UPDATE 5-J&J to quit struggling heart stent business

Wed Jun 15, 2011 3:11pm EDT

* Company will stop making Cypher, stop developing Nevo

* Taking $500-$600 mln charge due to Cordis restructuring

* Boston Scientific shares rise 4.6 pct

* J&J shares slip 1.5 percent (Adds Goldman Sachs comment, details on Cypher hardships)

By Ransdell Pierson and Lewis Krauskopf

NEW YORK, June 15 (Reuters) - Johnson & Johnson (JNJ.N) will stop selling drug-coated heart stents, a former profit driver for the healthcare company that has stumbled due to safety concerns and fierce competition.

J&J said on Wednesday that it would end development of its Nevo heart stent and stop making its Cypher stent, widening the field for competitors like Abbott Laboratories Inc (ABT.N), Boston Scientific Corp (BSX.N) and Medtronic Inc (MDT.N)

By year's end, the company's Cordis unit will stop selling drug-coated stents, the tiny mesh tubes that prop open heart arteries. It will continue selling its far less lucrative bare metal stents.

J&J expects to take a second-quarter charge of $500 million to $600 million related to restructuring Cordis. It will close manufacturing facilities in San German, Puerto Rico, and Cashel, Ireland, and expects to cut up to 1,000 jobs.

"The stents were kind of an albatross," said Gabelli & Co analyst Jeff Jonas, adding that the remaining cardiovascular business was "attractive."

Cypher, introduced with great fanfare in 2003, was the first stent that released a drug designed to prevent re-clogging of arteries after being implanted in patients, which was a common issue with earlier bare-metal stents.

But there is controversy over whether Cypher and other drug-coated stents cause dangerous blood clots months or years after being implanted in heart arteries.

Cypher once had annual sales of $2.6 billion, but the stent was on track for about $400 million this year, according to Jonas. Its sales generate about 1 percent of company profit, he said.

J&J has also had difficulty developing new stents, including Nevo.

Abbott and Boston Scientific have developed new stents, including some that are easier to implant.

"J&J is selling a 2003 product against peers with product launches as recent as this year," Goldman Sachs analyst David Roman wrote in a research note.

Gabelli's Jonas said Cordis now has potential for double-digit annual sales growth, based on devices to treat atrial fibrillation and stents placed in the neck, legs and other parts of the body to prevent strokes and address other problems.

He estimates that Boston Scientific, which has about $1.5 billion in annual stent sales, stands to gain about half of J&J's stent business, representing an extra $200 million in annual sales. Abbott's Xience will likely attract the rest of J&J's lost sales.

J&J shares fell 1.5 percent to $66.08 in afternoon trading. Abbott shares were little changed at $51.40, and Boston Scientific shares were up 3.6 percent at $6.98.

Shares of SurModics Inc (SRDX.O), which makes the drug-delivering polymer used in Cypher, were down 17.4 percent at $10.99. The company gets royalties from sales of the stent.

SAFETY QUESTIONS

Johnson & Johnson has had quality-control lapses at its factories in the past two years, forcing repeated recalls of Tylenol and other consumer products, artificial hips, insulin cartridges and contact lenses.

U.S. regulators in February warned J&J that it had failed to ensure that Cypher and other heart devices made at the San German plant met specifications and were otherwise manufactured with consistency.

"The warning letter had no impact on our decision" to stop selling Cypher, said Sandra Pound, a spokeswoman for the New Brunswick, New Jersey-based company.

J&J acquired Nevo through its $1.4 billion purchase of cardiac stent maker Conor Medsystems in 2007. The stent was designed to minimize the risk of clots by releasing its drug directly into heart arteries rather than into the bloodstream. It has been plagued by development delays and redesigns of its delivery system.

Global Cypher sales plunged 41 percent in the first quarter, excluding the impact of foreign exchange. Market share for the product, once the top global brand, slipped to 12 percent, down 6 percentage points from the year-earlier period. The company's total medical device and diagnostics sales rose slightly, mainly because of the weaker dollar.

J&J's consumer product sales have suffered due to the Tylenol recall and others, falling 2.2 percent to $3.68 billion in the first quarter. At the same time, its prescription drugs business has enjoyed a revival, with sales rising 7.5 percent to $6.1 billion in the first quarter.

Wall Street is counting on recently approved J&J drugs and promising ones in development to bolster the company's results, after two successive years of declining global company sales. (Editing by Michele Gershberg and Gerald E. McCormick)