J&J to quit struggling heart stent business

NEW YORK Wed Jun 15, 2011 1:55pm EDT

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

J&J said on Wednesday that it would end development of its Nevo heart stent and cease manufacturing its Cypher stent, widening the field for rivals like Abbott Laboratories Inc and Boston Scientific Corp.

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

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

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

Cypher, which was introduced with great fanfare in 2003, once had annual sales of $2.6 billion, but the stent was on track for only about $400 million this year, according to Jonas. Its sales generate about 1 percent of company profit, he said. J&J has also had trouble developing new stents, including Nevo.

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, the legs and other parts of the body to prevent conditions such as stroke.

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 1.4 percent to $66.14 in afternoon trading. Abbott shares were little changed, while Boston Scientific gained 3.9 percent.

SAFETY QUESTIONS

Johnson & Johnson has been beset with 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.

Cypher was the first stent that released a drug designed to prevent re-clogging of arteries after being implanted in patients -- 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.

Shares of SurModics Inc, which makes the drug-delivering polymer used in Cypher, were down 15 percent. The company receives royalties from sales of the stent.

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. But it has been plagued by development delays and redesigns of its delivery system.

In addition, 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.

Global Cypher sales plunged 41 percent in the first quarter, excluding the impact of foreign exchange. Market share for the product, which was 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 its results, after two successive years of declining global company sales.

(Editing by Michele Gershberg and Gerald E. McCormick)

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