08.11.20
Rank: #2 (Last year: #2)
$8.84 Billion ($82.05 Billion)
Prior Fiscal: $8.88 Billion
Percentage Change: -0.45%
No. of Employees: 18,000
Global Headquarters: Warsaw, Ind.; Raynham, Mass.; and West Chester, Pa.
KEY EXECUTIVES:
Alex Gorsky, Chairman and CEO
Joaquin Duato, Vice Chairman
Paulus Stoffels, Vice Chairman, Chief Scientific Officer
Joseph J. Wolk, Executive VP and Chief Financial Officer
Ashley McEvoy, Executive VP, Worldwide Chairman, Medical Devices
Kathryn E. Wengel, Executive VP, Chief Global Supply Chain Officer
Michael H. Ullmann, Executive VP, General Counsel
Robert J. Decker Jr., Corporate Controller, Chief Accounting Officer
Matthew Orlando, Corporate Secretary and Worldwide VP, Corporate Governance
Red is the color of passion. It is energizing, daring, intimidating; it denotes vitality and warmth. It can be intoxicating and empowering, all at once. Red is power. Red is strength. Red is never boring.
Red also commands attention: It can signify violence (blood), danger, and anger. It evokes compassion and curiosity, and is the prime spectrum color scientifically linked to a quicker pulse, higher blood pressure, and increased metabolism.
These physiological changes can partly be attributed to the eye’s photoreceptors, which are particularly sensitive to long-wavelength light (seen as red). “...red is the most visible color,” neuroscientist/artist/color expert Bevil B. Conway, Ph.D., of the National Eye Institute explained to Reader’s Digest. Conway has spent much of his career studying the ways in which color translates across languages.
“There’s overwhelming evidence that red is a special color,” he said. “Of all the colors, across all of the world, in all of the world’s languages, we communicate red most efficiently.”
And quite frequently: Red is one of the top colors of choice in marketing (second only to blue, foundr Magazine reports). Its popularity can partly be attributed to its powers of persuasion—red logos make for strong first impressions, and they can effectively influence consumer behavior. Case in point: Red has been shown to boost hunger; hence its predominance in the food industry (ergo, Arby’s, DQ, Hardees, KFC, Red Robin, Sonic, Wendy’s). The hue also connotes a sense of urgency, which can drive impulse purchases (think H&M, HomeGoods, KMart, Lego, Target, and TJ Maxx).
Indeed, few colors are as electrifying as red—it is efficient, yet dynamic; edgy, yet streamlined. But it can be contradictory too, conveying conflicting feelings of joy-anger, sensitivity-aggression, comfort-danger, and warmth-wrath, depending upon circumstances. Consequently, it takes a back seat to blue in the medical field.
Contrary to its fellow primary pigment, the color of sky, sea and spring starflowers lowers blood pressure and is an overall calming hue. It conveys strength as well as relaxation; it elicits trust and dependability while also imparting such medically important values as credibility, safety, and cleanliness.
“It should come as no surprise that the leading color used in healthcare marketing and branding is blue,” Deanna Garner, former creative services specialist at Gray Matter Marketing Inc., wrote in an August 2017 company blog. “With associations to trust, dependability, vitality and strength, all healthcare companies can make the argument that blue is a perfect color to represent their values.”
Perfect for some, but not for all. 3M, Aspen Surgical, Canon, Cardinal Health, and Thermo Fisher Scientific Inc. are all healthcare blue non-conformists, though they haven’t always sported red logos. Johnson & Johnson, on the other hand, has never bowed to marketing color theory convention.
Since its 1886 inception, J&J has incorporated red into its branding, either by name or by symbol. The distinctive cursive of J&J’s logo was modelled after co-founding brother James Wood Johnson’s written signature on an 1887 check; the timing and reasons for making the pseudo-autograph red remain unclear, though it may have been influenced by the company’s use of the American Red Cross symbol during its formative years.
Since its early days, J&J’s affinity for the color of fire, hearts, and roses has only grown; truth be told, the hue is actually more visible than ever now—emblazoned on products (Band-Aids, Tylenol), painted on (office) walls, preserved in furniture, incorporated online (website), and immortalized in the company’s sacred scroll, a.k.a., The Credo.
Created in 1943, the Credo is a blueprint of J&J’s principles—a moral compass, so to speak, that guides its collective actions. Chairman and CEO Alex Gorsky has called the Credo (pronounced Cray-dough) the “red thread” that connects the company’s heritage, workplace culture, and corporate DNA.
That thread remained quite strong in 2019 but showed some signs of fraying. Although J&J increased its shareholder dividend for the 57th consecutive year and boosted pharmaceutical sales 3.5 percent, overall company growth slowed to a crawl, climbing just 0.58 percent—a far cry from the 6.3 percent increase recorded in 2017 and the 6.7 percent expansion registered in FY18. Gross profit ebbed as well, flatlining at $54.5 billion, and net earnings (basic and diluted) barely budged, rising just two cents (to $5.72 and $5.63, respectively).
ANALYST INSIGHTS: Having bought out Google Verily’s share in Verb Surgical, J&J continues on its quest toward having a comprehensive digital surgery platform in all major segments. They will seek to compete with Intuitive in general surgery while creating initiatives in orthopedics to compete with Zimmer Biomet, S&N, and others.
Those dismal statistics are largely a matter of interpretation, though. J&J’s “official” 2019 performance review (filed with the U.S. Securities and Exchange Commission) differs substantially from the version touted publicly by company executives. Their rendition analyzes the numbers from an operational standpoint, thus instantly improving last year’s pecuniary output. For example, the 0.6 percent sales growth J&J recorded with the SEC swells to 2.8 percent operationally, and its 0.7 percent increase in international revenue balloons to 5.3 percent, with currency impacting results by 4.6 percentage points. Excluding the net impact of acquisitions and divestitures, adjusted operational sales growth was 4.5 percent worldwide, 2.3 percent in the United States, and 6.7 percent internationally.
Earnings improved as well in the operational universe: FY19 net earnings totaled $15.1 billion and diluted earnings per share (EPS) was $5.63. But on an operational basis, adjusted diluted EPS grew 8.8 percent.
“I’m proud to highlight that 2019 marked our 36th consecutive year of adjusted operational earnings growth for Johnson & Johnson. We delivered strong revenue and earnings growth in 2019, exceeding the financial performance that we set at the beginning of the year,” J&J Chairman and CEO Alex Gorsky told investors during a fourth-quarter and full-year 2019 earnings call in late January 2020. “Now we accomplished this while also making strategic investments that advance the pipeline of opportunities and innovation across all three of our business segments.”
One of J&J’s most significant strategic investments last year was the February purchase of surgical robotics developer Auris Health Inc. The $3.4 billion deal—historic from both a robotics and private investment perspective—accelerated the company’s entry into the digital surgery ecosystem.
J&J plans to leverage Auris Health’s FDA-cleared Monarch Platform to expand its digital portfolio across various surgical specialties. Currently used in lung diagnostic and therapeutic procedures, the system features a controller interface for navigating an integrated flexible robotic endoscope into peripheral lung nodules, and combines traditional endoscopic views with computer-assisted navigation based on 3D patient models.
“Consistent with our historical pioneering spirit...we are focused on the next frontier of surgery,” Gorsky noted in J&J’s 2019 annual report. “The acquisition of Auris Health Inc., a developer of robotic technologies...accelerated our entry into robotics as part of a digital surgery ecosystem designed to make medical intervention smarter, less invasive, and more personalized to elevate the standard of care. This is a critical component of a digital surgery ecosystem that we are creating.”
Another critical building block of that digital surgery ecosystem is Verb Surgical Inc., a sibling company of Google’s Verily Life Sciences. The entity is now under J&J’s full command following a buyout initiated in December 2019 (terms were undisclosed). The duo joined forces five years ago to incorporate robotics, visualization, advanced instrumentation, connectivity, and machine learning analytics into a digital surgical platform (Surgery 4.0). Verb Surgical subsequently unveiled a robot prototype in late 2016.
In their final months as separate entities, Verb and J&J were preparing for validation studies and had discussed their digital platform with American and European regulatory authorities. The platform itself also was involved in “end-to-end procedures” in multiple general surgery indications, according to J&J executives.
“With Verb Surgical, we set out with an ambitious mission to successfully harmonize the talent and expertise of two pioneers to design a platform with the potential to transform surgery,” Verily CEO Andrew Conrad said in a Dec. 20, 2019, statement announcing the buyout. “This evolution in the collaboration recognizes the significant achievement toward that mission and I’m excited for the future of this technology in Johnson & Johnson’s hands.”
And in those hands, a promising future is likely to emerge —a world in which customized tools, personalization, predictive analysis, minimally invasive robotics, and artificial intelligence (AI) converge to redefine solutions in cancer diagnostics, soft tissue repair, and orthopedics, among other specialties. J&J’s DePuy Synthes unit has gradually been bolstering its prowess in the latter genre in recent years, first acquiring Orthotaxy, Medical Enterprises Distribution LLC, and JointPoint Inc. in 2018, then teaming with Chinese firm TINAVI Medical Technologies last fall to locally co-market and distribute that company’s robotic arm for spine and trauma procedures, and finally tapping Zebra Medical Vision in December 2019 to develop and commercialize three-dimensional imaging technology for orthopedic surgery. The new technology is intended to be an addition to DePuy’s Velys Digital Surgery platform.
The Velys offerings will focus first on joint reconstruction procedures by incorporating existing products like the Kincise automated surgical mallet system and JointPoint’s hip navigation and planning software. DePuy plans to add new technologies to the Velys platform over time, including sensors, apps, robotics, and patient selection tools to address each point along a continuum of orthopedic care, from pre-op planning to post-op rehabilitation and monitoring.
Zebra Medical will work with DePuy’s Ireland-based subsidiary to co-develop and commercialize programs that create 3D models from cheaper 2D X-ray images, thereby enabling surgical planning without needing an MRI or CT scan.
TINAVI’s TiRobot arm incorporates 3D imaging as well, but it also uses optical navigation to pinpoint the precise anatomical location of a surgical procedure. Designed for maximum clinical reach, the arm also can drill holes and insert screws; can function in motorized or manual mode, is surgeon-driven, and has a small footprint. A third-generation form of the machine was approved in China four years ago, around the time of a phase III trial in spinal fusion procedures. J&J claims the TiRobot is the only arm-based robotic technology with multiple indications approved for use in China for spine and trauma fixes.
“I couldn’t be more bullish around how J&J is going to create value in the [digital surgery] space, and really kind of the goal that we’re trying to achieve is really to make medical interventions smarter, less invasive, more personalized, quite frankly to change the standard of care, not just for the next 10 years, but the [next] 20 and 30 years,” Ashley McEvoy, executive vice president and worldwide chairman, Johnson & Johnson Medical Devices, noted during a Q3 conference call last October. “I think we’re seeing the investments we made...having an effect...and clearly in innovation, both in digital surgery, through the Auris acquisition, and what we’re continuing to do with Verb and Orthotaxy, and some robotic programs in spine. We’ve invested about $12 billion in M&A since 2017 in Medical Devices to make sure that we’re playing in the most attractive spaces.”
Those spaces and investments have yet to pay off, though. Profits have historically been fickle in J&J’s Medical Devices business as the company struggles to define its role in a fast-changing healthcare market. Growth has been nominal in the last two fiscal years, with revenue rising 1.5 percent in 2018 (vs. 2017) then slipping 3.8 percent in FY19 to $25.96 billion.
The gains have been equally as negligible within Orthopaedics (DePuy Synthes), a franchise handicapped of late by saturated large-joint replacement markets, generic implant startups, shrinking reimbursement rates, and value-based care. Total sales have fallen 2.4 percent over the last three years, from $9.06 billion in fiscal 2017 to $8.84 billion in FY19.
Revenue remained flat against 2018 (declining $50 million), but the stalemate failed to cloud the sunny portrait Gorsky painted of DePuy Synthes’ fiscal performance last year. Analyzing results through non-GAAP-colored lenses, he touted the franchise’s 180 basis point rise and 1.2 percent operational growth, and claimed each major platform “accelerated” versus the previous year.
Creatively perhaps, but not financially.
Only two platforms “accelerated” fiscally in 2019—Hips and Trauma, though most product divisions advanced innovation during the year. Trauma, for example, added to its portfolio with the January 2019 launch of the Femoral Neck System, a solution for repairing femoral neck fractures. Combining stable fixation in a compact design with a minimally invasive approach, the System uses a smaller incision and offers a minimal bone footprint; it also features an articulated blade and screw to limit rotational movement on the femoral head, and is protective of an anatomic provisional reduction.
DePuy Synthes’ Trauma lineup also received a boost from economic viability data for the Universal Small Fragment System, a streamlined network of instruments and implants for small bone trauma. The system consists of a core set of instruments, screws, and standard implants as well as modular anatomic implant trays for small fragment anatomy. In addition, the core instrument set can support all 2.7 mm/3.5mm DePuy Synthes non-locking, LCP and VA LCP plating technologies.
DePuy markets the Universal Small Fragment System as an economic asset for hospitals; data released last fall indicate the system can save the average level 1 trauma center in the United States $72,685 annually via reduced numbers of instrument trays. Such streamlining translates into ecological savings too, as the system reduces water and energy consumption by 56 percent annually.
Although useful as a marketing tool, the data have had no effect on sales. Total Trauma revenue rose just 0.8 percent last year to $2.72 billion, with sales faring better at home than abroad (U.S. proceeds expanded 3.3 percent; international revenue fell 2.9 percent).
Hips sales rose 1.4 percent to $1.43 billion on strong demand for the ACTIS stem, the KINCISE surgical automated system, and the anterior approach to THR.
Hips’ increase, however, was offset by a foreign exchange fueled 1.4 percent dropoff in Knees revenue ($1.48 billion total). The currency conundrum single-handedly overpowered strong global sales of the ATTUNE Revision knee and a fourth-quarter surge in cementless knee proceeds that was driven in part by a new addition to the ATTUNE portfolio.
DePuy Synthes enhanced its ATTUNE lineup last fall with the September launch of the ATTUNE Cementless Knee, an implant featuring several patented technologies for improving knee function, including the ATTUNE GRADIUS Curve to provide stability through range of motion, and GLIDERIGHT Articulation to more accurately replicate the normal patella-femur relationship.
“With the ATTUNE Cementless Knee, we have carried forward technologies and learnings from clinically proven devices like the LCS Knee and combined that with ATTUNE Knee patented technologies to provide customers a solution to meeting emerging patient needs,” Rajit Kamal, vice president and global franchise leader, Knees, DePuy Synthes, said when the ATTUNE cementless option debuted. “Our strong hope and belief is that this implant system will help younger, more active patients get back to doing what they love if their surgeon feels they are the right candidate.”
Regaining activity also is the main goal of the CONDUIT Interbody Platform and SYMPHONY Occipito-Cervico-Thoracic (OCT) System, two new innovations that joined DePuy Synthes’ spinal portfolio last fall. The 3D printed CONDUIT implants, launched in September, are made using Emerging Implant Technology (EIT).
Cellular Titanium, a material with an elasticity modulus comparable to the cancellous tissue found in human bones. Manufactured in various shapes and sizes, the CONDUIT implants feature a latticed center that makes the structures more porous than natural bone (80 percent vs. 50-90 percent natural porosity). The CONDUIT’s porous composition thus promotes natural bone grafting during healing.
The SYMPHONY OCT System, released in November, is designed to help align and stabilize the thoracic, cervical, and occipital bones during posterior cervical fusion procedures for complex spine disorders. The system is intended to address the potential causes of screw failures in patients with suboptimal bone quality, using new hardware and threading.
SYMPHONY OCT also can cross the cervical-to-thoracic junction at the neck’s base while reducing the number of necessary instrument trays for a procedure by more than half (six to two). The implant combines aspects of DePuy Synthes’ low-profile SYNAPSE and MOUNTAINEER OCT systems for the head and neck, and is compatible with components from those systems.
Despite its benefits to both patients and surgeons, neither the SYMPHONY nor CONDUIT systems could help the Spine & Other franchise turn a profit last year. The division posted the largest loss in Orthopaedics, as revenue tumbled 2 percent to $3.2 billion.
COVID-19 Consequences
Like countless other orthopedic firms worldwide, DePuy Synthes succumbed to the economic turmoil wrought by SARS-CoV-2, posting high double-digit losses in each of its four product franchises. Trauma sales fell 17.8 percent to $553 million, while Hips proceeds nosedived 37.8 percent, garnering $226 million for the period ending June 28. Spine & Other revenue plunged 39 percent to $499 million, and Knees took the biggest hit, plummeting a staggering 53.1 percent to $174 million.
Overall Medical Devices proceeds sank 34 percent to $4.28 billion, driven mainly by widespread elective procedure deferrals within the Surgery, Orthopaedics, Vision, and Interventional Solutions franchises. Despite the disastrous results, however, Johnson & Johnson management is optimistic the company can escape the coronavirus carnage with minimal damage, estimating an annual loss of 0.8 percent to 2.6 percent (on total revenues of $79.9 billion-$81.4 billion).
Chairman/CEO Alex Gorsky is confident J&J (DePuy Synthes’ parent company) can weather the COVID-19 storm: [J&J] was built for times like this. We have a century-plus history of leading in times of great challenge. We’ve done it before and we can do it again. We are leveraging our scientific expertise, operational scale, and financial strength in the effort to advance the work on our lead COVID-19 vaccine candidate.”
J&J is spending $500 million to develop and manufacture a SARS-CoV-2 vaccine built around an engineered version of adenovirus 26 (Ad26), a disabled, non-replicable version of the common cold virus. The company expects to begin human testing in September in hopes of having the vaccine ready for emergency use early next year.
J&J also has pledged to scale up its global vaccine manufacturing capacity so more than 1 billion doses of a vaccine can be made “at risk”—i.e., before its ultimate design is finalized and approved by the FDA. Production is expected to occur in both The Netherlands and the United States.
$8.84 Billion ($82.05 Billion)
Prior Fiscal: $8.88 Billion
Percentage Change: -0.45%
No. of Employees: 18,000
Global Headquarters: Warsaw, Ind.; Raynham, Mass.; and West Chester, Pa.
KEY EXECUTIVES:
Alex Gorsky, Chairman and CEO
Joaquin Duato, Vice Chairman
Paulus Stoffels, Vice Chairman, Chief Scientific Officer
Joseph J. Wolk, Executive VP and Chief Financial Officer
Ashley McEvoy, Executive VP, Worldwide Chairman, Medical Devices
Kathryn E. Wengel, Executive VP, Chief Global Supply Chain Officer
Michael H. Ullmann, Executive VP, General Counsel
Robert J. Decker Jr., Corporate Controller, Chief Accounting Officer
Matthew Orlando, Corporate Secretary and Worldwide VP, Corporate Governance
Red is the color of passion. It is energizing, daring, intimidating; it denotes vitality and warmth. It can be intoxicating and empowering, all at once. Red is power. Red is strength. Red is never boring.
Red also commands attention: It can signify violence (blood), danger, and anger. It evokes compassion and curiosity, and is the prime spectrum color scientifically linked to a quicker pulse, higher blood pressure, and increased metabolism.
These physiological changes can partly be attributed to the eye’s photoreceptors, which are particularly sensitive to long-wavelength light (seen as red). “...red is the most visible color,” neuroscientist/artist/color expert Bevil B. Conway, Ph.D., of the National Eye Institute explained to Reader’s Digest. Conway has spent much of his career studying the ways in which color translates across languages.
“There’s overwhelming evidence that red is a special color,” he said. “Of all the colors, across all of the world, in all of the world’s languages, we communicate red most efficiently.”
And quite frequently: Red is one of the top colors of choice in marketing (second only to blue, foundr Magazine reports). Its popularity can partly be attributed to its powers of persuasion—red logos make for strong first impressions, and they can effectively influence consumer behavior. Case in point: Red has been shown to boost hunger; hence its predominance in the food industry (ergo, Arby’s, DQ, Hardees, KFC, Red Robin, Sonic, Wendy’s). The hue also connotes a sense of urgency, which can drive impulse purchases (think H&M, HomeGoods, KMart, Lego, Target, and TJ Maxx).
Indeed, few colors are as electrifying as red—it is efficient, yet dynamic; edgy, yet streamlined. But it can be contradictory too, conveying conflicting feelings of joy-anger, sensitivity-aggression, comfort-danger, and warmth-wrath, depending upon circumstances. Consequently, it takes a back seat to blue in the medical field.
Contrary to its fellow primary pigment, the color of sky, sea and spring starflowers lowers blood pressure and is an overall calming hue. It conveys strength as well as relaxation; it elicits trust and dependability while also imparting such medically important values as credibility, safety, and cleanliness.
“It should come as no surprise that the leading color used in healthcare marketing and branding is blue,” Deanna Garner, former creative services specialist at Gray Matter Marketing Inc., wrote in an August 2017 company blog. “With associations to trust, dependability, vitality and strength, all healthcare companies can make the argument that blue is a perfect color to represent their values.”
Perfect for some, but not for all. 3M, Aspen Surgical, Canon, Cardinal Health, and Thermo Fisher Scientific Inc. are all healthcare blue non-conformists, though they haven’t always sported red logos. Johnson & Johnson, on the other hand, has never bowed to marketing color theory convention.
Since its 1886 inception, J&J has incorporated red into its branding, either by name or by symbol. The distinctive cursive of J&J’s logo was modelled after co-founding brother James Wood Johnson’s written signature on an 1887 check; the timing and reasons for making the pseudo-autograph red remain unclear, though it may have been influenced by the company’s use of the American Red Cross symbol during its formative years.
Since its early days, J&J’s affinity for the color of fire, hearts, and roses has only grown; truth be told, the hue is actually more visible than ever now—emblazoned on products (Band-Aids, Tylenol), painted on (office) walls, preserved in furniture, incorporated online (website), and immortalized in the company’s sacred scroll, a.k.a., The Credo.
Created in 1943, the Credo is a blueprint of J&J’s principles—a moral compass, so to speak, that guides its collective actions. Chairman and CEO Alex Gorsky has called the Credo (pronounced Cray-dough) the “red thread” that connects the company’s heritage, workplace culture, and corporate DNA.
That thread remained quite strong in 2019 but showed some signs of fraying. Although J&J increased its shareholder dividend for the 57th consecutive year and boosted pharmaceutical sales 3.5 percent, overall company growth slowed to a crawl, climbing just 0.58 percent—a far cry from the 6.3 percent increase recorded in 2017 and the 6.7 percent expansion registered in FY18. Gross profit ebbed as well, flatlining at $54.5 billion, and net earnings (basic and diluted) barely budged, rising just two cents (to $5.72 and $5.63, respectively).
ANALYST INSIGHTS: Having bought out Google Verily’s share in Verb Surgical, J&J continues on its quest toward having a comprehensive digital surgery platform in all major segments. They will seek to compete with Intuitive in general surgery while creating initiatives in orthopedics to compete with Zimmer Biomet, S&N, and others.
—Dave Sheppard, Co-Founder and Managing Director, MedWorld Advisors
Those dismal statistics are largely a matter of interpretation, though. J&J’s “official” 2019 performance review (filed with the U.S. Securities and Exchange Commission) differs substantially from the version touted publicly by company executives. Their rendition analyzes the numbers from an operational standpoint, thus instantly improving last year’s pecuniary output. For example, the 0.6 percent sales growth J&J recorded with the SEC swells to 2.8 percent operationally, and its 0.7 percent increase in international revenue balloons to 5.3 percent, with currency impacting results by 4.6 percentage points. Excluding the net impact of acquisitions and divestitures, adjusted operational sales growth was 4.5 percent worldwide, 2.3 percent in the United States, and 6.7 percent internationally.
Earnings improved as well in the operational universe: FY19 net earnings totaled $15.1 billion and diluted earnings per share (EPS) was $5.63. But on an operational basis, adjusted diluted EPS grew 8.8 percent.
“I’m proud to highlight that 2019 marked our 36th consecutive year of adjusted operational earnings growth for Johnson & Johnson. We delivered strong revenue and earnings growth in 2019, exceeding the financial performance that we set at the beginning of the year,” J&J Chairman and CEO Alex Gorsky told investors during a fourth-quarter and full-year 2019 earnings call in late January 2020. “Now we accomplished this while also making strategic investments that advance the pipeline of opportunities and innovation across all three of our business segments.”
One of J&J’s most significant strategic investments last year was the February purchase of surgical robotics developer Auris Health Inc. The $3.4 billion deal—historic from both a robotics and private investment perspective—accelerated the company’s entry into the digital surgery ecosystem.
J&J plans to leverage Auris Health’s FDA-cleared Monarch Platform to expand its digital portfolio across various surgical specialties. Currently used in lung diagnostic and therapeutic procedures, the system features a controller interface for navigating an integrated flexible robotic endoscope into peripheral lung nodules, and combines traditional endoscopic views with computer-assisted navigation based on 3D patient models.
“Consistent with our historical pioneering spirit...we are focused on the next frontier of surgery,” Gorsky noted in J&J’s 2019 annual report. “The acquisition of Auris Health Inc., a developer of robotic technologies...accelerated our entry into robotics as part of a digital surgery ecosystem designed to make medical intervention smarter, less invasive, and more personalized to elevate the standard of care. This is a critical component of a digital surgery ecosystem that we are creating.”
Another critical building block of that digital surgery ecosystem is Verb Surgical Inc., a sibling company of Google’s Verily Life Sciences. The entity is now under J&J’s full command following a buyout initiated in December 2019 (terms were undisclosed). The duo joined forces five years ago to incorporate robotics, visualization, advanced instrumentation, connectivity, and machine learning analytics into a digital surgical platform (Surgery 4.0). Verb Surgical subsequently unveiled a robot prototype in late 2016.
In their final months as separate entities, Verb and J&J were preparing for validation studies and had discussed their digital platform with American and European regulatory authorities. The platform itself also was involved in “end-to-end procedures” in multiple general surgery indications, according to J&J executives.
“With Verb Surgical, we set out with an ambitious mission to successfully harmonize the talent and expertise of two pioneers to design a platform with the potential to transform surgery,” Verily CEO Andrew Conrad said in a Dec. 20, 2019, statement announcing the buyout. “This evolution in the collaboration recognizes the significant achievement toward that mission and I’m excited for the future of this technology in Johnson & Johnson’s hands.”
And in those hands, a promising future is likely to emerge —a world in which customized tools, personalization, predictive analysis, minimally invasive robotics, and artificial intelligence (AI) converge to redefine solutions in cancer diagnostics, soft tissue repair, and orthopedics, among other specialties. J&J’s DePuy Synthes unit has gradually been bolstering its prowess in the latter genre in recent years, first acquiring Orthotaxy, Medical Enterprises Distribution LLC, and JointPoint Inc. in 2018, then teaming with Chinese firm TINAVI Medical Technologies last fall to locally co-market and distribute that company’s robotic arm for spine and trauma procedures, and finally tapping Zebra Medical Vision in December 2019 to develop and commercialize three-dimensional imaging technology for orthopedic surgery. The new technology is intended to be an addition to DePuy’s Velys Digital Surgery platform.
The Velys offerings will focus first on joint reconstruction procedures by incorporating existing products like the Kincise automated surgical mallet system and JointPoint’s hip navigation and planning software. DePuy plans to add new technologies to the Velys platform over time, including sensors, apps, robotics, and patient selection tools to address each point along a continuum of orthopedic care, from pre-op planning to post-op rehabilitation and monitoring.
Zebra Medical will work with DePuy’s Ireland-based subsidiary to co-develop and commercialize programs that create 3D models from cheaper 2D X-ray images, thereby enabling surgical planning without needing an MRI or CT scan.
TINAVI’s TiRobot arm incorporates 3D imaging as well, but it also uses optical navigation to pinpoint the precise anatomical location of a surgical procedure. Designed for maximum clinical reach, the arm also can drill holes and insert screws; can function in motorized or manual mode, is surgeon-driven, and has a small footprint. A third-generation form of the machine was approved in China four years ago, around the time of a phase III trial in spinal fusion procedures. J&J claims the TiRobot is the only arm-based robotic technology with multiple indications approved for use in China for spine and trauma fixes.
“I couldn’t be more bullish around how J&J is going to create value in the [digital surgery] space, and really kind of the goal that we’re trying to achieve is really to make medical interventions smarter, less invasive, more personalized, quite frankly to change the standard of care, not just for the next 10 years, but the [next] 20 and 30 years,” Ashley McEvoy, executive vice president and worldwide chairman, Johnson & Johnson Medical Devices, noted during a Q3 conference call last October. “I think we’re seeing the investments we made...having an effect...and clearly in innovation, both in digital surgery, through the Auris acquisition, and what we’re continuing to do with Verb and Orthotaxy, and some robotic programs in spine. We’ve invested about $12 billion in M&A since 2017 in Medical Devices to make sure that we’re playing in the most attractive spaces.”
Those spaces and investments have yet to pay off, though. Profits have historically been fickle in J&J’s Medical Devices business as the company struggles to define its role in a fast-changing healthcare market. Growth has been nominal in the last two fiscal years, with revenue rising 1.5 percent in 2018 (vs. 2017) then slipping 3.8 percent in FY19 to $25.96 billion.
The gains have been equally as negligible within Orthopaedics (DePuy Synthes), a franchise handicapped of late by saturated large-joint replacement markets, generic implant startups, shrinking reimbursement rates, and value-based care. Total sales have fallen 2.4 percent over the last three years, from $9.06 billion in fiscal 2017 to $8.84 billion in FY19.
Revenue remained flat against 2018 (declining $50 million), but the stalemate failed to cloud the sunny portrait Gorsky painted of DePuy Synthes’ fiscal performance last year. Analyzing results through non-GAAP-colored lenses, he touted the franchise’s 180 basis point rise and 1.2 percent operational growth, and claimed each major platform “accelerated” versus the previous year.
Creatively perhaps, but not financially.
Only two platforms “accelerated” fiscally in 2019—Hips and Trauma, though most product divisions advanced innovation during the year. Trauma, for example, added to its portfolio with the January 2019 launch of the Femoral Neck System, a solution for repairing femoral neck fractures. Combining stable fixation in a compact design with a minimally invasive approach, the System uses a smaller incision and offers a minimal bone footprint; it also features an articulated blade and screw to limit rotational movement on the femoral head, and is protective of an anatomic provisional reduction.
DePuy Synthes’ Trauma lineup also received a boost from economic viability data for the Universal Small Fragment System, a streamlined network of instruments and implants for small bone trauma. The system consists of a core set of instruments, screws, and standard implants as well as modular anatomic implant trays for small fragment anatomy. In addition, the core instrument set can support all 2.7 mm/3.5mm DePuy Synthes non-locking, LCP and VA LCP plating technologies.
DePuy markets the Universal Small Fragment System as an economic asset for hospitals; data released last fall indicate the system can save the average level 1 trauma center in the United States $72,685 annually via reduced numbers of instrument trays. Such streamlining translates into ecological savings too, as the system reduces water and energy consumption by 56 percent annually.
Although useful as a marketing tool, the data have had no effect on sales. Total Trauma revenue rose just 0.8 percent last year to $2.72 billion, with sales faring better at home than abroad (U.S. proceeds expanded 3.3 percent; international revenue fell 2.9 percent).
Hips sales rose 1.4 percent to $1.43 billion on strong demand for the ACTIS stem, the KINCISE surgical automated system, and the anterior approach to THR.
Hips’ increase, however, was offset by a foreign exchange fueled 1.4 percent dropoff in Knees revenue ($1.48 billion total). The currency conundrum single-handedly overpowered strong global sales of the ATTUNE Revision knee and a fourth-quarter surge in cementless knee proceeds that was driven in part by a new addition to the ATTUNE portfolio.
DePuy Synthes enhanced its ATTUNE lineup last fall with the September launch of the ATTUNE Cementless Knee, an implant featuring several patented technologies for improving knee function, including the ATTUNE GRADIUS Curve to provide stability through range of motion, and GLIDERIGHT Articulation to more accurately replicate the normal patella-femur relationship.
“With the ATTUNE Cementless Knee, we have carried forward technologies and learnings from clinically proven devices like the LCS Knee and combined that with ATTUNE Knee patented technologies to provide customers a solution to meeting emerging patient needs,” Rajit Kamal, vice president and global franchise leader, Knees, DePuy Synthes, said when the ATTUNE cementless option debuted. “Our strong hope and belief is that this implant system will help younger, more active patients get back to doing what they love if their surgeon feels they are the right candidate.”
Regaining activity also is the main goal of the CONDUIT Interbody Platform and SYMPHONY Occipito-Cervico-Thoracic (OCT) System, two new innovations that joined DePuy Synthes’ spinal portfolio last fall. The 3D printed CONDUIT implants, launched in September, are made using Emerging Implant Technology (EIT).
Cellular Titanium, a material with an elasticity modulus comparable to the cancellous tissue found in human bones. Manufactured in various shapes and sizes, the CONDUIT implants feature a latticed center that makes the structures more porous than natural bone (80 percent vs. 50-90 percent natural porosity). The CONDUIT’s porous composition thus promotes natural bone grafting during healing.
The SYMPHONY OCT System, released in November, is designed to help align and stabilize the thoracic, cervical, and occipital bones during posterior cervical fusion procedures for complex spine disorders. The system is intended to address the potential causes of screw failures in patients with suboptimal bone quality, using new hardware and threading.
SYMPHONY OCT also can cross the cervical-to-thoracic junction at the neck’s base while reducing the number of necessary instrument trays for a procedure by more than half (six to two). The implant combines aspects of DePuy Synthes’ low-profile SYNAPSE and MOUNTAINEER OCT systems for the head and neck, and is compatible with components from those systems.
Despite its benefits to both patients and surgeons, neither the SYMPHONY nor CONDUIT systems could help the Spine & Other franchise turn a profit last year. The division posted the largest loss in Orthopaedics, as revenue tumbled 2 percent to $3.2 billion.
COVID-19 Consequences
Q2 2020 Revenue: $1.45 Billion
Q2 2019 Revenue: $2.22 Billion
Percentage Change: -34.7%
Like countless other orthopedic firms worldwide, DePuy Synthes succumbed to the economic turmoil wrought by SARS-CoV-2, posting high double-digit losses in each of its four product franchises. Trauma sales fell 17.8 percent to $553 million, while Hips proceeds nosedived 37.8 percent, garnering $226 million for the period ending June 28. Spine & Other revenue plunged 39 percent to $499 million, and Knees took the biggest hit, plummeting a staggering 53.1 percent to $174 million.
Overall Medical Devices proceeds sank 34 percent to $4.28 billion, driven mainly by widespread elective procedure deferrals within the Surgery, Orthopaedics, Vision, and Interventional Solutions franchises. Despite the disastrous results, however, Johnson & Johnson management is optimistic the company can escape the coronavirus carnage with minimal damage, estimating an annual loss of 0.8 percent to 2.6 percent (on total revenues of $79.9 billion-$81.4 billion).
Chairman/CEO Alex Gorsky is confident J&J (DePuy Synthes’ parent company) can weather the COVID-19 storm: [J&J] was built for times like this. We have a century-plus history of leading in times of great challenge. We’ve done it before and we can do it again. We are leveraging our scientific expertise, operational scale, and financial strength in the effort to advance the work on our lead COVID-19 vaccine candidate.”
J&J is spending $500 million to develop and manufacture a SARS-CoV-2 vaccine built around an engineered version of adenovirus 26 (Ad26), a disabled, non-replicable version of the common cold virus. The company expects to begin human testing in September in hopes of having the vaccine ready for emergency use early next year.
J&J also has pledged to scale up its global vaccine manufacturing capacity so more than 1 billion doses of a vaccine can be made “at risk”—i.e., before its ultimate design is finalized and approved by the FDA. Production is expected to occur in both The Netherlands and the United States.