08.15.17
$9.3 Billion
KEY EXECUTIVES:
Alex Gorsky, Chairman and CEO
Dominic J. Caruso, Exec. VP and CFO
Ashley McEvoy, Company Group Chairman, Consumer Medical Devices
Gary J. Pruden, Exec. VP, Worldwide Chairman, Medical Devices
Sandra E. Peterson, Exec. VP, Group Worldwide Chairman
Kathryn E. Wengel, VP, Johnson and Johnson Supply Chain
Ronald A. Kapusta, Corporate Controller, Chief Accounting Officer
NO. OF EMPLOYEES: 18,000
GLOBAL HEADQUARTERS: Warsaw, Ind.; Raynham, Mass.; and West Chester, Pa.
“In the long history of humankind (and animal kind, too) those who learned to collaborate and improvise most effectively have prevailed.”
— Charles Darwin
Great innovation is seldom hatched in isolation. That Eureka! moment—long exemplified through lightbulbs and thought bubbles—is just as fictional as the iconic symbols themselves. Consider for a moment the classic yarns of solitary genius forever etched in American folklore: A young Steve Jobs inventing the home computer in his parents’ Silicon Valley garage; Alexander Graham Bell shouting for his assistant upon creating the telephone; Thomas Edison perfecting the lightbulb in a deserted laboratory; and Isaac Singer working interminably to patent the sewing machine.
All transformative inventions. All born independently in a spontaneous moment of creative brilliance.
All myths.
Jobs certainly had a hand in transforming the computer industry, but his role has been considerably romanticized over the years. The first Apple computer, actually, was neither the product of rudimentary garage work nor Jobs’ engineering savvy but rather the ingenuity of Apple Inc. co-founder Steve Wozniak. A self-proclaimed geek, Wozniak built the machine—duly named the Apple-1—after work hours in his northern California apartment and his tiny Hewlett-Packard cubicle (he designed calculators for the company in the early 1970s).
“Actually, there was no design nor construction of this computer in any garage,” he told Gizmodo in a comment section of a 2014 post about the Apple-1. “The designs were passed out freely with no copyright notice so that others could build a useful computer at low cost. Others even had hand-built versions of this computer before Steve Jobs even knew it existed...Steve Jobs did do the business end of getting the thing productized, but at first it was just to be a PC board alone, with no parts on it...The Apple 1 wasn’t designed to be a computer as much as modifying my hand-built terminal (Arpanet days) to be a computer. Jobs did all the business, getting parts, getting sales, getting publicity, from his bedroom. The manufacturing was done in Santa Clara at the same place the PC boards were made. The garage had a bench but it was only really needed part of a day each week to check out the boards and make sure they worked.”
So much for the legend. Jobs’ true role in digitizing the planet was not one of inventor but of visionary. Like most gifted leaders, he recognized good ideas and successfully refined them, creating life-changing technology in the process. He accomplished this not only with the Apple-1, but with the Macintosh as well. Jobs’ stroke of genius for the Macintosh occurred not in a secluded garage or private bedroom but during his now-infamous 1979 visit to Xerox PARC, the R&D arm of Xerox Corporation, where engineers had built a computer featuring a graphical user interface, bitmapping, and a “mouse” (in truth, PARC couldn’t legitimately take credit for the mouse concept, as it technically improved upon a 1963 invention by a Stanford Research Institute computer scientist).
Jobs experienced similar “a-ha” epiphanies in developing the iPod (based on primitive portable digital music players of the mid- to late 1990s, which he contended “truly sucked”), the iPhone (a vast improvement from the first class of smartphones), and the iPad (the brainchild of a Microsoft engineer who was married to a Jobs family friend and invited the Apple executive to his 50th birthday party). He was, as author Walter Isaacson asserts in his 2011 biography, “Steve Jobs,” a master “tweaker.”
“In the eulogies that followed Jobs’s death...he was repeatedly referred to as a large-scale visionary and inventor,” New Yorker writer Malcolm Gladwell noted in a November 2011 review of Isaacson’s book. “But Isaacson’s biography suggests that he was much more of a tweaker. Jobs’s sensibility was editorial, not inventive. His gift lay in taking what was in front of him—the tablet with stylus—and ruthlessly refining it. Jobs was someone who took other people’s ideas and changed them. He was a tweaker to the last, endlessly refining the same territory he had claimed as a young man.”
History is replete with such resourceful refinement. Some of the most renowned inventions, in fact, have been fostered through collaborative “tweaks” rather than solo creativity (namely, the spinning mule, telephone, sewing machine, and lightbulb, among others). The magic of innovation, it seems, is best conjured in groups.
Buoyed by recent research, companies are increasingly embracing the concept of collective creativity, harnessing innovation from their employees as well as from outsiders such as suppliers or competitors. Procter & Gamble was an early proponent of the idea: Seventeen years ago, the consumer goods manufacturer first took a collaborative approach to innovation by splitting new idea development evenly between its own laboratories and outside sources. One of the most successful descendants of the program was the Swiffer, a handheld dusting solution developed by Unicharm Corporation, a Japanese manufacturer of disposable hygiene products, household cleaning goods, and diapers (both for infants and adults). Rather than develop a rival product, P&G purchased the rights to Unicharm’s duster outside of Japan and collected $100 million in sales within the first four months of the Swiffer’s market release.
“...innovation and collaboration are not mutually exclusive; they feed and build upon each other. It’s not an ‘either-or.’ Innovation happens through collaboration,” Forbes contributor Kate Vitasek wrote in 2015. “Today’s business models are more dependent than ever on complex, cross-company collaboration for business innovation. The future will likely be won by those who don’t wait for lightbulb moments from a single genius, but rather develop highly collaborative win-win relationships that leverage the collective power of many.”
Johnson & Johnson is aiming to become one of those prospective champions as it battles for market share and relevancy in an industry fraught with change. Fundamental shifts in reimbursement, consumer empowerment, healthcare delivery models, digital engagement, and the competitive landscape are blurring the lines between medtech, health IT, and therapeutics. Moreover, the switch from volume- to value-based care has created a clear demand for real-world metrics and service- driven solutions, prompting medtech firms to revamp their traditional business models.
JNJ, of course, is no stranger to business model revision, having overhauled its corporate template countless times over its 131-year history to adapt to an evolving environment. In 2016, for example, the global healthcare conglomerate streamlined its consumer and medical devices operations in an effort to centralize hospital product services and create bundled packages for customers. JNJ realigned its formerly decentralized and autonomously managed Medical Devices business under one Medical Device Management unit with three global franchises (Ethicon Surgical, Biosense Webster Cardiovascular, and DePuy Synthes Orthopaedics), a single research and development segment, and one supply chain unit.
The realignment is just one of the strategies JNJ is implementing to revitalize its underwhelming Medical Devices business, which reported flat sales of $25.1 billion last year. Weak product demand, volatile exchange rates, and dwindling international revenue exacerbated the devices unit’s 2016 woes, though the performance represented a significant improvement from the 8.7 percent sales slide recorded in 2015.
ANALYST INSIGHTS: While having an enviable global sales and marketing organization, J&J's Medical Devices franchise has struggled to get new products to market as rapidly as its competition. There's been disruption and some innovative thinking in the development groups, manufacturing, and among supply chain partners. While J&J and Alphabet's Verb Surgical robotic devices capture headlines, Medical Devices will have to consistently deliver product in a timely manner if it wishes to defend its market position. Recent signs are positive but Medical Device managers know that J&J corporate is under pressure to consider the sale of the unit if growth can't be accelerated. Gary Pruden's departure indicates results must come soon.
“Our near-term priority in Medical Devices is to accelerate growth through innovation, portfolio management, and new business models,” JNJ Chairman and CEO Alex Gorsky told shareholders in the company’s 2016 annual report. “Our company’s structure allows us to interconnect our breadth and depth to drive innovation, and to take advantage of growth opportunities wherever they may be. Our Medical Devices business refocused and accelerated our pace of innovation and developed novel commercial models to meet the evolving needs of today’s heathcare system.”
One of those models evolved from a strategic alliance with Tucson, Ariz.-based Value Stream Partners LLC to design, develop, and implement a bundled payment program for hip and knee replacements, in compliance with the Comprehensive Care for Joint Replacement (CJR) Model of the Centers for Medicare & Medicaid Services. Implemented April 1, 2016, the CJR holds acute care hospitals in 67 U.S. areas financially accountable for the quality and cost of entire care episodes (admission through discharge). The plan incentivizes increased coordination of care among hospitals, physicians, and post-acute care providers as opposed to separate payments for the procedure and patient recovery phase.
Another “novel” business model introduced by JNJ last year was CareAdvantage, an assortment of value-based service offerings and risk-sharing opportunities for hospitals. The initiative enables healthcare institutions to work with JNJ as both a supplier and value-based care provider on surgical, cardiovascular, and orthopedic care improvement; the program mobilizes the service capabilities of JNJ’s businesses under a coordinated, branded framework—making it easier for hospital systems to engage with the company as a strategic partner.
“As healthcare continues to change, health systems and their suppliers must work in close alignment to find ways to meet the opportunities and challenges of value-based care,” Tim Schmid, JNJ Medical Device Companies chief strategic officer, said when CareAdvantage debuted. “CareAdvantage begins by listening to and understanding individual health system needs, leading to a customized plan of action to help deliver value at every point along the care pathway.”
JNJ’s value dispatch system, however, was not solely dependent upon business model innovation in 2016. The company also embraced the tried-and-true methods of collaboration and M&A to amplify its market presence in the fast-growing 3D printing, neurovascular and extremities sectors.
JNJ buttressed its 3D printing footprint last year by expanding a longstanding partnership with Belgian firm Materialise to provide patient-specific titanium craniomaxillofacial (CMF) implants under the DePuy Synthes TRUMATCH product line. Pooling resources since 2010, the pair’s latest joint effort helps clinicians precisely match patient shape and size requirements through virtual surgical planning, intraoperative patient-specific tools, and custom 3D-printed implants. The implants are comprised of either pure titanium or PEEK Optima-LT (polyetheretherketone), and are produced both as single and multiple pieces using DePuy Synthes’ PROPLAN CMF virtual surgical planning software.
The custom CMF implants are available in Australia, the Middle East, Africa, and most of Europe (with the exception of France).
Several months after firming up the Materialise partnership, DePuy Synthes’ Codman Neuro business bolstered its parent firm’s presence in the neurovascular market with a late-year deal for Pulsar Vascular Inc., a Los Gatos, Calif., company founded in 2005 that developed a product for treating brain aneurysms. The firm’s proprietary device, the PulseRider, is a minimally invasive, self-expanding nitinol implant used to bridge the neck of cerebral aneurysms during treatment of unruptured wide-neck intracranial aneurysms originating on or near a bifurcation. A patented “saddle” shape stent leaves minimal metal in the parent artery, enabling easy access to the aneurysm for coiling while maintaining support. Codman Neuro was previously the exclusive distributor of the device in Europe, where it was awarded CE Mark approval in 2013. Pulsar Vascular has completed a U.S. investigational device exemption clinical trial and is awaiting humanitarian device exemption approval.
“We’ve been divesting slower-growth areas or areas that we think are better off in someone else’s hands and investing in higher-growth areas and new technologies,” JNJ executive vice president and CFO Dominic Caruso told analysts during a spring 2017 conference call.
One of those new technologies is nitinol, a shape memory alloy comprised of equal parts nickel and titanium. Under certain (high) temperatures, the material can become stronger, more flexible, and change shape, making it ideal for musculoskeletal applications. San Antonio, Texas-based BioMedical Enterprises Inc. (BME) has claimed market leadership in this field, having used the metal to manufacture implants for treating various foot, ankle, hand, and wrist conditions, including bunions and hammertoes.
BME’s supremacy in the nitinol implant market most likely convinced DePuy Synthes Companies to align itself with the startup. The larger entity, after all, considers itself an extremities sector leader, and has been actively broadening its orthopedic portfolio of late. Last March, for instance, DePuy negotiated a deal with Israeli investment firm Rainbow Medical Ltd. to co-develop a minimally invasive implant for treating spinal degenerative disc disease, and in November 2015, the company introduced a new joint replacement offering to meet growing demand in outpatient reconstructive surgeries.
BioMedical Enterprises tucked itself under DePuy’s corporate umbrella in May 2016. “BME’s technology is an excellent complement to our portfolio of solutions that spans all of orthopaedics,” Ciro Römer, company group chairman at DePuy Synthes, said in announcing the acquisition. “The BME portfolio will be integrated into our trauma platform, where we will be able to expand the availability of these solutions, increase the pace of innovation in this area, and reach more patients around the world.”
Incorporating BME’s nitinol products into DePuy’s trauma portfolio proved fiscally prudent, as trauma product revenue rose 1.6 percent to $2.57 billion last year. Contributing to the upturn was the mid-July debut of the Variable Angle Locking Hand System, an amalgam of 40 basic and specialty plates for various hand fractures and sizes. The system is the first to feature 1.3 mm locking screws for hand plating, with 1.5 mm and 2 mm variable angle locking plates that feature anatomic contours and smooth surfaces designed to reduce soft tissue irritation as well as screw heads designed to become recessed once locked into the plates. The Variable Angle system’s instruments include Reduction Forceps to help reduce lag screw application; Plate Holding Forceps to hold the plate intraoperatively; and Self-Retaining Screwdrivers to reduce procedural complexity.
The trauma division’s increase, along with modest gains in artificial hips and knees, lifted DePuy Synthes’ overall sales 0.8 percent ($72 million) to $9.33 billion in the year ended Dec. 31, 2016. Notable growth drivers included the TFN-Advanced Proximal Femoral Nailing System, DePuy’s primary hip stem platform, and the Attune knee system, which boasts a clinically proven 98.61 percent survivorship at three years (United Kingdom joint registry data) and 0.5 percent/0.4 percent cumulative revision rates (Australian joint registry results).
Large-joint sales, by and large, kept the Orthopaedics business in the black in 2016: Hip and knee proceeds climbed 2.2 percent and 1.9 percent, respectively, to $1.36 billion and $1.52 billion. The gains helped offset another poor showing from the languishing spinal franchise, where sales were off 0.7 percent, though the loss slowed dramatically from the previous year’s 5.5 percent revenue slide.
DePuy Synthes tried stemming the bleeding in its faltering spine unit with several new product launches but the debuts occurred too late in the year (near Halloween) to truly salvage sinking sales. Still, the newcomers might help Gorsky fulfill his shareholder pledge to return the Medical Device segment to market growth this year.
Among the future all-stars is a portable spine imaging system, a lower back implant, and an anterior plate with allograft spacer—all unveiled at the North American Spine Society’s 2016 Annual Meeting in Boston.
ANALYST INSIGHTS: The future of Medical Devices continues to be a hot topic at J&J. Do they spin it off? Do they invest and acquire? Newly appointed Hospital Medical Devices Leader Sandi Peterson has bold decisions to make in the coming year.
The KICK System aims to improve access to affordable advanced imaging technology, used by only 11 percent of North American and European spine surgeons despite the innovation’s advantages of accurate screw insertion and reduced likelihood of revision surgery. DePuy Synthes partnered with Brainlab to expand access to advanced visualization through the KICK System.
The image-guided technology enables real-time intra-operative viewing of instruments and implants relative to patient anatomy to permit proper pedicle screw placement. Using a small, portable infrared camera with a computer and monitor, the system moves between operating rooms and works with existing X-ray equipment to support surgical workflow. The monitor displays up to four different X-ray images at one time to eliminate the need for equipment repositioning and ultimately helps reduce radiation exposure as well as procedure time. The KICK System is compatible with the Viper System and Expedium Spine System of implants.
Improving surgical outcomes is also the focus of the Zero-P Natural Plate, which is designed for use with a CC Natural spacer (an allograft spacer offering structural support and fusion potential). The anterior plate and CC Natural spacer are assembled together outside of the operating room and then inserted simultaneously into the disc space during anterior cervical discectomy fusion (ACDF) procedures. The Zero-P product is anchored by four locking screws that help form a rigid bone wedge for stability.
“Compared to ACDF with a traditional plate and allograft, there is no need to expose the vertebral bodies beyond their endplates, resect anterior osteophytes, or remodel the anterior surface of the vertebral bodies,” Peyman Pakzaban, M.D., FAANS, of Houston MicroNeurosurgery, said when the Zero-P plate debuted. “The insertion of a pre-fabricated allograft and the zero-profile plate is performed in one combined step.”
Surgical efficiency and stability likewise form the bedrock of the SYNFIX Evolution System, an implant for standalone anterior lumbar interbody fusion (ALIF). Offering a range of options for various patient anatomies, the SYNFIX system is designed to deliver biomechanical stability to promote fusion, restore function, and optimize surgical workflow.
The SYNFIX system consists of a PEEK spacer coupled with a titanium zero-profile plate and four divergent locking screws, all of which create a wedge of bone that helps anchor the implant during the healing process. DePuy claims the system increases surgical efficiency by reducing the number of instruments and increasing screw insertion speed. Product engineers designed a thread lock sleeve to capture the screw to the screwdriver and prevent it from becoming disengaged during surgery.
KEY EXECUTIVES:
Alex Gorsky, Chairman and CEO
Dominic J. Caruso, Exec. VP and CFO
Ashley McEvoy, Company Group Chairman, Consumer Medical Devices
Gary J. Pruden, Exec. VP, Worldwide Chairman, Medical Devices
Sandra E. Peterson, Exec. VP, Group Worldwide Chairman
Kathryn E. Wengel, VP, Johnson and Johnson Supply Chain
Ronald A. Kapusta, Corporate Controller, Chief Accounting Officer
NO. OF EMPLOYEES: 18,000
GLOBAL HEADQUARTERS: Warsaw, Ind.; Raynham, Mass.; and West Chester, Pa.
“In the long history of humankind (and animal kind, too) those who learned to collaborate and improvise most effectively have prevailed.”
— Charles Darwin
Great innovation is seldom hatched in isolation. That Eureka! moment—long exemplified through lightbulbs and thought bubbles—is just as fictional as the iconic symbols themselves. Consider for a moment the classic yarns of solitary genius forever etched in American folklore: A young Steve Jobs inventing the home computer in his parents’ Silicon Valley garage; Alexander Graham Bell shouting for his assistant upon creating the telephone; Thomas Edison perfecting the lightbulb in a deserted laboratory; and Isaac Singer working interminably to patent the sewing machine.
All transformative inventions. All born independently in a spontaneous moment of creative brilliance.
All myths.
Jobs certainly had a hand in transforming the computer industry, but his role has been considerably romanticized over the years. The first Apple computer, actually, was neither the product of rudimentary garage work nor Jobs’ engineering savvy but rather the ingenuity of Apple Inc. co-founder Steve Wozniak. A self-proclaimed geek, Wozniak built the machine—duly named the Apple-1—after work hours in his northern California apartment and his tiny Hewlett-Packard cubicle (he designed calculators for the company in the early 1970s).
“Actually, there was no design nor construction of this computer in any garage,” he told Gizmodo in a comment section of a 2014 post about the Apple-1. “The designs were passed out freely with no copyright notice so that others could build a useful computer at low cost. Others even had hand-built versions of this computer before Steve Jobs even knew it existed...Steve Jobs did do the business end of getting the thing productized, but at first it was just to be a PC board alone, with no parts on it...The Apple 1 wasn’t designed to be a computer as much as modifying my hand-built terminal (Arpanet days) to be a computer. Jobs did all the business, getting parts, getting sales, getting publicity, from his bedroom. The manufacturing was done in Santa Clara at the same place the PC boards were made. The garage had a bench but it was only really needed part of a day each week to check out the boards and make sure they worked.”
So much for the legend. Jobs’ true role in digitizing the planet was not one of inventor but of visionary. Like most gifted leaders, he recognized good ideas and successfully refined them, creating life-changing technology in the process. He accomplished this not only with the Apple-1, but with the Macintosh as well. Jobs’ stroke of genius for the Macintosh occurred not in a secluded garage or private bedroom but during his now-infamous 1979 visit to Xerox PARC, the R&D arm of Xerox Corporation, where engineers had built a computer featuring a graphical user interface, bitmapping, and a “mouse” (in truth, PARC couldn’t legitimately take credit for the mouse concept, as it technically improved upon a 1963 invention by a Stanford Research Institute computer scientist).
Jobs experienced similar “a-ha” epiphanies in developing the iPod (based on primitive portable digital music players of the mid- to late 1990s, which he contended “truly sucked”), the iPhone (a vast improvement from the first class of smartphones), and the iPad (the brainchild of a Microsoft engineer who was married to a Jobs family friend and invited the Apple executive to his 50th birthday party). He was, as author Walter Isaacson asserts in his 2011 biography, “Steve Jobs,” a master “tweaker.”
“In the eulogies that followed Jobs’s death...he was repeatedly referred to as a large-scale visionary and inventor,” New Yorker writer Malcolm Gladwell noted in a November 2011 review of Isaacson’s book. “But Isaacson’s biography suggests that he was much more of a tweaker. Jobs’s sensibility was editorial, not inventive. His gift lay in taking what was in front of him—the tablet with stylus—and ruthlessly refining it. Jobs was someone who took other people’s ideas and changed them. He was a tweaker to the last, endlessly refining the same territory he had claimed as a young man.”
History is replete with such resourceful refinement. Some of the most renowned inventions, in fact, have been fostered through collaborative “tweaks” rather than solo creativity (namely, the spinning mule, telephone, sewing machine, and lightbulb, among others). The magic of innovation, it seems, is best conjured in groups.
Buoyed by recent research, companies are increasingly embracing the concept of collective creativity, harnessing innovation from their employees as well as from outsiders such as suppliers or competitors. Procter & Gamble was an early proponent of the idea: Seventeen years ago, the consumer goods manufacturer first took a collaborative approach to innovation by splitting new idea development evenly between its own laboratories and outside sources. One of the most successful descendants of the program was the Swiffer, a handheld dusting solution developed by Unicharm Corporation, a Japanese manufacturer of disposable hygiene products, household cleaning goods, and diapers (both for infants and adults). Rather than develop a rival product, P&G purchased the rights to Unicharm’s duster outside of Japan and collected $100 million in sales within the first four months of the Swiffer’s market release.
“...innovation and collaboration are not mutually exclusive; they feed and build upon each other. It’s not an ‘either-or.’ Innovation happens through collaboration,” Forbes contributor Kate Vitasek wrote in 2015. “Today’s business models are more dependent than ever on complex, cross-company collaboration for business innovation. The future will likely be won by those who don’t wait for lightbulb moments from a single genius, but rather develop highly collaborative win-win relationships that leverage the collective power of many.”
Johnson & Johnson is aiming to become one of those prospective champions as it battles for market share and relevancy in an industry fraught with change. Fundamental shifts in reimbursement, consumer empowerment, healthcare delivery models, digital engagement, and the competitive landscape are blurring the lines between medtech, health IT, and therapeutics. Moreover, the switch from volume- to value-based care has created a clear demand for real-world metrics and service- driven solutions, prompting medtech firms to revamp their traditional business models.
JNJ, of course, is no stranger to business model revision, having overhauled its corporate template countless times over its 131-year history to adapt to an evolving environment. In 2016, for example, the global healthcare conglomerate streamlined its consumer and medical devices operations in an effort to centralize hospital product services and create bundled packages for customers. JNJ realigned its formerly decentralized and autonomously managed Medical Devices business under one Medical Device Management unit with three global franchises (Ethicon Surgical, Biosense Webster Cardiovascular, and DePuy Synthes Orthopaedics), a single research and development segment, and one supply chain unit.
The realignment is just one of the strategies JNJ is implementing to revitalize its underwhelming Medical Devices business, which reported flat sales of $25.1 billion last year. Weak product demand, volatile exchange rates, and dwindling international revenue exacerbated the devices unit’s 2016 woes, though the performance represented a significant improvement from the 8.7 percent sales slide recorded in 2015.
ANALYST INSIGHTS: While having an enviable global sales and marketing organization, J&J's Medical Devices franchise has struggled to get new products to market as rapidly as its competition. There's been disruption and some innovative thinking in the development groups, manufacturing, and among supply chain partners. While J&J and Alphabet's Verb Surgical robotic devices capture headlines, Medical Devices will have to consistently deliver product in a timely manner if it wishes to defend its market position. Recent signs are positive but Medical Device managers know that J&J corporate is under pressure to consider the sale of the unit if growth can't be accelerated. Gary Pruden's departure indicates results must come soon.
—Tony Freeman, President, AS Freeman Advisors LLC
“Our near-term priority in Medical Devices is to accelerate growth through innovation, portfolio management, and new business models,” JNJ Chairman and CEO Alex Gorsky told shareholders in the company’s 2016 annual report. “Our company’s structure allows us to interconnect our breadth and depth to drive innovation, and to take advantage of growth opportunities wherever they may be. Our Medical Devices business refocused and accelerated our pace of innovation and developed novel commercial models to meet the evolving needs of today’s heathcare system.”
One of those models evolved from a strategic alliance with Tucson, Ariz.-based Value Stream Partners LLC to design, develop, and implement a bundled payment program for hip and knee replacements, in compliance with the Comprehensive Care for Joint Replacement (CJR) Model of the Centers for Medicare & Medicaid Services. Implemented April 1, 2016, the CJR holds acute care hospitals in 67 U.S. areas financially accountable for the quality and cost of entire care episodes (admission through discharge). The plan incentivizes increased coordination of care among hospitals, physicians, and post-acute care providers as opposed to separate payments for the procedure and patient recovery phase.
Another “novel” business model introduced by JNJ last year was CareAdvantage, an assortment of value-based service offerings and risk-sharing opportunities for hospitals. The initiative enables healthcare institutions to work with JNJ as both a supplier and value-based care provider on surgical, cardiovascular, and orthopedic care improvement; the program mobilizes the service capabilities of JNJ’s businesses under a coordinated, branded framework—making it easier for hospital systems to engage with the company as a strategic partner.
“As healthcare continues to change, health systems and their suppliers must work in close alignment to find ways to meet the opportunities and challenges of value-based care,” Tim Schmid, JNJ Medical Device Companies chief strategic officer, said when CareAdvantage debuted. “CareAdvantage begins by listening to and understanding individual health system needs, leading to a customized plan of action to help deliver value at every point along the care pathway.”
JNJ’s value dispatch system, however, was not solely dependent upon business model innovation in 2016. The company also embraced the tried-and-true methods of collaboration and M&A to amplify its market presence in the fast-growing 3D printing, neurovascular and extremities sectors.
JNJ buttressed its 3D printing footprint last year by expanding a longstanding partnership with Belgian firm Materialise to provide patient-specific titanium craniomaxillofacial (CMF) implants under the DePuy Synthes TRUMATCH product line. Pooling resources since 2010, the pair’s latest joint effort helps clinicians precisely match patient shape and size requirements through virtual surgical planning, intraoperative patient-specific tools, and custom 3D-printed implants. The implants are comprised of either pure titanium or PEEK Optima-LT (polyetheretherketone), and are produced both as single and multiple pieces using DePuy Synthes’ PROPLAN CMF virtual surgical planning software.
The custom CMF implants are available in Australia, the Middle East, Africa, and most of Europe (with the exception of France).
Several months after firming up the Materialise partnership, DePuy Synthes’ Codman Neuro business bolstered its parent firm’s presence in the neurovascular market with a late-year deal for Pulsar Vascular Inc., a Los Gatos, Calif., company founded in 2005 that developed a product for treating brain aneurysms. The firm’s proprietary device, the PulseRider, is a minimally invasive, self-expanding nitinol implant used to bridge the neck of cerebral aneurysms during treatment of unruptured wide-neck intracranial aneurysms originating on or near a bifurcation. A patented “saddle” shape stent leaves minimal metal in the parent artery, enabling easy access to the aneurysm for coiling while maintaining support. Codman Neuro was previously the exclusive distributor of the device in Europe, where it was awarded CE Mark approval in 2013. Pulsar Vascular has completed a U.S. investigational device exemption clinical trial and is awaiting humanitarian device exemption approval.
“We’ve been divesting slower-growth areas or areas that we think are better off in someone else’s hands and investing in higher-growth areas and new technologies,” JNJ executive vice president and CFO Dominic Caruso told analysts during a spring 2017 conference call.
One of those new technologies is nitinol, a shape memory alloy comprised of equal parts nickel and titanium. Under certain (high) temperatures, the material can become stronger, more flexible, and change shape, making it ideal for musculoskeletal applications. San Antonio, Texas-based BioMedical Enterprises Inc. (BME) has claimed market leadership in this field, having used the metal to manufacture implants for treating various foot, ankle, hand, and wrist conditions, including bunions and hammertoes.
BME’s supremacy in the nitinol implant market most likely convinced DePuy Synthes Companies to align itself with the startup. The larger entity, after all, considers itself an extremities sector leader, and has been actively broadening its orthopedic portfolio of late. Last March, for instance, DePuy negotiated a deal with Israeli investment firm Rainbow Medical Ltd. to co-develop a minimally invasive implant for treating spinal degenerative disc disease, and in November 2015, the company introduced a new joint replacement offering to meet growing demand in outpatient reconstructive surgeries.
BioMedical Enterprises tucked itself under DePuy’s corporate umbrella in May 2016. “BME’s technology is an excellent complement to our portfolio of solutions that spans all of orthopaedics,” Ciro Römer, company group chairman at DePuy Synthes, said in announcing the acquisition. “The BME portfolio will be integrated into our trauma platform, where we will be able to expand the availability of these solutions, increase the pace of innovation in this area, and reach more patients around the world.”
Incorporating BME’s nitinol products into DePuy’s trauma portfolio proved fiscally prudent, as trauma product revenue rose 1.6 percent to $2.57 billion last year. Contributing to the upturn was the mid-July debut of the Variable Angle Locking Hand System, an amalgam of 40 basic and specialty plates for various hand fractures and sizes. The system is the first to feature 1.3 mm locking screws for hand plating, with 1.5 mm and 2 mm variable angle locking plates that feature anatomic contours and smooth surfaces designed to reduce soft tissue irritation as well as screw heads designed to become recessed once locked into the plates. The Variable Angle system’s instruments include Reduction Forceps to help reduce lag screw application; Plate Holding Forceps to hold the plate intraoperatively; and Self-Retaining Screwdrivers to reduce procedural complexity.
The trauma division’s increase, along with modest gains in artificial hips and knees, lifted DePuy Synthes’ overall sales 0.8 percent ($72 million) to $9.33 billion in the year ended Dec. 31, 2016. Notable growth drivers included the TFN-Advanced Proximal Femoral Nailing System, DePuy’s primary hip stem platform, and the Attune knee system, which boasts a clinically proven 98.61 percent survivorship at three years (United Kingdom joint registry data) and 0.5 percent/0.4 percent cumulative revision rates (Australian joint registry results).
Large-joint sales, by and large, kept the Orthopaedics business in the black in 2016: Hip and knee proceeds climbed 2.2 percent and 1.9 percent, respectively, to $1.36 billion and $1.52 billion. The gains helped offset another poor showing from the languishing spinal franchise, where sales were off 0.7 percent, though the loss slowed dramatically from the previous year’s 5.5 percent revenue slide.
DePuy Synthes tried stemming the bleeding in its faltering spine unit with several new product launches but the debuts occurred too late in the year (near Halloween) to truly salvage sinking sales. Still, the newcomers might help Gorsky fulfill his shareholder pledge to return the Medical Device segment to market growth this year.
Among the future all-stars is a portable spine imaging system, a lower back implant, and an anterior plate with allograft spacer—all unveiled at the North American Spine Society’s 2016 Annual Meeting in Boston.
ANALYST INSIGHTS: The future of Medical Devices continues to be a hot topic at J&J. Do they spin it off? Do they invest and acquire? Newly appointed Hospital Medical Devices Leader Sandi Peterson has bold decisions to make in the coming year.
—Dave Sheppard, Co-Founder and Principal, MedWorld Advisors
The KICK System aims to improve access to affordable advanced imaging technology, used by only 11 percent of North American and European spine surgeons despite the innovation’s advantages of accurate screw insertion and reduced likelihood of revision surgery. DePuy Synthes partnered with Brainlab to expand access to advanced visualization through the KICK System.
The image-guided technology enables real-time intra-operative viewing of instruments and implants relative to patient anatomy to permit proper pedicle screw placement. Using a small, portable infrared camera with a computer and monitor, the system moves between operating rooms and works with existing X-ray equipment to support surgical workflow. The monitor displays up to four different X-ray images at one time to eliminate the need for equipment repositioning and ultimately helps reduce radiation exposure as well as procedure time. The KICK System is compatible with the Viper System and Expedium Spine System of implants.
Improving surgical outcomes is also the focus of the Zero-P Natural Plate, which is designed for use with a CC Natural spacer (an allograft spacer offering structural support and fusion potential). The anterior plate and CC Natural spacer are assembled together outside of the operating room and then inserted simultaneously into the disc space during anterior cervical discectomy fusion (ACDF) procedures. The Zero-P product is anchored by four locking screws that help form a rigid bone wedge for stability.
“Compared to ACDF with a traditional plate and allograft, there is no need to expose the vertebral bodies beyond their endplates, resect anterior osteophytes, or remodel the anterior surface of the vertebral bodies,” Peyman Pakzaban, M.D., FAANS, of Houston MicroNeurosurgery, said when the Zero-P plate debuted. “The insertion of a pre-fabricated allograft and the zero-profile plate is performed in one combined step.”
Surgical efficiency and stability likewise form the bedrock of the SYNFIX Evolution System, an implant for standalone anterior lumbar interbody fusion (ALIF). Offering a range of options for various patient anatomies, the SYNFIX system is designed to deliver biomechanical stability to promote fusion, restore function, and optimize surgical workflow.
The SYNFIX system consists of a PEEK spacer coupled with a titanium zero-profile plate and four divergent locking screws, all of which create a wedge of bone that helps anchor the implant during the healing process. DePuy claims the system increases surgical efficiency by reducing the number of instruments and increasing screw insertion speed. Product engineers designed a thread lock sleeve to capture the screw to the screwdriver and prevent it from becoming disengaged during surgery.