Alex Gorsky, CEO & Chairman, Johnson & Johnson
Dominic J. Caruso, VP, Finance & CFO, Johnson & Johnson
Karen A. Licitra, Chairman, Global Medical Solutions Group, Johnson & Johnson
Kathryn Wengel, VP, Supply Chain, Johnson & Johnson
Michel Orsinger, Worldwide Chairman, DePuy Synthes Companies
Gary Fischetti, Group Chairman, Orthopaedic Group, DePuy Synthes
Andrew Ekdahl, Worldwide President, DePuy Synthes Joint Reconstruction
Max Reinhardt, Worldwide President, DePuy Synthes Spine
Marc Peterman, Worldwide VP, Product Development, DePuy Synthes Spine
Ian Lawson, Worldwide President, Mitek Sports MedicineI. V. Hall, President, DePuy Synthes Trauma
Ian Burgess, Worldwide VP, R&D, DePuy Synthes Trauma
NO. OF EMPLOYEES: 23,000
HEADQUARTERS: Warsaw, Ind., Raynham, Mass. & West Chester, Pa.
If everyone is moving forward together, then success takes care of itself.
Automotive pioneer, industrialist and mass production innovator Henry Ford knew a few things about steering a sizeable organization. With a company as large and diverse as Johnson & Johnson (JNJ), getting all of its varied moving parts, products and people to move forward together certainly is no easy task.
Along the same lines, Ford also said: “Before everything else, getting ready is the secret of success.”
Alex Gorsky, chairman and CEO of JNJ must have listened to the advice. Within the first few weeks of fiscal 2013 he hit the ground running, preparing for the year ahead by outlining the course ahead for his company’s Medical Device & Diagnostics business unit—JNJ’s largest revenue generator, edging out pharmaceuticals by a couple of hundred million in FY13 (though pharma’s growth percentages were a little stronger). Gorsky discussed market-leading products, plans for global expansion, and meaningful innovations in MD&D that position the company well for long-term growth.
The feather in the company’s cap, you ask? Orthopedics, of course—in particular, the strong results from the company’s relatively recent acquisition and integration of Synthes’ product line.
“Our Medical Device & Diagnostics business is the largest medical technology business in the world with sales of $27.4 billion (in fiscal 2012), which grew 8.7 percent operationally with the inclusion of Synthes,” Gorsky said at the start of the year. “We’re building on our market leadership positions, having sustained or grown share in the majority of our key platforms, and hold number one or number two positions in over 80 percent of them today. We’re also expanding in emerging markets, and with Synthes, generated strong double-digit growth there last year.”
According to Gorsky, in 2011 and 2012, JNJ invested nearly $3.5 billion in research and development for its medical device segment, advancing its pipelines and developing new technologies and solutions across its businesses. His plan for 2013 was the same.
“As we look to the future we’re advancing innovative new products in our pipeline, continuing to take a disciplined approach to managing our portfolio and adapting our business to the changing marketplace,” Gorsky added.
Company leadership outlined a plan for “creating value through innovation.”
“The Global Medical Solutions portfolio plays in separate and distinct markets but what we have in common is the opportunity to bring more value to the healthcare system by leveraging our leading product positions and connecting them inside and outside of Johnson & Johnson to offer solutions that focus on the most critical clinical and economic needs of our customers,” said Karen Licitra, worldwide chairman, Global Medical Solutions Group.
Gorsky also outlined the importance of emerging markets. For the DePuy Synthes companies, for example, accelerating growth in Asia-Pacific and emerging markets will be fueled by customizing its product portfolio, developing simpler and affordable systems, sourcing manufacturing and R&D locally and enhanced training and professional education for practitioners, officials noted.
What would a review of FY13 be without a look at new product introductions? As usual, DePuy Synthes had quite a few. Here are some of the more notable additions to the company’s deep stable of technologies.
- Without a doubt, one of the most noteworthy products to come from JNJ’s orthopedics business in FY13 was the Attune total knee replacement system. Tim Czartoski, director of marketing at DePuy Orthopaedics, told ODT following the launch, that the effort to create Attune “mobilized the best talent in the organization and partnered with outstanding outside research organizations” to solve problems highlighted by research teams, patients and doctors. As part of the Attune research and development, DePuy Synthes Joint Reconstruction also developed the Intuition line of instruments.
The project took more than six years and carried a price tag of approximately $200 million. The goal, according to McEwen and others, was to address unmet patient and surgeon needs. The new knee is designed to provide better range of motion and address the “unstable” or “wobbly” feeling some patients report during everyday activities, such as bending, going down stairs, or even something as routine as getting out of a car, officials said.
To achieve an improved feeling of stability for patients, the team at DePuy had to throw out convention and come up with a new implant that might at first glance appear to be the same as other knee replacement technology, but upon closer inspection differs from previous generations of devices in shape, form and function. Through research collaboration with the University of Denver in Colorado and University College Dublin (Ireland), researchers evaluated current knee designs to assess how implant geometry aids in maintaining stability through patients’ daily activities. An implant with a new shape employing what the company calls the “Gradius Curve” was the result.
The research—with a team of surgeons and industry experts from around the world working on the project—led to more than 19 patents for Attune as well as its related instrument technology. For example, the research and design teams spent more than 10,000 hours working with surgeons in different settings to get feedback and record data, McEwen said. That included ethnological research with doctors—filming them, studying movements and behaviors, and even looking for operating room (O.R.) efficiencies. Other research activities included X-rays of patient movement, extensive tests with cadaver knees and computer simulations.
A number of patented technologies resulted from the research into the Attune knee. Attune’s Gradius Curve is described as a “gradually reducing radius” that is designed for improved conformity throughout the range of motion, providing better anterior/posterior stability. The Sofcam Contact is an S-curve designed to provide smooth engagement for stability through flexion, while reducing stresses placed on the implant. The Logiclock tibial base is a locking design intended to improve kinematics while reducing wear to what the company claims is “the lowest reported levels in the industry.” The Logiclock feature also gives surgeons the options to choose the best size and fit for each patient from a range of sizes, according to DePuy Synthes. The system’s Glideright Articulation is designed to accommodate patient variation and soft tissue interaction, while optimizing patella tracking.
As part of its many hours of Attune research and development, DePuy Synthes also developed a line of instruments branded Intuition. Like the knee itself, the design of the instruments also went back to the drawing board to make them—as the name suggests—more intuitive. The tools include lighter weight composite materials, color-coded technology, and easier-to-see gauges and measurements. Single-layer instrument cases are lightweight with fewer instruments, reducing weight by 51 percent as compared to previously available instruments. The instruments also minimize the number of cases in the operating room while maintaining durability.
- During FY13 Johnson & Johnson’s DePuy Synthes Trauma division launched a new Radial Head Prosthesis System for primary and revision joint replacement of the radial head to restore joint function of the elbow. “This system is a comprehensive solution for the radial head replacement that permits the surgeon to choose whether a long or short stem is best for the proximal radius,” said Harry Hoyen, M.D., Department of Orthopedic Surgery, MetroHealth Medical Center, Cleveland, Ohio. “With the system, a novel surface etching permits on-growth and stability, the head element can be placed onto either stem and is designed to take into account the PRUJ (proximal radioulnar joint) and radiocapitellar articulation for each respective size. There also is a side-loading option for intraoperative assembly.” The modularity of the system—24 heads and 10 stems allowing for 240 possible implant combinations—enables surgeons to restore the appropriate height, which may aid in elbow stability, according to the company. The side-loading capability facilitates in-situ insertion and assembly, which may allow for a smaller incision than a top-loading device, while the stem texture ensures a uniform press fit in the radial canal. The system also provides an integrated connection screw to facilitate assembly, along with simple instrumentation. West Chester, Pa.-based DePuy Synthes Trauma makes fixation products, including screws, plates, nails and other implants, that are used to treat fractures, deformities, and tumors related to the shoulder, hand, arms, legs, hip, pelvis, condyles and feet.
- DePuy Synthes expanded its collaboration with Brainlab through the worldwide launch of navigation-ready instrumentation for its spine systems, and an exclusive global agreement to co-market the Airo Mobile Intraoperative CT by Brainlab. Following 510(k) clearance from the U.S. Food and Drug Administration (FDA), Brainlab is moving forward with the sale of the Airo Mobile Intraoperative CT. The FDA clearance was received on Sept. 26, 2013, by Mobius Imaging LLC, the developer and manufacturer of Airo Mobile Intraoperative CT. Brainlab develops software-driven medical technology designed for less-invasive treatment. Core products are image-guided systems and software that provide real-time information used for surgical navigation and radiosurgical planning and delivery. Founded in 2008, Ayer, Mass.-based Mobius Imaging develops and manufactures advanced imaging technologies. The Airo Mobile Intraoperative CT System is the company’s first commercial product and is distributed under an exclusive sales and service agreement with Brainlab. Along with the Airo Mobile Intraoperative CT, the company released navigation-ready instrumentation for its Viper 2 and Expendium Spine Systems. The instrumentation was designed to be pre-calibrated for use with Brainlab Navigation Systems. “The broader collaboration between DePuy Synthes Spine and Brainlab will enable us to provide a seamlessly integrated solution of implants, instrumentation and navigation systems that have the potential to improve patient outcomes, inform decision-making during surgery, increase efficiency of spinal procedures and reduce O.R. time,” said Max Reinhardt, worldwide president, DePuy Synthes Spine. DePuy Synthes Spine and Germany-based Brainlab plan continued collaboration.
- DePuy Synthes Spine also introduced the Synflate vertebral balloon as part of its portfolio of procedural solutions for the treatment of painful vertebral compression fractures, internal breaks in spinal bones that commonly occur in people with osteoporosis. According to the American Academy of Orthopaedic Surgeons, more than 700,000 people suffer these types of fractures each year. The Synflate balloon is semi-elastic with material stiffness that, according to the company, has been optimized to enhance the structural stability of the balloon during inflation, enabling controlled and predictable cavity creation. At maximum inflation volume, the balloon is nearly double the strength of standard elastic balloons currently available on the market, company officials claim. Synflate is available in 10, 15 and 20 millimeters, is offered with mono or bilateral access kits, multiple access trocars, and can be used with bone fillers including DePuy’s Vertecem II and Confidence line of cements. Vertebral body balloon procedures are used to reduce pain and strengthen and restore the shape and height of collapsed vertebra. In the procedure, the balloon is inserted into the vertebra and inflated in an attempt to restore normal bone height. The balloon then is removed and the space or cavity that was created by the inflation of the balloon is filled with special bone cement to strengthen and stabilize the bone.
- DePuy Synthes’ Mitek Sports Medicine division launched the Milagro Advance interference screw, a biocomposite screw designed to offer easier and faster insertion when compared to traditional interference screws. According to Mitek officials, the screw’s unique distal tip has been shown to reduce bone engagement load by more than 80 percent, which enables easier insertion into hard bone. The unique thread design reduces torque transmission to soft tissue. The screw’s larger thread pitch, the distance between grooves, enables insertion in half the time compared to traditional interference screws. “I’ve used Milagro BR screws in my practice for years. The screws provide excellent fixation and promote bony ingrowth over time. We have seen no complications in use of the screw,” said Bert Mandelbaum, M.D., of the Santa Monica (Calif.) Orthopaedic and Sports Medicine Group. “This latest generation Milagro Advance screw addresses the need for a biocomposite screw with better screw engagement and faster insertion.” The Milagro interference screw was introduced in 2004, when it became the first implant made of Biocryl Rapide, a biocomposite material exclusive to Mitek Sports Medicine. Milagro Advance also uses Biocryl Rapide, which, according to Arthroscopy Journal, has been shown to absorb and to allow for ossification of the implant site in as little as three years after anterior cruciate ligament repair.
- DePuy Synthes Joint Reconstruction introduced the Global Unite Platform shoulder arthroplasty system. Global Unite is a modular system that allows 72 different sizing configurations to better address the need of the patient. A unique suture collar allows secure anatomic reconstruction of the tuberosities and helps return the shoulder to a natural anatomical position. The system also offers the option to convert from a fracture system to a reverse total shoulder without compromising recognized biomechanical principles while maintaining a well-fixed humeral stem. “Shoulder pathology is exceptionally varied, and with the Global Unite system surgeons have a comprehensive and fully interchangeable system that affords flexibility and versatility designed to address patients’ needs,” said Joseph Iannotti, M.D., Ph.D., chairman, Orthopaedic and Rheumatologic Institute, Cleveland Clinic, Cleveland, Ohio. “My personal experience with the Global Unite system has been very positive. Having a system where the implant is easily convertible gives you confidence that you can restore your patient’s shoulder to a natural anatomical position.”
- DePuy Synthes’ CMF (cranio-maxillofacial) division, which makes skeletal and soft-tissue repair and reconstruction technology, launched new instrumentation for what company officials say is less-invasive surgical fixation and stabilization of rib fractures with the firm’s MatrixRIB system of pre-contoured, low-profile titanium plates, locking screws and intramedullary splints. MatrixRIB Minimally Invasive Plate Osteosynthesis (MIPO) instrumentation was designed to provide surgeons with improved access, through small incisions, to rib fractures including difficult to reach sub-scapula rib fractures. The new instruments include a trocar, threaded reduction tool with self-drilling tip, and 90-degree screwdriver with drilling capability.
The potential benefits of surgical stabilization (osteosynthesis) of severe rib fractures compared to non-surgical treatments include reduced duration of mechanical ventilation support, shortened intensive-care unit stays and hospitalization, better secretion management through efficient cough, and minimized chest wall deformities resulting from trauma, the company reports.
It is estimated that more than 350,000 people are affected by rib fractures each year in the United States. These fractures are associated with respiratory complications, prolonged hospitalization, prolonged pain, long-term disability and mortality.
More than 5,000 patients worldwide have received MatrixRIB implants since the system was launched in 2009. The MatrixRIB system is indicated for the fixation and stabilization of rib fractures, fusions and osteotomies of normal and osteoporotic bone. According to the company, MatrixRIB is the only rib fixation system that is approved by the AO Foundation, a medically guided nonprofit organization led by an international group of surgeons specialized in the treatment of trauma and disorders of the musculoskeletal system.
Making Good Progress
By the close FY13 (ended Dec. 29), JNJ’s device and diagnostics businesses reached revenue of $28.5 billion, representing an increase of 3.9 percent compared to 2012, with operational growth of 6.1 percent and a negative currency impact of 2.2 percent. U.S. sales were $12.8 billion, an increase of 3.5 percent. International sales were $15.7 billion, an increase of 4.2 percent, with operational growth of 8.3 percent and a negative currency impact of 4.1 percent.
Primary contributors to operational growth were sales from the acquisition of Synthes and DePuy Synthes joint reconstruction products in the orthopedics business, Biosense Webster’s electrophysiology products in the Cardiovascular Care division, JNJ’s Vision Care business, as well as biosurgicals and international sales of energy products in the Specialty Surgery business, officials said.
“Integrating Synthes has been our priority, and we’ve made good progress,” JNJ officials noted. Based on FY13’s performance, they’re not exaggerating.
Products from JNJ’s orthopedics businesses generated sales of $9.5 billion in 2013, a 21.9 percent increase over the prior year—catapulting the company to the top of the orthopedic heap (and this year’s Orthopedic Design & Technology list of leading ortho firms). Growth was primarily due to a full year of sales recorded from the acquisition of Synthes and sales of joint reconstruction products. Sales were impacted by the divestiture of certain rights and assets related to the DePuy trauma business. The positive impact on the orthopedics franchise total sales growth and operational growth due to the newly acquired products from Synthes net of the related trauma business divestiture was 21.2 and 34.7 percent in 2013 and 2012, respectively. Without Synthes, JNJ’s orthopedic-related business grew just shy of 1 percent.
Pre-tax profit for JNJ’s medical devices business as a percent to sales was 18.5 percent ($5.3 billion) compared to 26.2 percent in 2012. Pre-tax profit took a hit from higher costs of $1.4 billion for litigation expense and $100 million related to the DePuy ASR hip program as well as the medical device excise tax. In addition, 2012 included higher gains of $400 million on divestitures partially offset by higher write-downs of intangible assets and in-process research and development of $100 million and higher costs of $100 million related to the Synthes acquisition.
The FY13 impact of the 2.3 medical device excise tax that was enacted at the beginning of 2013 as part of the Affordable Care Act was approximately $200 million.
For JNJ overall, sales were $71.3 billion, up 6.1 percent. Net earnings and diluted earnings per share for the full-year 2013 were $13.8 billion and $4.81, respectively.
In July of this year, DePuy Synthes announced that it would eliminate approximately 400 jobs, or less than 2 percent of the global DePuy workforce of 23,000 employees. Michael Orsinger, worldwide chairman of JNJ’s orthopedics group, said the reorganization is being made as “the external healthcare environment undergoes seismic shifts.”
R & Deep Pockets
In the medical device sector, a lot of new products are the result of acquisition. But for a company like Johnson & Johnson, deep pockets for extensive R&D funding are the primary driver for new technology introductions year after year. For FY13, R&D spending for JNJ’s device businesses rose to $1.78 billion from $1.68 billion in 2012. There was no precise breakdown by medtech sector.
Also driving research and development activities is a network of regional innovation hotspots to advance healthcare by starting collaborations in science and technology between regional innovators and the JNJ family of companies across a diverse spectrum of startup opportunities. The first of four innovation centers opened its doors in London, the United Kingdom, in March 2013. The second was a center in Menlo Park, Calif., that opened in early June. Later in June, the third center opened in Boston, Mass. A fourth is planned to open in Shanghai, China, by the end of 2014 (Shanghai also is home to a JNJ R&D center that opened in 2009). Each city was selected for its robust life-sciences community, which according to JNJ, provides a rich environment for identifying investment, in-licensing and collaboration opportunities. The center in Boston, for example, is home to a team of business, science and transaction experts who are focused on identifying and building novel collaborations with emerging companies, entrepreneurs and academic centers across eastern North America.
In addition, DePuy Synthes announced plans at the end of 2013 to spend more than $36 million to build a research-and-development operation in Ireland. The operation should create 38 research level positions at the company's plant in Ringaskiddy, and will focus on development work across the division, according to the economic development agency IDA Ireland.
In November 2013, JNJ announced it would pay $2.5 billion to settle the thousands of lawsuits brought by hip replacement patients who have accused the company of selling faulty implants that led to injuries and additional surgeries.
The agreement presented in U.S. District Court in Toledo, Ohio, is one of the largest for the medical device industry. The pact resolves an estimated 8,000 cases of patients who had to have the company’s metal ball-and-socket hip implant removed or replaced.
“We are committed to the well-being of ASR patients, as demonstrated by the voluntary recall and the program providing support for recall-related care,” said Andrew Ekdahl, worldwide president, DePuy Synthes joint reconstruction. “The U.S. settlement program provides compensation for eligible patients without the delay and uncertainty of protracted litigation. DePuy remains committed to our purpose of advancing innovative treatment options to serve those who need joint replacement surgery.”
Prior to confirmation of the settlement, rumors were swirling about the amount the company would have to pay.
Early reports said the company was willing to pay more than $4 billion to settle thousands of lawsuits over its faulty ASR hip implants, according to Bloomberg news, which cited three sources familiar with the deal.
The settlement resolved more than 7,500 lawsuits filed against JNJ’s DePuy Orthopaedics unit in state and federal courts by patients who have had the defective replacement joints removed.
The company spent months preparing for the first federal trial involving its recalled ASR implants but the case was postponed three times due to difficulties scheduling expert witnesses and depositions. The judge assigned to the case consolidated the 7,860 lawsuits pending against DePuy into one bellwether trial to advance the litigation in a timely manner.
Thousands of ASR lawsuits still are pending in state courts. Some already have been settled. A California jury awarded $8.3 million to a retired Montana prison guard (DePuy, naturally, is appealing the verdict) and an Illinois jury sided with the company in April, rejecting claims that DePuy’s ASR XL hip implant was defectively designed and causes debilitating injuries.
Joint replacement registries in both Australia and the United Kingdom have recorded higher than expected complications with DePuy’s ASR hip resurfacing system and ASR XL acetabular system total hip replacement, including a loosening of the implant within the body, bone fractures near the implant, dislocation and a condition called metallosis, which occurs from the rubbing of metal parts.
The growing number of patients needing a second hip replacement prompted Johnson & Johnson to recall 93,000 of its ASR XL acetabular system, a hip socket used in traditional replacement surgery, and the ASR resurfacing system, a partial hip replacement that involves placing a metal cap on the ball of the femur in order to preserve more bone. The company announced the recall on Aug. 26, 2010, admitting that 12 percent of the implants failed within five years. Internal JNJ documents show 37 percent of ASR hips failed after 4.6 years; in Australia, the failure rate climbed to 44 percent within seven years.
Besides compensating affected patients, JNJ also will reimburse Medicare and other insurers for claims paid on behalf of hip implant patients, a condition that could add hundreds of millions of dollars to the reported settlement value.
DePuy Synthes did come out on top of a smaller legal scuffle, however. The company won $16 million in its patent infringement lawsuit against Audubon, Pa.-based Globus Medical Inc., part of an ongoing battle between the companies regarding spinal implants. The royalty represented a 15 percent cut of Globus’ calculated sales related to three intervertebral implant patents, which the jury decided the implant manufacturer violated with three of its products, according to the verdict. The Wilmington, Del.-based jury delivered the verdict following a two-week trial over a 2011 lawsuit. The three products at issue in the case—Independence anterior lumbar interbody fusion system, Coalition anterior cervical discectomy and fusion system and InterContinental plate-spacer products—no longer were part of Globus’ product lineup at the time of the lawsuit, so Globus would not have to pay royalties to DePuy Synthes based on sales.
The two companies are caught up in other litigation. Globus is suing DePuy Synthes over allegations the company’s Zero-P VA intervertebral fusion implant product willfully infringes on Globus’ spinal device patent. The suit is ongoing. Late in FY13, DePuy Synthes filed a lawsuit against Globus Medical, accusing three former DePuy sales representatives of breaking contract agreements by working for Globus. DePuy Synthes alleged that Texas-based reps were hired by Globus even though the company knew the employees were subject to confidentiality and non-compete clauses with DePuy Synthes. It was not the first time the companies have crossed swords about sales reps, with other cases dating back to 2011.
Mark B. McClellan, M.D., Ph.D., senior fellow in economic studies, and director of the Initiative on Value and Innovation in Health Care, Brookings Institution, joined JNJ’s board of directors last October. He will serve on the Regulatory, Compliance & Government Affairs Committee and the Science, Technology & Sustainability Committee of the Board. McClellan served as FDA commissioner from 2002 to 2004, and as administrator of the Centers for Medicare & Medicaid Services for the U.S. Department of Health and Human Services from 2004 to 2006. From 2001 to 2002, he served as a member of the President’s Council of Economic Advisers and senior director for healthcare policy at the White House. During President Clinton’s administration, McClellan held the position of deputy assistant secretary of the Treasury for economic policy.
“Dr. McClellan has a distinguished record in the public sector as well as a deep understanding and vision for the future of healthcare,” said Gorsky. “Mark shares our aspiration to help people live longer, healthier and happier lives and personally is committed to improving health care across the globe. He will be a valued leader on our Board.”
McClellan previously served as an associate professor of economics and medicine with tenure at Stanford University, where he also directed the Program on Health Outcomes Research.
A 1985 graduate of the University of Texas at Austin, McClellan earned his M.D. degree at the Harvard University—Massachusetts Institute of Technology (MIT) Division of Health Science and Technology, and his master’s of public administration degree at the Kennedy School of Government at Harvard. He earned his Ph.D. in economics at MIT and completed his residency in internal medicine at Brigham and Women’s Hospital in Boston.