (polyetheretherketone) or Biocryl Rapide anchors, provides surgeons with a new minimally invasive alternative to partially torn rotator cuff repair (known clinically as Partial Articular-Sided Tendon Avulsion, or PASTA). The Healix system gives doctors a better view of the surgery and minimizes instrument passes through the tendon to reduce the damage surrounding cuff tissue can incur during the procedure. The dual-thread anchors are preloaded with the Orthocord suture, a high-strength, partially-absorbable orthopedic stitch that maintains potency and knot security.
DePuy Mitek’s Vapr Vue System uses radiofrequency technology to target ablation and minimize charring or damage to healthy tissue. In-vitro testing indicated the system is 20.4 times faster at ablation than Arthrocare’s Super TurboVac suction wand, which reputedly removes bubbles and “free-floating, wispy tissue” from surgeons’ field of view.
In late March, DePuy Orthopaedics Inc. unveiled its Global Advantage instrument set for shoulder replacement surgery. Used with the company’s Global Advantage shoulder replacement implant, the brand-name instrument set is comprised of new 1-millimeter increment humeral reamers for a more precise implant fit and a resection guide for greater accuracy.
DePuy Spine contributed two new products to the roster in 2011, releasing the Viper 3D MIS Correction Set in mid-September and the Expedium Neuromuscular System in early December. Executives touted the Viper Set as the “first surgical instrumentation system designed specifically for the minimally invasive three-dimensional correction of complex spinal deformities.”
Used either with the Viper MIS Spine System or Expedium Spine System, the Viper 3D set consists of instruments and devices for various correction maneuvers and techniques. The set includes the MIS Rod Inserter/Rotator for 360 degree correction, a spondy reduction lever to control sagittal alignment, derotation and correction frames, a multi-level compression and distraction device to control orientation at individual levels and approximation tools for seamless rod reduction.
The Expedium Neuromuscular System, according to executives, helps surgeons treat spinal and pelvic deformities in patients with such neuromuscular disorders as cerebral palsy and muscular dystrophy. The modular system—a blend of pro-contoured rods and proximal connectors, open and closed iliac screw designs and wires—simplifies the surgical procedure and streamlines OR time.
“We heard from surgeons that treating neuromuscular scoliosis is a challenging part of their practice and that they needed a system designed specifically for this type of patient,” Namal Nawana, worldwide president of DePuy Spine, said when the System debuted on the market. “The Expedium Neuromuscular System is that system. It provides a procedural solution that simplifies the correction procedure and optimizes time in the operating room.”
The FDA did its part to rouse DePuy from its ASR recall nightmare last year, approving devices for hip, knee and foot repair.
In February, the franchise received FDA approval for its Reclaim Revision Femoral Hip System and Gription TF titanium foam implants.
The Reclaim system features various sizing options and a modular design that can help restore function. The product, according to DePuy, combines advances in strength, fixation and instrumentation to optimize both the surgical and clinical experience during moderate to complex hip revision surgery.
The company’s highly porous Gription implants are made from commercially pure titanium, a strong, corrosion-resistant metal with high surface roughness and a similar elasticity to bone. The Gription TF Acetabular Augment System fills gaps between the acetabulum (hip bone) and cup in patients with severe bone defects, while the Universal Gription Cones are used in knee replacement surgery to enhance missing bone in the tibial or femoral areas.
Clearances for the company’s A.L.P.S. Total Foot System, Affixus Hip Fracture Nail System and the Pinnacle CoMplete Acetabular Hip System occurred throughout the spring, while regulatory blessing for the Trumatch Personalized Solutions instruments and computer software system for the Sigma Fixed-Bearing Knee system came about in late summer.
The company’s Trumatch technology uses the software and computed tomography scans to create customized femoral and tibial cutting blocks that better match patients’ bone surfaces. The Trumatch system also reduces the amount of time it takes to conduct knee replacement procedures, company executives claim.
The A.L.P.S. Total Foot System features nine anatomically contoured plates as well as both locking and non-locking screw options for reconstructive and trauma procedures of the forefoot, midfoot and hindfoot. The plates can be custom-fit to patients, and some contain locking holes that fit up to five different screws.
The Affixus Hip Fracture System has various neck and shaft angles, distal diameters, nail lengths and locking options to help surgeons better customize procedures to address disparities in patient anatomy. The system is used with a single set of instruments and combines the principles of a compression hip screw with the biomechanical advantages of an intramedullary nail.
J&J’s critics were leery of the Pinnacle CoMplete Acetabular Hip System approval in June. One blog questioned whether the product—billed as the first ceramic-on-metal hip implant available in the United States—would become the next “DePuy disaster in the making.”
Despite its litany of challenges last year, DePuy was the top revenue-generating franchise in Johnson & Johnson’s MD&D unit, one of three operated by the multinational firm. With $25.8 billion in sales, the MD&D unit is the world’s largest medical device business, permeating dozens of sectors within the comprehensive market. Sales for the year ended Dec. 31 grew 4.8 percent, though operational sales growth came in at 1.7 percent and operating profit fell 36.4 percent to $5.2 billion, according to the company. Executives attributed the sharp dropoff in profit to the ASR recall, restructuring expenses, increased investment spending and costs associated with the historic $19.7 billion buyout of Synthes Inc., a move that is likely to reinvigorate J&J’s struggling orthopedics business and is consistent with the company’s strategy of acquiring businesses with leading positions in promising markets.
The deal, first announced in April 2011, is J&J’s largest acquisition to date, easily surpassing the $16.6 billion merger with the consumer health arm of Pfizer Inc. in 2006.
West Chester, Pa.-based Synthes, which manufactures spine and bone-replacement products, is expected to help J&J significantly expand its presence in the $5.5 billion global orthopedic reconstruction industry as well as in emerging markets, an area the firm particularly is targeting for growth. Last year, Synthes reported $424.4 million in sales in the Asia Pacific region, up 19 percent compared with 2010.
To receive regulatory approval of the deal in Europe, J&J agreed to sell DePuy’s trauma segment to Warsaw, Ind.-based Biomet Inc. for $280 million.
J&J completed the acquisition in mid-June and shortly thereafter integrated Synthes into its corporate structure, creating the DePuy Synthes Cos. of Johnson & Johnson. A pop-up message on Synthes’ website enlightened visitors to the new entity: “Introducing the new DePuy Synthes Companies,” the electronic note read. “Inspired by listening carefully to what patients and healthcare professionals have to say. United for greater ingenuity. Committed to superior quality. Driven to make a sizable impact on orthopedic and neurological care. We are the new DePuy Synthes Companies and we are ready to advance patient care by delivering total solutions that go beyond the products themselves to help improve people's lives.”
J&J bigwigs expect the Synthes merger to slightly boost company profit this year and significantly improve 2013 earnings by 10 cents to 15 cents per share (excluding special items). The company estimates the deal to cost $1.1 billion in after-tax charges for the remainder of 2012, including restructuring and integration expenses.
KEY EXECUTIVES:
Alex Gorsky, CEO & Executive Committee Chairman
Gary Fischetti, Company Group Chairman, DePuy Family of Companies
Andrew Ekdahl, President, DePuy Orthopaedics
Gordon Van Ummersen, Worldwide President, Trauma & Extremities, DePuy Orthopaedics
Mark Hanes, Worldwide Director, Hip Development, DePuy Orthopaedics
Namal Nawana, Worldwide President, DePuy Spine
Patrick Brady, Worldwide Vice President of Manufacturing, DePuy Family of Companies
Roger Boggs, Worldwide Director, Professional Education & Services, DePuy Orthopaedics
NO. OF EMPLOYEES: 6,400
GLOBAL HEADQUARTERS: Warsaw, Ind. & Raynham, Mass.
No profession has mastered the art of the comeback quite like the business world. Some of the most inspirational entrepreneurial rebirths have been hatched by the likes of Frederick W. Smith, the founder, president, chairman and CEO of FedEx, who bounced back from a failed 1984 attempt at electronic mail distribution to grow his core delivery business into a $40 billion empire, and Donald Trump, the outspoken, big-thinking real estate mogul who climbed out of a $4.4 billion bankruptcy hole in the early 1990s to reclaim his spot among the planet’s richest inhabitants (Forbes recently estimated his worth to be nearly $3 billion). Of course, these and other corporate comeback tales pale in comparison to perhaps the greatest reincarnation in business history: that of Steve Jobs, the cold, often controlling Apple Computer visionary who was fired from his own struggling company in 1985 only to resurrect it more than a decade later through creative thinking, savvy business moves (that $150 million investment from rival Microsoft was pure genius) and cornering the market on all gadgets named “i.”
Though it has none of the fairy tale-like attributes of Jobs’ return to glory, the comeback fable penned last year by healthcare conglomerate Johnson & Johnson is nonetheless impressive, particularly in light of the company’s recent series of costly missteps.
Worldwide sales at the New Brunswick, N.J.-based firm reached $65 million last year, a 5.6 percent increase compared with the $61.5 billion J&J generated in 2010. Adjusted earnings rose 4.4 percent to $13.9 billion, while adjusted earnings per share climbed 5 percent to $5, according to the company’s 2011 annual report.
“Several years ago, we set out to build on our strong foundation and sustain our track record of growth, even as we prepared to address a daunting challenge: the patent expirations for two of our major drugs, Risperdal (risperidone) and Topamax (topiramate). We also prepared ourselves for other market issues to which we had a good line of sight,” former Board Chairman/CEO William C. Weldon told shareholders in a farewell letter published within the company’s 2011 annual report. The 63-year-old retired in April 2012 after spending a decade as chief executive; he was succeeded by Alex Gorsky, a former army captain and endurance athlete who had led the firm’s Medical Devices & Diagnostics (MD&D) business unit since 2009.
“Additional developments could not be as easily foreseen: the severe economic decline; the tightening of consumer spending and healthcare budgets; over-the-counter (OTC) product quality issues at McNeil Consumer Healthcare and the recall of the DePuy ASR Hip System,” Weldon’s letter continued. “Our company was severely tested. As 2011 came to a close, we moved through a turning point. The headwinds from patent expirations, tough portfolio choices, litigation matters and OTC product quality issues had been, or were being addressed…We have turned the corner on a particularly difficult period.”
J&J may indeed have turned a corner on a difficult past, but its future is far from trouble-free. The 2010 ASR recall promises to haunt the company for quite some time, thanks to thousands of civil lawsuits that eventually could cost the firm billions of dollars in legal settlements. Lawsuits also are piling up over the Pinnacle Acetabular Cup System, an ASR model predecessor that was approved by the U.S. Food and Drug Administration (FDA) in 2000. The Pinnacle was designed to have more flexibility and range of motion than previous hip implants, but studies have shown it to be prone to early failure. In fact, studies have proven that all-metal implants such as the Pinnacle, the ASR XL Acetabular and the ASR Hip Resurfacing systems can cause severe pain and lead to implant dislocation, which ultimately necessitates revision surgery.
J&J’s DePuy Orthopaedics Inc. franchise has acknowledged a 13 percent failure rate with its ASR implants, more than quadruple the average 0.5-3 percent failure rate found in most implants currently on the market. Such high failure ratios, as well as the ASR recall and those of other defective metal implants, prompted the FDA to conduct a two-day expert advisory panel meeting in June 2012 to evaluate the overall safety of metal-on-metal devices.
Despite two 12-hour sessions, the advisory panel reached no formulative conclusions. “Metal-on-metal, ceramic-on-ceramic and metal-on-ceramic are unforgiving couples,” Michael B. Mayor, M.D., of Dartmouth Medical School’s Thayer School of Engineering, told his fellow panel members. “They all show evidence of impact loads delivered by the edge of the acetabular component onto the surface of the head in the form of edge stops and gouges. Those are fairly severe alterations of articular surface.”
Still, all the brouhaha over the ASR recall (93,000 worldwide, including 37,000 in the United States) and controversy over the efficacy of all-metal implants affected DePuy’s 2011 revenue. J&J reported a 4 percent rise in DePuy franchise sales last year to $5.8 billion but acknowledged the unit was buoyed by sales from its Mitek sports medicine and trauma product lines as well as newly-acquired merchandise from its $480 million acquisition of Micrus Endovascular Corporation in 2010. DePuy folded Micrus Endovascular into its Codman & Shertleff Inc. business to compliment its existing line of neuro devices, which includes bare platinum coils, vascular reconstruction products and access devices.
DePuy tried to soften the blow of the still-virulent ASR recall with several new product launches in 2011. The first debuts occurred in February during the American Academy of Orthopaedic Surgeons annual meeting in San Diego, Calif., where its subsidiary, DePuy Mitek Inc., introduced the industry to its Healix Transtend Implant System and the Vapr Vue System with Coolpuse technology.
The FDA approved DePuy’s Gription TF titanium foam implants last year. Made from commercially pure titanium, the products are specifically designed for complex joint replacement procedures. Image courtesy of DePuy Orthopaedics Inc. |
DePuy Mitek’s Vapr Vue System uses radiofrequency technology to target ablation and minimize charring or damage to healthy tissue. In-vitro testing indicated the system is 20.4 times faster at ablation than Arthrocare’s Super TurboVac suction wand, which reputedly removes bubbles and “free-floating, wispy tissue” from surgeons’ field of view.
In late March, DePuy Orthopaedics Inc. unveiled its Global Advantage instrument set for shoulder replacement surgery. Used with the company’s Global Advantage shoulder replacement implant, the brand-name instrument set is comprised of new 1-millimeter increment humeral reamers for a more precise implant fit and a resection guide for greater accuracy.
DePuy Spine contributed two new products to the roster in 2011, releasing the Viper 3D MIS Correction Set in mid-September and the Expedium Neuromuscular System in early December. Executives touted the Viper Set as the “first surgical instrumentation system designed specifically for the minimally invasive three-dimensional correction of complex spinal deformities.”
Used either with the Viper MIS Spine System or Expedium Spine System, the Viper 3D set consists of instruments and devices for various correction maneuvers and techniques. The set includes the MIS Rod Inserter/Rotator for 360 degree correction, a spondy reduction lever to control sagittal alignment, derotation and correction frames, a multi-level compression and distraction device to control orientation at individual levels and approximation tools for seamless rod reduction.
The Expedium Neuromuscular System, according to executives, helps surgeons treat spinal and pelvic deformities in patients with such neuromuscular disorders as cerebral palsy and muscular dystrophy. The modular system—a blend of pro-contoured rods and proximal connectors, open and closed iliac screw designs and wires—simplifies the surgical procedure and streamlines OR time.
“We heard from surgeons that treating neuromuscular scoliosis is a challenging part of their practice and that they needed a system designed specifically for this type of patient,” Namal Nawana, worldwide president of DePuy Spine, said when the System debuted on the market. “The Expedium Neuromuscular System is that system. It provides a procedural solution that simplifies the correction procedure and optimizes time in the operating room.”
The FDA did its part to rouse DePuy from its ASR recall nightmare last year, approving devices for hip, knee and foot repair.
In February, the franchise received FDA approval for its Reclaim Revision Femoral Hip System and Gription TF titanium foam implants.
The Reclaim system features various sizing options and a modular design that can help restore function. The product, according to DePuy, combines advances in strength, fixation and instrumentation to optimize both the surgical and clinical experience during moderate to complex hip revision surgery.
The Reclaim Revision Femoral Hip System, approved by the FDA in 2011, features various sizing options and a modular design to help restore hip function. Image courtesy of DePuy Orthopaedics Inc. |
Clearances for the company’s A.L.P.S. Total Foot System, Affixus Hip Fracture Nail System and the Pinnacle CoMplete Acetabular Hip System occurred throughout the spring, while regulatory blessing for the Trumatch Personalized Solutions instruments and computer software system for the Sigma Fixed-Bearing Knee system came about in late summer.
The company’s Trumatch technology uses the software and computed tomography scans to create customized femoral and tibial cutting blocks that better match patients’ bone surfaces. The Trumatch system also reduces the amount of time it takes to conduct knee replacement procedures, company executives claim.
The A.L.P.S. Total Foot System features nine anatomically contoured plates as well as both locking and non-locking screw options for reconstructive and trauma procedures of the forefoot, midfoot and hindfoot. The plates can be custom-fit to patients, and some contain locking holes that fit up to five different screws.
The Affixus Hip Fracture System has various neck and shaft angles, distal diameters, nail lengths and locking options to help surgeons better customize procedures to address disparities in patient anatomy. The system is used with a single set of instruments and combines the principles of a compression hip screw with the biomechanical advantages of an intramedullary nail.
J&J’s critics were leery of the Pinnacle CoMplete Acetabular Hip System approval in June. One blog questioned whether the product—billed as the first ceramic-on-metal hip implant available in the United States—would become the next “DePuy disaster in the making.”
Despite its litany of challenges last year, DePuy was the top revenue-generating franchise in Johnson & Johnson’s MD&D unit, one of three operated by the multinational firm. With $25.8 billion in sales, the MD&D unit is the world’s largest medical device business, permeating dozens of sectors within the comprehensive market. Sales for the year ended Dec. 31 grew 4.8 percent, though operational sales growth came in at 1.7 percent and operating profit fell 36.4 percent to $5.2 billion, according to the company. Executives attributed the sharp dropoff in profit to the ASR recall, restructuring expenses, increased investment spending and costs associated with the historic $19.7 billion buyout of Synthes Inc., a move that is likely to reinvigorate J&J’s struggling orthopedics business and is consistent with the company’s strategy of acquiring businesses with leading positions in promising markets.
The deal, first announced in April 2011, is J&J’s largest acquisition to date, easily surpassing the $16.6 billion merger with the consumer health arm of Pfizer Inc. in 2006.
West Chester, Pa.-based Synthes, which manufactures spine and bone-replacement products, is expected to help J&J significantly expand its presence in the $5.5 billion global orthopedic reconstruction industry as well as in emerging markets, an area the firm particularly is targeting for growth. Last year, Synthes reported $424.4 million in sales in the Asia Pacific region, up 19 percent compared with 2010.
To receive regulatory approval of the deal in Europe, J&J agreed to sell DePuy’s trauma segment to Warsaw, Ind.-based Biomet Inc. for $280 million.
J&J completed the acquisition in mid-June and shortly thereafter integrated Synthes into its corporate structure, creating the DePuy Synthes Cos. of Johnson & Johnson. A pop-up message on Synthes’ website enlightened visitors to the new entity: “Introducing the new DePuy Synthes Companies,” the electronic note read. “Inspired by listening carefully to what patients and healthcare professionals have to say. United for greater ingenuity. Committed to superior quality. Driven to make a sizable impact on orthopedic and neurological care. We are the new DePuy Synthes Companies and we are ready to advance patient care by delivering total solutions that go beyond the products themselves to help improve people's lives.”
J&J bigwigs expect the Synthes merger to slightly boost company profit this year and significantly improve 2013 earnings by 10 cents to 15 cents per share (excluding special items). The company estimates the deal to cost $1.1 billion in after-tax charges for the remainder of 2012, including restructuring and integration expenses.