08.02.07
2. DePuy
$ 4.1 Billion
Key Executives:
Tom Sullivan, President, DePuy Orthopaedics
Gary Fischetti, President, DePuy Spine
Michel Paul, President, DePuy Mitek
P. Laxminarain, President, DePuy Codman
William Weldon, Chairman and CEO, Johnson & Johnson
Dominic J. Caruso, VP, Finance and CFO, Johnson & Johnson
Nicholas Valeriani, Worldwide Chairman, Medical Devices & Diagnostics Group, Johnson & Johnson
No. of Employees: 6,000
Headquarters: Warsaw, IN
While 2006 may go down in history as the year Johnson & Johnson (J&J; New Brunswick, NJ) lost the bidding battle for Guidant to rival Boston Scientific, company officials are quick to remind investors and the medtech community—and rightly so—that there’s a lot more going on with the healthcare and medical device giant.
DePuy, J&J’s orthopedic branch, has been contributing very nicely to the company’s overall bottom line. Acquired in 1998 for $3.5 billion, DePuy is part of the J&J’s Medical Devices & Diagnostics group and markets products under the Codman, DePuy Mitek, DePuy Orthopaedics and DePuy Spine brands.
DePuy Orthopaedics specializes in products for reconstructing damaged or diseased joints and for repairing and reconstructing traumatic skeletal injuries. DePuy Spine products facilitate fusion of the spine and correction of spinal deformities, preserving motion of the spine and repairing bone fractures. Codman products provide for the surgical treatment of neurological and central nervous system disorders through products such as hydrocephalic shunt valve systems, implantable drug pumps and micro-surgical instrumentations. DePuy Mitek focuses on devices used in sports medicine for the treatment of soft tissue injuries.
For 2006, orthopedic operations reported $4.1 billion in revenue, an increase of 6.7% from $3.8 billion in 2005. Despite continued growth, DePuy was not immune to the slowdown experienced by the orthopedic sector last year. The company had reported double-digit increases in revenue in 2005 and 2004. But analysts currently see the market rebounding slowly, and long-term market demographics bode well for continued growth for DePuy and its affiliated groups. Company officials remain optimistic.
“Hip replacement surgery isn’t just for seniors anymore,” said Stefano Alfonsi, worldwide vice president of hip marketing for DePuy Orthopaedics. “In fact, the orthopedic patient population is getting younger. Patients are unwilling to accept long-term pain and want to maintain their quality of life. Additionally, treatment options for younger patients are expanding.”
According to J&J’s annual report, 2006 fiscal year sales expansion for the orthopedic division primarily was due to orthopedic joint reconstruction products and Mitek sports medicine products and the trauma business. The company also reported continued growth in the use of its Charité artificial spinal disc, which was approved by the FDA in 2004. According to DePuy Spine, more than 5,000 patients have received the disc in the United States since that time. J&J outwardly remains upbeat, but according to Wall Street analysts, sales of Charité have been disappointing.
In May 2006, DePuy received some good news from the Centers for Medicare & Medicaid Services (CMS). Earlier in the year, the agency had proposed denying coverage of the Charité disc for patients 60 years old and younger. The CMS, however, did an about face and announced it would allow for coverage at the discretion of local Medicare medical directors.
“As we have consistently indicated, this technology is most appropriate for younger patients and this decision allows access to the disabled population who qualify for Medicare—and may benefit from this technology,” said Gary Fischetti, president of DePuy Spine.
The CMS had proposed to deny coverage because of a lack of evidence to indicate that the surgery to implant the device is “reasonable and necessary.” The proposal to deny Medicare coverage could have prompted private health insurers to take similar actions. The agency currently does not cover Charité (nor does it cover the Pro Disc-L from Synthes) for patients older than 60. DePuy does not release sales information on Charité, but according to Merrill Lynch estimates, annual sales of the artificial disc decreased to $21 million in 2006 from $41 million in 2005.
Growth for DePuy in 2006 also came in the form of acquisitions. According to J&J, strategic purchases in 2006 significantly broadened DePuy’s portfolio.
In January 2006, the company completed the acquisition of Hand Innovations, LLC, a privately held manufacturer of widely used fracture fixation products for the upper extremities and technology in plating, which DePuy said is one of the fastest-growing and most under-penetrated segments of the trauma market. In March, the Mitek division of DePuy acquired Future Medical Systems, SA, a privately held company based in France that develops arthroscopic fluid management systems.
For J&J as a whole, the company’s medical device and diagnostics division comprised 38% of company revenue, which totaled $20.3 billion in 2006, a 6.2% increase. DePuy was fourth out of J&J’s seven largest device divisions in terms of revenue growth for 2006. For the year, roughly 40% of J&J’s overall device and diagnostics sales came from products introduced in the past five years.
Starting off 2007, DePuy Orthopaedics used the annual meeting of the American Academy of Orthopaedic Surgeons held in San Diego to announced additions to its product line. DePuy released two new options for restoring hip mobility in patients who require total hip replacement. The Pinnacle Acetabular Cup System Ultamet XL and the Pinnacle Acetabular Cup System AltrX hip bearings are designed to recreate the natural ball and socket joint of the hip to help increase joint stability, range of motion and longevity, the company said. DePuy also unveiled its Agility LP Total Ankle Replacement for the treatment of end-stage ankle disorders. The Agility LP Total Ankle is intended to provide an alternative to ankle fusion surgery as well as advancement in current ankle replacement technology, according to DePuy.
The company also used the meeting to launch three new Hand Innovations products designed for a less-invasive approach to fracture surgery for the hand, wrist, foot and shoulder: the F3 Fragment Plating System, the S3 Shoulder Nail Plating System and the Multi Directional Threaded Peg for the DVR Anatomic Plating System.
According to Jorge Orbay, MD, founder of the Miami Hand Center in Miami, FL, the new products “make a big difference in the way we treat fractures in the hand, wrist, foot and shoulder as they expand our ability to stabilize bone and adapt to the particulars of the patient’s anatomy.”
In June, DePuy Spine received some additional good news with regard to Charité. The US District Court for the Central District of California ruled in favor of DePuy Spine and dismissed virtually all claims of product liability relating to the artificial disc. The plaintiff, a 38-year-old California woman, had claimed that the disc was not designed, tested and labeled properly. Earlier this year, DePuy Spine moved to have the product liability case dismissed on the grounds that a device-specific evaluation and approval by the federal government preempts any state court jury re-determination of the same issues.
DePuy Spine came out on top of yet more legal problems with the announcement earlier this year that rival Medtronic would pay more than $26 million in damages to satisfy a federal appeals court ruling that found Medtronic violated a spinal device patent held by DePuy. In December 2006, the Federal Circuit Court of Appeals upheld a verdict reached by a federal jury in October 2004 that found Medtronic’s MAS screws infringed on the DePuy Spine patent. The screws are used in spinal surgery to correct a variety of spinal defects. A court date also has been set to find if Medtronic's Vertex screws also infringe on the same DePuy Spine patent. The trial is set to begin on Sept. 4 in the US District Court in Massachusetts.
In addition, February 2007 marked a milestone for DePuy Orthopaedics, with more than one million of the company’s mobile bearing knees having been implanted worldwide, the company said.
For the first quarter of 2007, J&J reported sales of $15 billion, a 15.7% increase, and net earnings were $2.6 billion. Worldwide medical device and diagnostics sales were $5.3 billion for the quarter, a 6.2% increase. Among the primary contributors to the growth, according to J&J, were DePuy’s orthopedic joint reconstruction, sports medicine and trauma businesses.