Rank: #2 (Last year: #2)
$31.85 Billion ($88.8 Billion)
Prior Fiscal: $30.4 Billion
Percentage Change: +4.8%
R&D Expenditure: $3.7B
Best FY24 Quarter: Q4 $8.18B ($22.5B)
Latest Quarter: Q1 $8B ($21.9B)
No. of Employees: 139,800 (total)
Global Headquarters: New Brunswick, N.J.

“Societies have always been shaped more by the nature of the media by which men communicate than by the content of the communication.” —Marshall McLuhan

Marshall McLuhan knew the world was destined for connectivity.

It was inevitable, he posited, based on the natural order of human interaction. In his landmark 1962 book, “The Gutenberg Galaxy: The Making of Typographic Man,” McLuhan analyzes mass media’s impact on European culture and mortal cognizance, and traces mankind’s centuries-long communications journey from the spoken, then written word to finally electronic (broadcast) dialogue.

He views technologies as a means to re-invention, famously proclaiming in the book, “The medium is the message”—a principle that has become particularly relevant in the modern digital world. “The Gutenberg Galaxy” associates the printing press with the rise of nationalism, dualism, uniformation, dominant rationalism, scientific research automation, culture standardization, and individual alienation. In addition, McLuhan contends the discovery of electromagnetic waves—the core technology of radio and television—have created a “global village” that allows humanity to live “pluralistically in many worlds and cultures simultaneously.”

“We live in a single constricted space resonant with tribal drums,” McLuhan declares in the book. “Instead of tending towards a vast Alexandrian library the world has become a computer, an electronic brain, exactly as in an infantile piece of science fiction. And as our senses have gone outside us, Big Brother goes inside. So, unless aware of this dynamic, we shall at once move into a phase of panic terrors, exactly befitting a small world of tribal drums, total interdependence, and super imposed co-existence.”

“The Gutenberg Galaxy” was an immediate success, winning McLuhan Canada’s highest literary honor in 1962 and popularizing his “global village” concept. And while it helped mainstream the concept of interconnectivity, the book did not, in fact, introduce McLuhan’s idea to the world. That introduction occurred two years prior during a broadcast interview on Canadian television, where the media theorist gave the world a preview of its new media-induced state of interconnection. The interviewer, incidentally, was the one who used the words “global village” in discussing the world’s “new” electronic gadgets. McLuhan never uttered the phrase, preferring instead to expound upon the creation of “tribal man.”

“These new media of ours have made our world into a single unit. The world is now like a continually sounding tribal drum where everybody gets the message all the time,” he noted. “A princess gets married in England and ‘boom, boom, boom’ go the drums. We all hear about it. An earthquake in North Africa, a Hollywood star gets drunk, away go the drums again. Everything we’ve observed [tonight] about the media points in the direction of tribal man and away from individual man. We’re retribalizing. Involuntarily, we’re getting rid of individualism…we’re in the process of making a tribe. We’re more concerned with what the group knows, feeling as it does—acting with it, not apart from it.”

That concern and desire to act “with it” has only intensified over the last six decades as the “new” electronic media McLuhan referenced in his televised interview has since been replaced by a newer, more disruptive electronic media source. Alas, the Internet has turned McLuhan’s global village vision into a burgeoning reality that to some extent, is overcompensating for millennia of individualistic ideology.

The tribal drum beats louder (and faster) than ever now. A princess gets married in England and— boom-boom-boom, it’s streamed in real-time.

An earthquake or tsunami occurs in Indonesia and—boom-boom-boom, the news circles the planet in seconds.

Boom-boom-boom. The drums beat wildly, incessantly, triggering information overload. The world not only is (much) smaller these days, it’s also less reclusive, less mysterious…more intrusive and overt. Every global villager is now both an observer and observee, a contributor to the massive data and digital networking vortex spawning unprecedented levels of global connectivity.

Despite such planetary interdependence, the world’s tribal members increasingly are feeling isolated. And therein lies the paradox: the technology designed to facilitate human connections and communication is creating a disconnected, lonely populace.

“We have access to more information than ever before and the ability to stay connected with friends and family across the globe. Making connections with potential partners, friends, and groups is possible thanks to dating apps and other platforms. Additionally, virtual communities can be powerful outlets, representing a vital hub for support and information sharing,” states an April 2024 blog on Humantold Management’s website. The mental health organization provides administrative and management services to mental healthcare practices, primarily in New York. “…we are more digitally connected than ever before and also more lonely. With every technological advancement designed to bring us closer, why do we find ourselves growing more disconnected?”

There are numerous reasons: convenience, online validation, social comparison, emotional vulnerability, lack of meaningful conversations, cultural shifts, and social media superficiality, among others.

This disconnect is not exclusive to any specific citizen group or industry. In healthcare, it is perhaps most evident in the telehealth sector, where connectivity has helped improve care access—at the expense of in-person interactions. A similar disconnect exists in medtech, as digital tools help people better manage their health (at home) but dilute the patient-provider relationship.

Johnson & Johnson is aiming to bridge the healthcare disconnect by uniting its two core elements. “Healthcare has become disconnected. At Johnson & Johnson, we want to restore it and the answer is in those two simple words—health and care,” states a video posted to the company’s website last fall. “Connecting the best of both to deliver innovations for patients. Smarter solutions that are personal. Advanced treatments for today. Unlocking cures of tomorrow. Let’s connect the best of health and care and show all the amazing things those two simple words can do.”

Some of those amazing things include innovations like Johnson & Johnson’s VARIPULSE pulsed field ablation platform, its CEREGLIDE 71 Intermediate catheter, the CARTO 3 electro-anatomical mapping system, the MatrixSTERNUM fixation system, its TECNIS Odyssey next-generation intraocular lens, the VOLT plating system, the OTTAVA robotic surgical system, and the Impella heart pumps, among others. These products (and more) helped Johnson & Johnson MedTech surpass $30 billion in sales for the second consecutive year.

ANALYST INSIGHTS: “Like Medtronic, it’s time for J&J to prove they can make inroads with their Ottava robotic platform vs. Intuitive Surgical in 2026. Additionally, can their Abiomed acquisition help them gain above-market growth through leadership in cardiology?”

—Dave Sheppard, co-founder and managing director, MedWorld Advisors

The $31.85 billion in sales the company’s MedTech segment generated last year was 4.8% higher than its 2023 total ($30.4 billion). More than half of 2024’s revenue was generated by the Surgery and Orthopaedics franchises, which together pulled in $19 billion, according to Johnson & Johnson’s 2024 annual report. Both franchises ended the year (Dec. 31) with similar sales totals—Orthopaedics grossed $9.16 billion and Surgery brought in $9.84 billion, the latter slipping 1.9% from its 2023 aggregate ($10 billion) due to losses in both its reporting divisions.

The 3.9% decline in Advanced Surgery sales ($4.48 billion from $4.67 billion) was attributed to China volume-based procurement across all platforms and competitive pressures in both Energy and Endocutters, though strong Biosurgery and Endocutter product lineups somewhat limited the damage.

General Surgery proceeds almost matched its 2023 total ($5.366 billion) but fell short by $8 million due to currency exchange rate impacts and the $275 million divestiture of Johnson & Johnson MedTech’s Acclarent division, completed in April 2024.

“In 2024, we continued to make disciplined decisions to exit lower-priority businesses while investing industry-leading amounts in our pipeline,” Johnson & Johnson Chairman/CEO Joaquin Duato told analysts during a Q4/full-year 2024 earnings call earlier this year. “And while we have been through a period of transformation, the fundamentals of our company remain the same. The strategic decisions we made in 2024 positioned Johnson & Johnson for sustained growth through the second half of the decade and beyond…”

For the company’s Surgery franchise, that sustained growth is likely to come partly from two product approvals obtained late last year. In mid-November, the U.S. Food and Drug Administration (FDA) granted Johnson & Johnson MedTech investigational device exemption (IDE) approval to begin a U.S. clinical trial for its OTTAVA robotic surgical system, an eventual competitor to Intuitive Surgical’s da Vinci system.

The OTTAVA platform uses Ethicon’s surgical instruments for improved surgical precision and overall consistency between robotic and traditional laparoscopic procedures. OTTAVA features four, low-profile robotic arms incorporated into the operating table that can be stored underneath; the table and robotic arms move together for intraoperative repositioning. The system’s architecture supports clinically relevant features like “twin motion,” in which the table and robotic arms move together for intraoperative repositioning and multi-quadrant access without re-docking.

Johnson & Johnson MedTech’s Polyphonic digital ecosystem will connect the portfolio across surgical technologies, robotics, and software while ultimately adding data and insights to support clinical decision-making, learning, and collaboration.

“We are bringing the best of J&J MedTech’s surgery expertise to the OTTAVA system and taking a holistic view of the science of surgery to enable new experiences across all surgical modalities in service of patients around the world,” Hani Abouhalka, company group chairman, Surgery, Johnson & Johnson MedTech, said upon receiving the IDE approval. “Meeting this milestone brings us a step closer to delivering on our promise to make technology more human, care more adaptive, and people more connected so that surgery works better for everyone.”

Surgery is bound to work better for women with Johnson & Johnson MedTech’s MENTOR MemoryGel Enhance Breast Implants, which garnered FDA approval roughly three weeks after the IDE nod for OTTAVA. Developed for primary and revision reconstruction breast surgery in post-mastectomy patients, the first-of-its-kind silicone gel-filled implant line features an expanded range of base widths, projections, and volumes in new size ranges extending from 930 cc to 1,445 cc, the largest on the market.

From the Top: “Johnson & Johnson has an unrivaled portfolio and pipeline, with the financial muscle, global reach, and disease expertise to deliver the sustained pace of innovation and growth that is our hallmark. I am proud of the remarkable strides we made in 2024 and energized by our boundless potential to improve and save lives.”

—Joaquin Duato, Chairman and CEO

Helping secure the FDA approval likely was the three-year results from Johnson & Johnson MedTech’s ongoing (prospective) 10-year ATHENA study, which demonstrated the safety and efficacy of MemoryGel Enhance larger-volume silicone breast implants after 36 months in post-mastectomy and implant-based breast reconstruction patients.

“The size of implants currently on the market is not reflective of the diverse body types of women, especially women with larger cup sizes who undergo reconstructive surgery following a breast cancer diagnosis,” Mayo Clinic plastic/reconstructive surgeon and ATHENA study co-author Alanna Rebecca, M.D. stated in a news release announcing the MemoryGel’s FDA approval. “A woman’s body type should never limit her options in reconstruction, which is why this latest approval is an exciting step for the breast cancer community as we pave the way for inclusivity along the full continuum of breast cancer care.”

Johnson & Johnson MedTech’s Orthopaedics franchise is striving for the opposite effect (exclusivity) with its VELYS ACTIVE robotic-assisted system, which gained FDA 510(k) clearance last summer for both spinal and partial knee surgery. Developed by DePuy Synthes and eCential Robotics, VELYS SPINE is intended for use in spinal fusion procedures in the thoracolumbar, cervical, and sacroiliac backbone regions. The system can be used with Johnson & Johnson MedTech’s core spine products, including the SYMPHONY occipito-cervico thoracic system, TriALTIS spine system and navigation-enabled instruments, the VIPER PRIME system, and EXPEDIUM VERSE systems.

The dual-use VELYS SPINE system features both standalone navigation and an active robotics platform that gives surgeons flexibility in their approach and planning. The system also enables clinicians to address complex challenges, thanks to its pathology-specific workflows, VELYS adaptive tracking technology, and VELYS trajectory assistance. “Today’s landscape of enabling technologies features first-generation robotics systems that may face challenges in adapting to individual surgeon needs,” DePuy Synthes Worldwide President of Spine Russell Powers said when announcing VELYS SPINE’s debut. “We believe the unique features and capabilities of active robotics technology will set a new standard in surgical care for spine patients everywhere.” 

VELYS also could help set a new financial performance standard for the Orthopaedics franchise’s long-struggling Spine, Sports & Other business, which lost $21 million last year compared with FY 23. Overall, Orthopaedics sales climbed 2.4% to $9.16 billion, driven by strong demand for existing products and new innovations.

Orthopaedics was Johnson & Johnson MedTech’s second-best performing franchise in 2024, finishing well behind Cardiovascular, which increased sales 21.4% to $7.7 billion. The Abiomed business posted the largest gain, scoring a 14.5% revenue jump (to $1.49 billion) on strong demand for the Impella RP and Impella 5.5 with SmartAssist Heart Pumps, the latter of which—along with Impella CP with SmartAssist—secured FDA approval in December for use in specific pediatric patients with symptomatic acute decompensated heart failure and cardiogenic shock.

The Electrophysiology business played second string to Abiomed, expanding revenue 12.3% to $5.26 billion. Johnson & Johnson MedTech attributes the increase to global procedure growth, commercial execution, and robust new product performance from such innovations as the VARIPULSE pulsed field ablation platform, which gained regulatory approval in Japan, the European Union, and the United States throughout the year.

The VARIPULSE Platform’s market upgrade was accompanied by a software update to the CARTO 3 cardiac mapping system, one of three components of the VARIPULSE platform (the others being the variable-loop multi-electrode VARIPULSE catheter and the multichannel PFA TRUPULSE generator).

Released last spring, the CARTO 3 system version 8 software features new modules—CARTO ELEVATE and CARTOSOUND FAM—that enhance the efficiency, reproducibility, and accuracy of catheter ablation procedures during treatment for atrial fibrillation (Afib) and other arrhythmias.

Using an FDA-cleared artificial intelligence (AI) algorithm, the CARTOSOUND FAM module automatically generates the left atrial anatomy before a catheter is inserted, saving time and improving accuracy. CARTO ELEVATE, on the other hand, incorporates several new capabilities, including the OPTRELL mapping catheter for reducing far field potentials and providing a more accurate activation map; pattern acquisition to automatically track arrhythmia burden pre- and post-ablation; and an enhanced CONFIDENSE module for optimized mapping.

Introduced in 2009, the CARTO 3 system uses electromagnetic technology to create real-time, 3D maps of patients’ cardiac structures.

“Today, we have a $5 billion market-leading position in electrophysiology, which grew 14% in 2024, driven by commercial execution and a significant portfolio of new product introductions, from QDOT to ultrasound, CARTO, and more recently, VARIPULSE…” Tim Schmid, worldwide chairman, MedTech, stated during the Q4/full-year 2024 earnings call in January (2025). “…we have a tremendous opportunity in the electrophysiology space. It’s an exciting market, as you know, with relatively low global penetration, well under 5%, and an expanding market size due to aging populations.”

Electrophysiology, however, is just one of several exciting markets in which Johnson & Johnson MedTech is strategically pursuing growth. The company also sought to expand its presence last year in the heart failure and intravascular lithotripsy (IVL) markets, as evidenced by two strategic acquisitions.

The August 2024 deal for Israeli medtech firm V-Wave Inc. will help Johnson & Johnson MedTech expand its market reach in the high-growth heart failure device sector. The company’s V-Wave Ventura Interarterial Shut—granted FDA Breakthrough Device Designation in 2019—treats congestive heart failure by reducing elevations in left atrial pressure. Its hourglass design optimizes blood flow efficiency, allowing for future transeptal procedures, and keeps the implant firmly in place. In addition, the shunt’s biocompatible expanded polytetrafluoroethylene encapsulation helps limit tissue growth and enables the implant to stay open and unobstructed, according to the company.

Valued at up to $1.7 billion, the V-Wave deal was Johnson & Johnson MedTech’s second major acquisition last year, occurring three months after it finalized the $13.1 billion purchase of Santa Clara, Calif.-based Shockwave Medical Inc., developer of intravascular lithotripsy (IVL) treatment for calcified coronary artery plaque. Shockwave Medical’s devices break up calcium deposits in coronary arteries using sound pressure waves, like the way kidney stones are treated.

One of the key factors driving the Shockwave Medical acquisition was the complementary nature of its IVL devices to the Impella heart pumps Johnson & Johnson MedTech obtained through the Abiomed deal. Those pumps integrate IVL into the high-risk coronary angioplasty treatment regimen in roughly 30% of cases, according to the company.

Shockwave Medical wasted no time in boosting its IVL lineup after closing the acquisition. In mid-September, Johnson & Johnson MedTech’s newest family member launched the Shockwave E8 peripheral IVL catheter following its FDA clearance. The catheter optimizes treatment for calcified femoro-popliteal and below-the-knee peripheral artery disease, including patients with complex chronic limb-threatening ischemia. It delivers 400 pulses twice per second, boasts a 150-cm working length, and includes eight emitters across a single 80-mm balloon.

In its seven months as a Johnson & Johnson MedTech business unit (like Abiomed), Shockwave generated $564 million in revenue—exceeding the full-year sales of MedTech’s Other Cardiovascular unit by 38.9%. The Other Cardiovascular unit posted a 6.9% sales hike to $380 million.

Certainly, the Shockwave deal further reinforced Johnson & Johnson MedTech’s commitment to the cardiovascular market. And while this commitment is bearing significant fruit thus far, it also is clouding the future for the company’s neurovascular division, Cerenovus. Published reports earlier this year claimed Johnson & Johnson was gauging potential buyer interest in the neurovascular business to refocus its efforts on high-growth sectors like cardiovascular. Multiple news sources valued any possible deals at more than $1 billion, and some debated the merits of such a sale, noting the company would be sacrificing long-term growth in the evolving neurovascular sector for short-term financial gains. Johnson & Johnson, not surprisingly, did not comment on the speculation.

Regardless of Cerenovus’ future, the business launched three new products last year in the United States and Europe. American patients were the first to benefit from the CereGlide 71 intermediate catheter, which helps restore blood flow to the brain during acute ischemic stroke. The next-generation catheter is optimized for effective direct aspiration and the delivery of compatible stent retrievers, including the EmboTrap III revascularization device.

The CereGlide 71 catheter is equipped with TruCourse technology for better flexibility. Johnson & Johnson MedTech designed the device to help improve navigation and access to clots, even in challenging anatomical conditions. Overall, CereGlide 71 provides optimal compatibility, durable delivery, and reliable traceability during thrombectomy procedures. It debuted in the United States last winter and in Europe last spring.

Roughly two weeks before the CereGlide 71 catheter hit the European market, Johnson & Johnson MedTech released the TRUFILL n-BCA liquid embolic system procedural set in the United States. TRUFILL n-BCA includes two configurations and the necessary accessories to prepare and deliver n-BCA (n-butyl cyanoacrylate) liquid embolic system in one sterilized set to help streamline procedure preparation.

The TRUFILL system is used under fluoroscopic guidance to obstruct or reduce blood flow to cerebral arteriovenous malformations through super-selective catheter delivery during pre-surgical devascularization. By combining this product as a procedure set, it includes 1 mL and 3 mL syringes, a glass mixing beaker, an 18 G blunt fill needle, 21 G hypodermic needles, and syringe labels. The system gained FDA approval in September 2023.

Nearly six months after premiering the TRUFILL n-BCA system, Johnson & Johnson MedTech released the next-generation EMBOGUARD balloon guide catheter, which is made for endovascular procedures (including acute ischemic stroke). The product optimizes clot removal by controlling local blood flow during mechanical thrombectomy procedures, the recommended stroke treatment option. Balloon guide catheters increase first pass recanalization, shorten procedure time, and reduce the risk of clot fragments breaking off and causing distal emboli, which can result in new ischemic events, clinical data show.

“The addition of this device to our portfolio of technologies,” Cerenovus Worldwide President Mark Dickinson said at the time, “provides physicians with an innovative and comprehensive set of tools to treat their patients, building on our commitment to changing the trajectory of stroke.”

That commitment is not limited to stroke treatment, though. Johnson & Johnson MedTech also is working to change the trajectory of vision impairment care with its advancements in intraocular (IOL) lenses and daily disposable contacts.

The company’s ACUVUE OASYS 1-Day product lineup—which incorporates features like blue-violet light filtering, prolonged tear film stability, blink stabilization capabilities, and a pupil-optimized design—helped improve Contact Lenses/Other sales by $31 million last year (0.8% to $3.73 billion). Along with the 3.2% increment in Surgical proceeds (to $1.41 billion), Johnson & Johnson MedTech’s Vision franchise increased its fiscal 2024 revenue 1.5% to $5.14 billion.

Part of that overall increase can be attributed to the company’s expanded IOL market penetration, as it released presbyopia-correcting lenses in both the United States and EMEA (Europe, Middle East, Africa). Select areas within the latter region gained access in February to the TECNIS PureSee IOL, a purely refractive lens that delivers high-quality vision, especially at high contrast and low light performance. Designed to maintain a dysphotopsia profile comparable to a monofocal IOL without such symptoms as halos, glares, or starbursts, the TECNIS PureSee allows patients to achieve an excellent distance and intermediate vision level as well as functional near vision.

The TECNIS Odyssey IOL carries similar benefits for cataract patients: a freeform differactive surface designed to eliminate gaps between intermediate and far distances; better night vision (fewer halos and glare); and improved low-light performance. TECNIS Odyssey IOL patients reportedly can read 14% smaller print compared with their PanOptix IOL (Alcon) counterparts, and 93% experience no halos, glare, or starbursts (or only mild ones) one month after surgery, Johnson & Johnson MedTech data indicate.

The TECNIS Odyssey’s expanded U.S. rollout occurred in early fall. The lens has previously been approved in Japan, the European Union, Korea, Canada, Singapore, Australia, and New Zealand.

TECNIS Odyssey’s market augmentation occurred shortly before Johnson & Johnson MedTech announced a name change for all its medical technology brands. The Ethicon, DePuy Synthes, Biosense Webster, Abiomed, and Cerenovus businesses were rebranded under the Johnson & Johnson MedTech name as part of its amended brand and visual identity update announced in September 2023. “At Johnson & Johnson, we are addressing some of the largest unmet needs in healthcare through innovative medicine and medical technology,” Schmid said in a news release about the rebranding. “By bringing our medtech businesses together under the Johnson & Johnson name, the scale of our impact in healthcare will be even more apparent, unlocking new opportunities for us to strengthen our competitiveness.”

$30.40 Billion ($85.2B total)
Prior Fiscal: $27.43 Billion
Percentage Change: +10.8%
R&D Expenditure: $3.1B
Best FY23 Quarter: Q2 $7.8B
Latest Quarter: Q1 $S7.8B
No. of Employees: 134,400 (total)

Among the hills and valleys of M&A in the medtech manufacturing industry, 2023 was a valley for Johnson & Johnson MedTech between the two hills of 2022 and 2024. In Q4 2022, the organization announced it was purchasing Abiomed—an innovative cardiovascular technology company focused on the treatment of coronary artery and heart disease—for an enterprise value of $16.6 billion. It completed the transaction about a week before the start of its ’23 fiscal.

Then, in Q2 2024, J&J revealed it was bringing Shockwave Medical into the fold—a provider of innovative intravascular lithotripsy technology for the treatment of calcified coronary artery disease and peripheral artery disease. The enterprise value of this deal was approximately $13.1 billion. With these two massive “hills,” it was no wonder J&J was a little less spend-happy in 2023.

That doesn’t mean the valley period was absent of any acquisition activity, however. In November, J&J remained focused on expanding its technology coverage for cardiovascular conditions through inorganic growth. Its buy of Laminar, a privately-held medical device company focused on eliminating the left atrial appendage (LAA) in patients with non-valvular atrial fibrillation (AFib), was the smallest investment of the three transactions, but still an important piece for the company.

“For the millions of people living with AFib, stroke risk is a major concern. The team at Laminar is driven by our vision to develop and deliver an innovative solution to help patients live without the fear of stroke, or the need for long-term use of blood thinners,” Randy Lashinski, president and CEO of Laminar, said in a J&J statement. “We are looking forward to advancing this vision as part of Johnson & Johnson MedTech.”

The acquisition cost J&J an upfront payment of $400 million with additional potential clinical and regulatory milestone payments in 2024 and beyond. The firm was folded into Biosense Webster.

“We are excited to welcome Laminar to Johnson & Johnson MedTech,” said Jasmina Brooks, president of Biosense Webster. “Laminar’s innovative approach will provide Biosense Webster the opportunity to expand our portfolio in this high-growth market, complement our electrophysiology and Intracardiac Echo strengths, and deepen our presence with interventional cardiologists and electrophysiologists.”

Brooks made headlines of her own earlier in the year as she moved into the position of president of the J&J MedTech business unit. She had been with Biosense Webster for nine years and another 15 within the cardiovascular field (primarily focused on electrophysiology) at GE Healthcare. She moved into the role to replace Michael Bodner, Ph.D., who assumed the role of global head of Heart Recovery.

The moves of Brooks and Bodner weren’t the only executives on the move at J&J MedTech in 2023, though. In October, Ashley McEvoy—executive vice president, worldwide chairman of MedTech—informed the organization she would be leaving after a 27-year term of service. During that time, she was involved with the Consumer Products group (which included brands such as Tylenol and Zyrtec), and became president of McNeil Consumer Healthcare. Upon joining MedTech in 2009, she was the worldwide president of Ethicon and then company group chairman of Vision and Diabetes Care. Upon her announcement, she was also serving as chair of the AdvaMed Board of Directors, which she vacated with her departure.

Tim Schmid was named as McEvoy’s replacement at the time of the announcement—a 30-year veteran of the company. Prior to the promotion, he was serving as company group chairman of J&J MedTech Asia Pacific, where he helped to deliver above-market growth from the segment. Before that, Schmid held leadership positions in sales, strategic marketing, and general management across multiple businesses and geographies.

Schmid took the helm of a firm that became only the third finished medical device manufacturing organization to crack $30 billion in annual revenue. It ended the 2023 year with a sales tally of $30.40 billion. That achievement accounts for approximately three-eighths of J&J’s total revenue for the fiscal (Innovative Medicine sales finished at $54.76 billion). The amount reflected a 10.8% rise over the prior year and was further celebrated with positive increases across every franchise and segment within MedTech.

Leading all franchise sales totals was Surgery at $10.04 billion, translating to 3.6% growth. Within the segment, Advanced Surgery’s $4.67 billion (2.2% increase) was due primarily to the growth in Biosurgery global procedures and new product launches. Sister unit, General Surgery, enjoyed almost 5% growth to finish at $5.37 billion. This was credited to an increase in procedure volume and the differentiated Wound Closure portfolio.

The second highest producing franchise, Orthopaedics (or more commonly known as DePuy Synthes), maintained its standing of being about a billion dollars behind Surgery. Its 2023 tally of $8.94 billion represented a modest 4.1% increase over the year prior. Among the four units that comprise the business, Trauma led in sales with a figure just shy of $3 billion (3.8% growth); rise in procedure volume and new product adoption were provided as the reasons behind the gains. Following close behind at $2.95 billion was Spine, Sports & Other. This increase of 3.7% over the previous year was driven by Digital Solutions, Shoulders, Sports, and Craniomaxillofacial products. Of the two large joint units, Hips notched $1.56 billion (3.0% growth) with increasing procedures as the primary reason for the rise. With positive response to new ATTUNE products and the VELYS robotic-assisted solution, Knees’ 7.1% increase translated into $1.46 billion in sales.

Interventional Solutions, home to the aforementioned newly acquired businesses, rocketed up 47.7% over 2022, ending the fiscal with $6.35 billion. A majority of this gain was attributed to the incorporation of Abiomed product sales, which contributed $1.31 billion to the segment (compared to only $31 million in 2022). Electrophysiology, meanwhile, enjoyed a healthy 19.1% increase itself, closing its books at $4.69 billion. That growth was credited to procedural increases, positive new product performance, and commercial execution. The franchise’s Other Interventional Solutions segment rose 7.1% to contribute $356 million to the company coffers.

While fourth among its peer franchises, Vision contributed a very respectable $5.07 billion to J&J’s 2023 sales, a 4.6% inflation over ’22. Almost 75% of that total is due to sales within Contact Lenses/Other, which finished the 12-month period at $3.70 billion, representing a 4.5% gain. Thanks can be provided to strong interest in ACUVUE OASYS 1-Day family. Meanwhile, Surgical posted $1.37 billion, which reflected a 4.9% rise, due primarily to increases in cataract procedures and interest in new innovations.

The company must be keeping an eye on the increases in revenue attributed to recently launched innovations as it predicted in its 2023 annual report that one-third of all MedTech sales will be generated by new products in 2027 (new products defined as those launched in the last five years). To that end, it shared a number of product announcements regarding regulatory outcomes and market debuts during its recent fiscal year.

Almost two months into 2023, Acclarent Inc.—a business focused on developing minimally invasive ear, nose, and throat (ENT) technologies—announced the first TruDi Shaver Blade patient. This innovation is a single-use, electromagnetically navigated blade designed to enable physicians to deliver more consistent and accurate sinus procedures. It gained FDA clearance in August 2022. The shaver interacts with TruDi’s advanced navigation features including TruSeg, which uses artificial intelligence (AI) to segment critical anatomical structures, such as the eyes and brain, which can then function as beacons to alert the surgeon when the navigated surgical device approaches the structure during ENT procedures. Surgeons are also able to track the shaver movement in real time with fast anatomical mapping.

May saw the U.S. commercial launch of CERENOVUS’ CEREPAK Detachable Coils and the first patient cases performed. The coils offer three shapes and multiple coil sizes, providing physicians with comprehensive options to embolize brain aneurysms, including coils shaped specifically to achieve concentric aneurysm filling and contribute large volumetric filling. Through the system, physicians gain a state-of-the-art delivery system designed for ease of use and reliable detachment, microcatheter stability, tracking through tortuous anatomy, and reduction of radiation (fluoroscopy) exposure.

It was seven months into the year before Biosense Webster launched a product. In the U.S., the business made the OPTRELL Mapping Catheter with TRUEref Technology (powered by the CARTO 3 System) available. This catheter is a high-density, diagnostic catheter, with small electrodes arranged in a fixed array formation to provide high-definition electrophysiological mapping of complex cardiac arrhythmia cases like persistent atrial fibrillation (AFib), redo AFib ablation, atrial tachycardia, and ventricular tachycardia. Its tight electrode spacing and small electrodes produce higher signal resolution, resulting in enhanced maps of the heart.

A little over a week later, the same business shared news the U.S. FDA approved several cardiac ablation products for a zero fluoroscopy workflow. The products included were the THERMOCOOL SMARTTOUCH SF Catheter, THERMOCOOL SMARTTOUCH Catheter, CARTO VIZIGO Bi-Directional Guiding Sheath, PENTARAY NAV ECO High Density Mapping Catheter, DECANAV Mapping Catheters, and Webster CS Catheter. The updated workflow indicated direct imaging guidance, such as ultrasound, could be used as an alternative to fluoroscopy. This was significant because reducing fluoroscopy lowers radiation exposure and can reduce the risk of musculoskeletal pain due to extensive wear of heavy personal protective equipment, such as lead aprons.

At the American Association of Gynecological Laparoscopists, Ethicon debuted an AI-powered Surgical Simulation Platform that supports skill development in current and future surgeons. The technology leverages AI, augmented reality powered trainings, real-time data, and tactical feedback. The platform offers a connected digital learning experience that is highly portable, adaptable to the learner’s evolving circumstances, and easily integrated into their everyday quality education and training routines.

In November, the MONARCH Platform and MONARCH Bronchoscope obtained regulatory approval in China. At the time of the announcement, the platform was the first minimally invasive, robotic-assisted technology approved for peripheral lung procedures in China and the first J&J MedTech robotic-assisted technology approved in China. It was also the first regulatory approval of the MONARCH Platform outside the U.S. This combination is intended to provide bronchoscopic visualization of and access to adult patient airways for diagnostic and therapeutic procedures.

Just two days later, Ethicon announced the approval of ETHIZIA, an adjunctive hemostat solution that has been clinically proven to achieve sustained hemostasis in difficult-to-control bleeding situations.

Comprised of unique synthetic polymer technology, the ETHIZIA Hemostatic Sealing Patch is the first and only hemostatic matrix (at the time) designed to be equally active and efficacious on both sides.

Designed for maximum adaptability, it can be stuffed, rolled, pulled apart, trimmed, and tailored, making it easy to handle in both open and minimally invasive surgeries. In 80% of clinical trial patients studied, the patch stopped bleeding in 30 seconds—an average of six times faster than the leading Fibrin Sealant Patch.

About two weeks before the end of the year, the ACCLARENT AERA Eustachian Tube Balloon Dilation System received clearance from the U.S. FDA to expand the indicated patient population from 18 years of age and older to 8 years of age and older. The product is used for patients with persistent obstructive Eustachian tube dysfunction.

J&J MedTech also provided an update on its long-awaited robotic system for general surgery, named OTTAVA. In November, the organization stated it would be submitting an investigational device exemption application to the U.S. FDA in the second half of 2024 to initiate clinical trials. This announcement follows several years of delays in getting the system to market, racing against Medtronic’s Hugo to compete in the healthcare sector against Intuitive Surgical, which has a two-and-a-half-decade lead.

OTTAVA incorporates four robotic arms into a standard-sized surgical table. This concept allows for an “invisible design,” with the robotic arms available when needed or stowed under the surgical table when not. The system’s “twin motion” feature—unified movement of the table and the robotic arms—is designed to allow surgical teams to address important clinical needs during surgery, such as the ability to reposition a patient without interrupting the procedure.

“Today, the majority of ORs are not robotic because they were not built with a robot in mind,” said Dr. Eduardo Parra-Davila, a colorectal and general surgeon at the Palm Beach Digital Institute. “The industry needs a system that is adaptable, easy to use in any OR in the world, and maintains space in the OR. As surgeons, we need space to improve the workflow in the OR, increase safety, and enable 360-degree patient access so we can perform at the capacity that we would like to. That’s where OTTAVA comes in. OTTAVA offers a unique design that incorporates into any OR and allows surgeons to do what they would like to do and know how to do, which is focus on the patient.”

While the Vision segment was relatively quiet in comparison to J&J MedTech’s other franchises, it did announce a team-up with photographer and New York Times best-selling author Kate T. Parker to help launch Vision Made Possible. This campaign is intended to raise awareness and ignite conversation about the importance of eye health across all ages and stages of vision. Vision Made Possible will explore personal stories of patients around the world and eye care professionals across various eye diseases—myopia, presbyopia, cataracts, and others—to highlight how their lives improved with better vision.

$27.43 Billion
Prior Fiscal: $27.06 Billion
Percentage Change: +1.4%
R&D Expenditure: $14.6B (total)
Best FY22 Quarter: Q1 $7.0B
Latest Quarter: Q1 $7.5B
No. of Employees: 152,700 (total)

Though not the blockbuster deals of years past, global multi-billion dollar conglomerate Johnson & Johnson began the medtech industry’s largest deal of 2022—a $16.6 billion transaction for heart, lung, and kidney support tech company Abiomed—last November.

Abiomed adds its best-known and breakthrough Impella heart pumps to J&J’s already hearty cardiovascular portfolio. The Impella pumps have exclusive FDA approvals for coronary artery disease patients needing high-risk percutaneous coronary invention, treatment of acute myocardial infarction cardiogenic shock, or right heart failure.

“Abiomed’s skilled workforce and strong relationships with clinicians, along with its innovative cardiovascular portfolio and robust pipeline, complement our MedTech portfolio, global footprint and robust clinical expertise. Together, we have the incredible opportunity to bring lifesaving innovations to more patients around the world,” Ashley McEvoy, J&J’s executive VP and worldwide chairman of MedTech, said in a press release announcing the deal. “We are committed to investing for growth and look forward to welcoming the team and working together to foster our shared patient-first mindset and winning culture of innovation.”

The deal was completed three days before Christmas 2022 and Abiomed became a standalone business within J&J’s MedTech segment, operating within its Interventional Solutions business.

The global conglomerate’s MedTech segment sales (previously referred to as Medical Devices) reached $27.43 billion in its 2022 fiscal year, rising a slight 1.4% over the previous year. U.S sales were strong at $13.4 billion with a 5.4% swell, while International sales fell 2.3% to $14.1 billion.

ANALYST INSIGHTS: With two major portfolio moves under its belt in the past 12 months (spin-off of Kenvue and the acquisition of AbioMed), J&J is a work in process in its main Ethicon and DePuy Synthes business units. While each major group is behind in robotics (Ethicon to Intuitive and MDT; DPS to Stryker), they should see an upswing in procedures due to a post-pandemic rebound of so-called “elective procedures.” For the future, the question is, “Can they catch-up with the market leaders with their Velys digital platforms across all market segments?”

—Dave Sheppard, Co-Founder and Managing Director, MedWorld Advisors

Surgery franchise revenue dropped 1.2% to $9.7 billion. Advanced surgical products captured $4.6 billion of those proceeds (a 1.1% drop) and General surgical products claimed the remaining $5.1 billion (a 1.3% drop). According to J&J’s annual report, endocutter market recovery and new products somewhat tempered competitive U.S. pressures. Strong U.S. demand in 2021 for infection prevention products offset biosurgery market improvement. Energy product sales rose somewhat thanks to market recovery as well, bolstered by competitive supply challenges. General surgical product growth was mainly caused by market recovery and technology penetration.

The company inked a strategic partnership deal with Microsoft to cap off its fiscal year 2022. The two technological powerhouses will work to further enable and expand J&J MedTech’s secure and compliant digital surgery ecosystem, which includes robotics, instrumentation, advanced imaging and visualization, data and analytics, artificial intelligence, machine learning, and digital solutions. Microsoft will become J&J MedTech’s preferred cloud provider for digital surgery solutions and help build out its digital surgery platform and IoT device connectivity with tools including Azure, AI and machine learning, Microsoft 365, and Dynamics 365.

J&J’s Acclarent launched the artificial intelligence (AI)-powered TruDi ENT (ear, nose, throat) navigation system last January to simplify surgical planning and offer real-time feedback during ENT procedures. The software package includes TruSeg automatic segmentation for pre-op CT scans as well as TruPath to calculate and present the shortest valid surgical path that doesn’t cross bone. FDA approval of the TruDi shaver blade, a single-use electromagnetically navigated blade for soft/hard tissue incision and removal in ENT, maxillofacial, head and neck, and ENT skull base surgery, followed for Acclarent in August. The navigable blade features distal tip sensors to display the blade’s position and opening on the TruDi navigation system.

J&J’s Mentor notched FDA approval for the MemoryGel BOOST breast implant in January as well for breast augmentation in women ages 22 and up. The implant, according to J&J data, feels more like a natural breast than another leading brand. It features a highly cohesive gel, innovative implant shell design, and precision fill ratio.

J&J Ethicon’s Auris Health gained 510(k) clearance for the Monarch flexible robotic solution to perform endourological procedures in May. Monarch now supports both ureteroscopic and percutaneous nephrolithotomy procedures. The platform aims to help urologists reach and visualize areas in the kidney with precision and control.

Launch of Ethicon’s Echelon 3000 stapler came in June. The next-gen stapler features 39% greater jaw aperture and 27% greater articulation span, as well as software for real-time haptic and audible device feedback. It’s used for thoracic, colorectal, and bariatric/gastric laparoscopic procedures where device access and control can make a critical difference: VATS segmentectomy, low anterior resection, and sleeve gastrectomy.

J&J’s Biosense Webster franchise rolled out the OctaRay mapping catheter with TrueRef in September. The catheter maps cardiac arrhythmias, including AFib, in any heart chamber to capture precise info for catheter ablation. OctaRay has 48 TrueRef mapping reference electrodes on eight splines to minimize the impact of farfield signals and accurately identify lesion set gaps. The size of the electrodes are smaller than previous generation technologies, with tight electrode spacing.

Biosense Webster released the Heliostar balloon ablation catheter in Europe a month later. Used for catheter-based cardiac electophysiological mapping (stimulating and recording) of the atria and cardiac ablation, Heliostar can conform to varied pulmonary vein anatomy and can achieve single-shot pulmonary vein isolation in 12 seconds. It features 10 gold-plated, irrigated electrodes and their power can be customized based on anatomical location and known tissue thickness.

Orthopaedics posted flat revenue of $8.59 billion in 2022. J&J’s annual report attributed operational growth in hips—which grew sales 2.3% to $1.51 billion—to continued portfolio strength including the Actis stem and enabling tech Kincise and Velys hip navigation. Impacts of volume-based procurement in China and timing of tenders outside the U.S. tempered this growth. Knees proceeds also grew 2.6% to $1.36 billion due to oricedure recovery, Attune portfolio strength, and pull-through related to Velys. Trauma product sales fell 0.5% to $2.87 billion, and Spine, Sports & Other sales fell further, dropping 1.9% to $2.84 billion.

DePuy Synthes announced the Attune cementless, fixed-bearing knee with Affixium 3D printing tech and the Attune medial stabilized knee last March. The first in the Attune portfolio to use Affixium 3D printing, the cementless knee was engineered to meet the demands of an active lifestyle and features a 3D lattice structure to create a porosity similar to natural bone. The Attune medial knee touts asymmetric anatomic inserts with a raised medial lip and TruARC lateral path for natural knee function. It addresses a range of posterior cruciate ligament (PCL) management and surgical philosophies. The knee is compatible with the VELYS robotic-assisted solution.

October saw FDA 510(k) clearance for the Teligen platform to enable minimally invasive surgical transforaminal lumbar interbody fusion (MS-TLIF) using digital visualization and access tools. The system is comprised of a camera control system, VueLIF-T procedure with disposable HD camera, Teligen clear discectomy device, and patient-based disposable ports. The Teligen Vue camera is at the distal end of the patient-specific port to remove the need for a microscope for unobstructed surgical site view, and Teligen’s heads-up display lets surgeons maintain ergonomic posture during the surgery. It integrates with DePuy spine’s Unleash bundle of implant solutions.

Vision franchise revenue overall grew 3.4% to $4.85 billion. Contact Lenses/Other’s 3% swell to $3.54 billion was attributed to market recovery, price actions, commercial execution, and new products. The remaining $1.31 billion of Surgical vision sales—a 4.6% rise over the previous year—grew due to market recovery and new products as well, J&J’s annual report claimed.

FDA approval for the AcuVue Theravision drug-eluting contact lenses came last March. Each daily, disposable lens has 19 micrograms of the well-established antihistamine ketotifen to help lens wearers suffering from allergic conjunctivitis. Clinical studies showed meaningful eye allergy reduction as quickly as three minutes after the lens was inserted, lasting up to 12 hours.

September saw launch of the AcuVue Oasys Max 1-day contact lenses and AcuVue Oasys Max 1-day multifocal contact lenses for presbyopia. Both lenses have TearStable tech for tear-film stability and moisture lock-in, as well as OptiBlue 60% blue-violet light filter. Both lenses also block UVA and UVB rays and tailor 100% of parameters to pupil size variations.

Later in September, J&J Vision introduced the Tecnis Symfony OptiBlue presbyopia-correcting intraocular lens (IOL). The hybrid lens features InteliLight combination of violet-light filter, echelette design, and achromatic technology.

Concluding September’s trilogy was FDA approval for an expanded range of AcuVue Abiliti overnight therapeutic lenses for myopia management, up to six diopters. The orthokeratology (ortho-k) lenses are worn overnight to temporarily reduce refractive error. In conjunction with a myopia management plan, they can remove the need for glasses or contacts during the day after removing the lenses.

Interventional Solutions gathered $4.3 billion in sales in 2022, an increase of 8.3% over 2021. The growth was attributed to market recovery, success of new products and commercial strategies, and sales from the Abiomed acquisition.

In April 2022, a California appeals court upheld a lower court ruling that Johnson & Johnson must pay penalties to the state for “deceptively marketing mesh implants for women,” according to The Guardian. The global conglomerate appealed in 2020 after superior court judge Eddie Sturgeon looked at the $344 million in penalties against J&J subsidiary, Ethicon.

He found after a non-jury trial that Ethicon made “misleading and potentially harmful statements” in hundreds of thousands of advertisements and instructional brochures over almost 20 years. A $42 million penalty for sales pitches to doctors was unjustified, because there wasn’t evidence of what the sales reps actually said. The court reduced the amount to $302 million as a result.

J&J spokesperson Ryan Carbain told the San Francisco Chronicle that the company would appeal the ruling to the state supreme court. “Ethicon responsibly communicated the risks and benefits of its trans-vaginal mesh products to doctors and patients and in full compliance with U.S. Food and Drug Administration (FDA) laws,” he told the Chronicle.

Many women have sued the New Brunswick, N.J.-based company, alleging the mesh caused severe pain, bleeding, infections, discomfort during intercourse, and the need for surgical removal. According to The Guardian, the condition affects about 3% to 17% of women, and sometimes turns severe after age 70. Pelvic mesh is used to treat conditions like stress-related urinary incontinence, bladder leakage, and organ prolapse, which can cause pain and pressure during urinary movements and during sexual intercourse.

Finally, J&J established its commitment to life sciences in September 2022 by announcing that its Consumer Health Company spinoff would be called Kenvue. Inspired by “ken”—an English word mainly used in Scotland meaning “knowledge,” and “vue” referencing sight—Kenvue’s IPO was valued at $22 per share ($3.8 billion total) according to CNBC. Shares of “KVUE” began trading on May 4, 2023, marking the largest restructuring deal in J&J’s 135-year history.

$27.06 Billion ($93.7B total)
Prior Fiscal: $22.95 Billion
Percentage Change: +17.9%
R&D Expenditure: $2.37B ($14.7B)
Best FY21 Quarter: Q2 $6.98B
Latest Quarter: Q1 $6.97B ($23.4B)
No. of Employees: 144,300 (total)

It was an intriguing question, to say the least.

And a surprising one, considering the source.

Nearly three years ago, Haworth President and CEO Franco Bianchi asked about the proper pace of innovation. Should it progress at warp speed, he wondered, as it did at the pandemic’s start (remember all those COVID-19 assays and makeshift ventilators?), or should it proceed more slowly, as his own company has often done in the past?

The answer, it seems, is not so simple.

“How do you strike the balance between the time needed to come up with an innovative idea and the time needed to develop and launch that idea into the market?” industrial designer and author Ayse Birsel asked in an October 2019 Inc.com column. “It’s a great question. Time is relative when it comes to innovation. Just like in Einstein’s Theory of Relativity, it’s both slow and fast, depending on where you are in the process.”

And like the gravity in Einstein’s famous theory, innovation often warps time, influencing the motion of other bodies at play.

Makes sense. Consider, for example, the rapid rate at which SARS-CoV-2 tests and vaccines were created. Assays were available within two months of the virus’s U.S. arrival, while ventilator development time—due largely to open-source designs—fell from years to weeks (Australian engineers reportedly built a model in 16 days).

Vaccine development was equally as fast. Barely three months after the deadly virus first surfaced in China, 52 vaccine candidates were in trial stages—among them, Pfizer-BioNTech’s Comirnaty, Moderna’s Spikevax, and Johnson & Johnson’s one-shot Janssen antidote, all of which received U.S. Food and Drug Administration (FDA) emergency use authorization in December 2020 and February 2021, respectively.

“…we’ve worked at breakneck speed during the Ebola crisis, but now we are working at lightning speed,” Seema Kumar, global head, Office of Innovation, Global Health and Scientific Engagement at J&J, said in an April 2020 Advisory Board daily briefing.

ANALYST INSIGHTS: New CEO Joaquin Duato has replaced longtime CEO Alex Gorsky. The question will be can Mr. Duato break-thru the large company inertia to challenge his company to innovate quicker (organically and/or inorganically) to keep pace with industry competitors in the enabling technology segments. In general surgery, Intuitive Surgical continues to dominate robotics. In orthopedics, Stryker is crushing it with their MAKO robotic platform for knee and hip replacement. With the spin-off of its consumer health portfolio in 2023, that should free-up capital for additional investment to energize this industry behemoth going forward.

—Dave Sheppard, Co-Founder and Managing Director, MedWorld Advisors

Clearly, such velocity was necessary to battle COVID-19. But J&J did not accelerate immediately; like other vaccine developers, the healthcare behemoth proceeded gradually, first spending decades researching the structure, genome, and life cycle of existing coronaviruses and mapping out potential defense strategies.

Thus, it was able to innovate expeditiously once SARS-CoV-2 showed up.

J&J applied part of that same tactic to its contact lens technology. In 2011, the firm’s Vision franchise embarked on designing a multifocal lens that would provide clear sight from any distance, near or far (slightly more near than far, actually, owing to increased digital device use). Researchers meticulously studied the correlation between pupil size, age, and vision impairment to create unique, pupil-optimized designs for 183 different prescription types. Pupil Optimized Design lenses feature near vision power in the center and distance vision power on the periphery, much like the natural eye. In addition, its “hybrid back curve” mimics the cornea’s curvature, minimizing any distortion on the front part of the lens.

Pupil Optimized Design contact lenses entered the market last March under J&J’s ACUVUE brand.

“During the past few years, governments and regulators, private companies, and esteemed academics have all partnered together in unprecedented ways to deliver results at a speed and scale never before seen in our history…” former J&J CEO and Chairman Alex Gorsky wrote in his final shareholder letter, contained within the company’s 2021 annual report. “Forward-looking investments made years or even decades ago were the seeds for successful innovations that flowered across all our segments in 2021.”

ANALYST INSIGHTS: J&J is trying to figure out who they are in 2022. With the separation of each division into discrete companies, they need to determine what the future is for each new company and how they can ensure they’re relevant and impactful in the future. For such an incredible company with all of the resources at their disposal, they can continue to focus on health equity, at the depths of the organization and their product lines.

— Marissa Fayer, CEO, HERhealthEQ

Those blooms produced quite a lush (and profitable) garden for J&J last year despite lingering reverberations from the COVID-19 pandemic. Overall sales swelled 9.6% to $93.77 billion, gross profit ballooned 18%, and net earnings surged 41.9%—its largest increase in four years. The company reseeded its garden, too, with a record $14.7 billion investment in research and development.

“R&D isn’t just the foundation of growth for our company—it’s the engine driving scientific progress in creating a healthier world,” Gorsky’s letter read. “The resources we are allocating to R&D now are what will help us move even more quickly in creating increasingly personalized medicines, advancing robotic surgery, deploying artificial intelligence, and leveraging data in ways that will benefit the patients, consumers, and families we serve for many years to come.”

In sowing its garden for future blooms, however, J&J modified its soil.

The 136-year-old company announced plans last fall to spin off its Consumer Health division to focus on Pharmaceuticals and Medical Devices (now renamed MedTech), which accounted for nearly 85% of total FY21 revenue. J&J expects the tax-free transaction to cost $500 million to $1 billion and be completed by November next year.

The spinoff ends years of speculation about a J&J breakup and follows the lead of General Electric and Toshiba, both of which divulged restructuring plans shortly before J&J last fall. GE’s plans entail hiving off its healthcare business in early 2023, and turning its renewable energy, power, and digital divisions into independent entities in 2024, leaving aviation as a standalone unit. Similarly, Toshiba is cutting ties with its energy infrastructure and computer devices businesses.

Like its comrades, J&J’s spinoff strategy is intended to streamline operations and boost overall growth. Separating consumer health from pharmaceuticals and medical devices will allow the firm to offload its liabilities from ongoing talc-related litigation (more than $2 billion in settlements thus far) and better support its drug and medical device research. “Our goal here,” Gorsky said in discussing the spinoff, “is to continue to drive great performance in each of the segments that Johnson & Johnson will…compete in.”

Each of the segments have already been driving such a performance: All three turned a profit in FY21 as the medtech industry recovered from major pandemic-induced sales losses in 2020. Consumer Health revenue rose 4.1% to $14.63 billion while Pharmaceutical sales mushroomed $14.3% to $52.08 billion and Medical Devices proceeds jumped 17.9% to $27.06 billion.

Empowering the Medical Devices segment to its best-in-company performance were robust rebounds in each of its four reporting divisions. Interventional Solutions led the charge with a 30.4% sales hike ($3.97 billion), driven by strong growth in the electrophysiology and stroke businesses.

Vision placed second with a 19.6% revenue increase ($4. 68 billion). Healthy showings from the contact lenses/other and surgical franchises helped Vision edge out the Surgery division; contact lenses/other proceeds swelled 14.9% to $3.44 billion, while surgical sales skyrocketed 34.9% to $1.24 billion. U.S. Vision growth (9.4%) came mainly from successful commercial campaigns and widespread adoption of ACUVUE OASYS Multifocal contact lenses with Pupil Optimized Design, though that growth was somewhat hampered by inventory fluctuations in both FY20 and FY21.

Surgical Vision’s segment-best performance arose from various product launches, including TECNIS Eyhance and TECNIS Synergy. Approved by the FDA in February 2021, the TECNIS Eyhance and TECNIS Eyhance Toric II intraocular lenses (IOL) for cataract treatment feature a refractive surface that slightly extends focus depth and delivers image contrast in low light. TECNIS Eyhance IOLs provide a 30% image contrast improvement compared to AcrySofIQ SN60WF at 5mm.

The TECNIS Synergy and TECNIS Synergy Toric II IOLs won FDA approval in May last year (the latter product also garnered Health Canada authorization). These presbyopia-correcting IOLs deliver the widest range of continuous vision with the best near vision and superior contrast in low-light conditions, according to J&J. The TECNIS Synergy lenses debuted on the U.S. and Canadian markets in June 2021.

Within a week of the TECNIS Synergy approval, J&J Vision received the FDA’s blessing for its ACUVUE Abiliti Overnight Therapeutic lenses for myopia management. Alibiti Overnight orthokeratology lenses are designed and fitted to match a patient’s eye based on its unique corneal shape. The lenses are optimized via corneal topography, refractive error, and other measurements connected to an experiential fitting software called FitAbiliti. The software guides eye care professionals through the fitting process and recommends a lens with a 90% first fit success rate. The lenses come in two designs—one for myopia management and one for myopia with astigmatism management.

“The prevalence of myopia in children is increasing, and as optometrists we are on the front lines of this epidemic that may threaten the vision of future generations,” Moshe Mendelson, O.D., said in announcing the ACUVUE Abiliti Overnight lenses’ FDA approval. “For too long we have relied on increasing the prescription of glasses for children, while having few resources to address the underlying disease and help change this worrying trajectory of eye health. The FDA approval of Abiliti Overnight will provide eye care professionals and parents with more options to manage myopia.”

Myopia, however, was not the only beneficiary of J&J’s treatment options last year. Additional choices in the OR provided patients and healthcare professionals with more tools for wound closure, tissue sealing, and joint repair—all of which helped boost profits in the Surgery and Orthopaedics divisions.

Surgery sales jumped 19.2% to $9.81 billion, owing to healthy performances in both Advanced and General Surgery. The latter improved proceeds 18.1% (to $5.19 billion) while the former grew revenue 20.4% (to $4.62 billion) by capitalizing on improving market conditions, expanding into Tier 2 and Tier 3 hospitals in China, and releasing new products such as the ENSEAL X1 Sealer and ECHELON+ Stapler.

J&J’s Ethicon subsidiary unveiled the ECHELON+ Stapler with GST (gripping surface technology) reloads in late March 2021. The device increases staple line security and reduces complications through more uniform tissue compression and better staple formation, according to the company. New design features include a re-engineered anvil that provides more uniform compression to better capture and form staples and a new motor that improves firing speed in thick tissue to enhance compression and improve audible feedback. In benchtop testing, the ECHELON+ stapler outperformed Medtronic’s Signia and EndoGIA staplers with tri-staple reloads, providing better staple formation and reducing leaks at the staple line.

Three months after releasing the ECHELON+ Stapler, Ethicon debuted the ENSEAL X1 Curved Jaw Tissue Sealer, an advanced bipolar energy device for colorectal, gynecological, and bariatric surgeries and thoracic procedures. Its 360-degree continuous shaft rotation provides easy targeted tissue access, and its Adaptive Tissue Technology enables the device to continuously sense changes in tissue condition and respond accordingly with the optimal energy amount to minimize lateral thermal spread. The device also features separate seal and cut capabilities as well as improved ergonomics and a one-handed operation.

“This is an intelligent and intuitive energy device that provides secure sealing and an ease of use that improves upon currently available advanced bipolar sealing devices,” Steven McCarus, M.D., chief of GYN Surgery at AdventHealth Celebration, said upon ENSEAL X1’s release last June. “…I think it will make a real difference in procedures in terms of patient outcomes and procedural efficiency.”

Also impacting patient outcomes and procedural efficiency was J&J’s MONARCH platform, a first-of-its-kind robotic technology cleared by the FDA in March 2018 for diagnostic and therapeutic bronchoscopies. Market demand for MONARCH continued to grow last year, as procedures topped 12,000—more than doubling those performed in 2020—and system orders reached a record high in Q4.

“Our MONARCH robotic system, it’s enabling in the luminal bronchoscopies. And…it’s progressing really well,” J&J CEO Joaquin Duato told investors during a FY21 earnings call in late January. Duato replaced Gorsky as chief executive on Jan. 3. “We are also studying our MONARCH robotic system to deliver energy and also a payload of pharmaceuticals for being able to do local treatment of early lung cancer lesions.

At the same time, we have also submitted a 510(k) expansion of MONARCH for a potential treatment in kidney stones that will give us an expanded market in this area.”

“We have had the highest level of innovation in our medtech business in 2021 ever,” Duato continued, “and our pipeline today has the highest value as measured by net present value that we have ever had.”

Orthopaedics enhanced that value last year with its new Compression Plate Clavicle System, new shoulder implant, and advanced power tools for trauma and small bone procedures. The division also shored up net future value via an acquisition, FDA clearance, and exclusive distribution agreement.

The latter two moves occurred just two weeks apart in early 2021. The division’s DePuy Synthes subsidiary gained FDA clearance in mid-January to use its robotic-assisted orthopedic surgical platform for total knee replacements. The VELYS digital joint reconstruction system, also used for hip and shoulder procedures, employs advanced planning capabilities to help surgeons make precise bone cuts and accurately position the replacement joint relative to the knee’s surrounding muscles, tendons, and ligaments.

DePuy designed the VELYS solution from technology it acquired through J&J’s 2018 buyout of French surgical technology firm Orthotaxy. VELYS mounts onto an OR table and links to joint assessment data to help clinicians correctly balance the implant and verify its position.

Two weeks after receiving the VELYS clearance, DePuy Synthes forged an agreement to distribute Expanding Innovations Inc.’s X-Pac Expandable Lumbar Cage in the United States. The cage, which supplements DePuy’s lumbar degenerative and minimally invasive spine portfolio, provides controlled height and lordosis expansion to allow for intraoperative adjustment, depending on patient anatomy. A lock ramp-feature built into the endplates offers a large graft space inside the cage for post-graft packing.

DePuy bookended the VELYS clearance and X-Pac distribution pact with the $79.5 million purchase of OrthoSpin Ltd. in December 2021. The Israeli firm’s robot-assisted external fixation system is used in conjunction with DePuy Synthes’ Maxframe multi-axial correction system, an external ring fixation system designed to rectify bone or soft tissue deformities in the leg, foot, or ankle. The FDA cleared OrthoSpin’s G2 fixation system in January last year.

“DePuy Synthes is committed to patients who need deformity correction surgery,” Oray Boston, worldwide president of DePuy Synthes Trauma, Extremities, Craniomaxillofacial and Animal Health, said in announcing the OrthoSpin deal. “The acquisition of OrthoSpin demonstrates our desire to help these patients navigate their recovery with more confidence and less uncertainty with their strut adjustments. It also demonstrates our commitment to bringing transformative medtech advancements to the industry through the application of automated technology that addresses a wide range of orthopedic challenges.”

DePuy addressed some of those challenges through non-automated technology as well. Its launches last summer of the 2.7mm Variable Angle Locking Compression Plate Clavicle Plate System and INHANCE Shoulder System helped boost Orthopaedics FY21 sales 10.8% to $8.58 billion.

The Clavicle Plate System features thinner plates, a more accurate plate-to-bone fit, and reduced prominence; the INHANCE System, meanwhile, has an intuitive stemless-first surgical approach that offers surgeons the ability to seamlessly transition from stemless to stemmed implants during procedures.

The INHANCE system preserves bone, provides immediate and long-term fixation, and facilitates intra-operative flexibility to simplify preparation for surgical treatment options. It includes reusable instruments, a comprehensive size range of anatomic stemless and stemmed inlay humeral implants, and a circular anatomic glenoid component that is compatible with any sized humeral head.

DePuy’s other product launch—the UNIUM System—bolstered both the company’s power tools portfolio and the Trauma franchise’s 2021 revenue. Trauma sales swelled 10.4% to $2.88 billion due to new product introductions and the global market recovery.

Those same factors drove a 13.3% increase in Knee revenue (to $1.32 billion) and 7.2% expansion in Spine, Sports & Other proceeds (to $2.89 billion). Hips sales, on the other hand, benefitted from existing technologies, including the ACTIS stem, KINCISE Surgical Automated System, and VELYS Hip Navigation, which helps enhance precise implant selection and placement. Hips revenue surged 16% to $1.48 billion.

$22.95 Billion ($82.58 Billion)
Prior Fiscal: $25.96 Billion
Percentage Change: -11.6%
No. of Employees: 134,500 (total)

Stronger together.

That was the message touted last summer by the Pan American Health Organization and Caribbean Development Bank as the two agencies worked to buoy mental wellness and resiliency in the West Indies region.

Inspired by the historic 2017 Atlantic hurricane season (17 named storms, $294.92 billion damage total) and launched two years later, the “Stronger Together” campaign aims to bolster sound mental health and coping strategies during crises. The initiative also attempts to allay the stigma surrounding mental health treatment, and improve publicly available psychosocial support.

Such support was critical last year as COVID-19 lockdowns forced the planet’s populace into months of unbroken solitude, leaving individuals battling loneliness, depression, fear, anxiety, irritability, and post-traumatic stress disorder. Many of these feelings have snowballed among Caribbean island folk whose lives have been upended in recent years by five (consecutive) unusually active hurricane seasons.

“…as we grapple with COVID-19, we are in the middle of our 2020 hurricane season, which is predicted to be above normal,” Diedre Clarendon, division chief for the Caribbean Development Bank’s Social Sector Division, said in campaign kickoff remarks last July. “The impacts for these hurricanes are likely to include heightened stress, fear, depression, and anxiety across populations that are already coping with COVID-19 impacts…we have expanded the scope of our collaboration to include the pandemic. The call to action connecting to feel safe, calm, and hopeful aims to offer information and strategies to assist communities in promoting mental well-being and positive coping strategies, and raise awareness to reduce the stigma about seeking mental health and pyschosocial support while also considering social distancing guidelines. In this way, we will indeed be resilient and we are stronger together.”

Stronger indeed.

Though it targeted a specific audience, Clarendon’s underlying message had worldwide relevance last year in the global battle against SARS-CoV-2. It quickly became the healthcare industry’s mantra as companies temporarily set aside their rivalries and collaborated on coronavirus treatments and pandemic-induced supply shortages.

Johnson & Johnson, for example, partnered with Merck to manufacture its single-shot COVID-19 vaccine, while its Ethicon subsidiary teamed with non-profit firm Prisma Health on the latter’s ventilator expansion device. The product (dubbed VESper Ventilator Expansion Splitter) enables a single ventilator to be used by two patients; Ethicon manufactured and distributed the device at no cost to U.S. healthcare providers.

“Johnson & Johnson has been investing in and applying the best science to take on the most serious public health threats for more than a century—and there was never any question that we would contribute the full breadth and depth of our company’s expertise to global efforts to combat COVID-19,” Chairman and CEO Alex Gorsky told shareholders in the company’s 2020 annual report. “With this ambitious, urgent goal driving us forward, we set out to follow the science and to make our potential vaccine available on a not-for-profit basis for pandemic emergency use. This work was done around the clock, through innovative models of public-private partnerships and new heights of purpose-driven collaboration. At the start of 2020, no one could have imagined just how dramatically our world was about to change…By any measure, it was a year dominated by uncertainty—yet the pandemic helped to clarify our priorities and reinforce our values. And while the familiar yard signs may be faded now, their message is more resonant than ever: We’re all in this together.”

And together, the J&J enterprise—through its 260 subsidiary firms and 135,000 employees—survived the world’s worst health crisis in more than a century with just a few metaphorical bumps and bruises. Considering all the coronavirus-bred headwinds it faced last year (lockdowns, supply chain snafus, elective surgery postponements, tanking economies), the healthcare behemoth remarkably turned a profit last year, raising total sales 0.64 percent to $82.6 billion. Gross profit was flat at $54.1 billion ($346 million less than 2019) but net earnings fell 2.7 percent compared with fiscal 2019 to $14.7 billion. Earnings per share—both basic and diluted—also were down, slipping 2.3 percent and 2.1 percent respectively.

ANALYST INSIGHTS: J&J is aggressively trying to find ways to join the “battle of the robots.” Their “Velys” Digital Surgery Platform continues to be highly aspirational. The question is their ability to execute on their vision. With MDT launching its HUGO system this year, it will be interesting to observe what moves J&J makes to try to stay in the game. With industry veteran Ashley McEvoy leading the charge in Medical Devices, don’t count them out!

—Dave Sheppard, Co-Founder and Managing Director, MedWorld Advisors

J&J’s Consumer Health and Pharmaceutical segments were cash cows last year, with the former increasing sales 1.1 percent to $14 billion, and the latter expanding revenue 8 percent to $45.6 billion. Consumer Health benefited from higher public demand for oral care, wound care, and (outside-U.S.) skin health/beauty products, while Pharmaceutical proceeds grew from gains in nearly all therapeutic areas, save for cardiovascular/metabolism/other.

The Medical Devices segment, conversely, was J&J’s sole spoilsport, surrendering more than a decade of growth to the pandemic’s fiscal thrashing. Total revenue plummeted 11.6 percent in fiscal 2020 to a 13-year low of $22.95 billion as hospital volumes fell precipitously during the second and third quarters, and the medtech market shrunk between 30 percent and 70 percent. U.S. sales slid 11 percent to $11 billion, and international revenue contracted 12.2 percent to $11.92 billion.

Yet there were some bright spots amid the segment’s gloom: The company secured PPE for front-line workers, expanded its hip/knee and intraocular lens platforms, launched new solutions for stroke and arrhythmia treatments, and further developed its surgical robotics capabilities.

“Our Medical Devices business has made strong progress advancing our pipeline despite the pandemic, achieving and even accelerating certain key milestones throughout the year,” Gorsky told analysts during a Q4/2020 full-year earnings conference call in late January (2021). “We are developing an end-to-end digital ecosystem across three robotics platforms, and we achieved a significant milestone this month, receiving FDA clearance for our VELYS robotic-assisted solutions. We believe the industry is just starting to unlock the full potential and benefits of robotic and digital technologies. Johnson & Johnson is well-positioned to bring innovative, differentiated solutions to the surgery suite over the next 10, 20, and 30 years. Overall, we remain very confident in the long-term prospects around the medical device market.”

Those prospects will have to be quite propitious, however, for J&J to recoup its losses from the pandemic. Three of the Medical Devices segment’s four product franchises posted double-digit deficits due to significant hemorrhaging in all eight subdivisions.

Only Interventional Solutions managed to buck the trend—sales climbed 1.6 percent to $3.04 billion on atrial fibrillation procedure growth and new product releases. Among the introductions was Biosense Webster’s CARTO 3 System Version 7 and CARTO PRIME Mapping Module. Unveiled in late August, the CARTO 3 System is the most advanced version of J&J’s 3D heart mapping solution; the accompanying CARTO PRIME module features added tools that further address all major complex arrhythmias and improved mapping capabilities to help reduce ablation times compared to standard mapping systems.

“CARTO PRIME is the most important software release since the introduction of CARTO 3,” Elad Anter, M.D., associate section head, Electrophysiology, Cleveland Clinic, said at the product’s debut. “COHERENT Mapping helps to overcome many of the challenges in electro-anatomical mapping of complex arrhythmias, and with Parallel Mapping, we’re able to map different rhythms simultaneously.”

J&J gained another tool in its cardiac arrhythmia arsenal last year with the U.S. Food and Drug Administration (FDA) approval of the THERMOCOOL SMARTTOUCH SF Ablation Catheter for persistent atrial fibrillation (Afib). Marketed as both a unidirectional and bidirectional device in the United States and Europe, the FDA granted its approval based on positive study results (80.4 percent clinical success rate at 15 months).

The THERMOCOOL SMARTTOUCH features a surround flow porous tip and electrodes for delivering thermal energy to specific areas of the heart. Its stable contact force transmits a precise location reference signal through a location sensor and transmitter coil to form lesions, which helps reduce ablation time. The device is integrated with the CARTO 3 system to combine the contact force technology with 3D mapping, and improved navigation tools to measure stable contact force and catheter tip position. Moreover, THERMOCOOL SMARTTOUCH provides uniform cooling at half the flow rate of previous generation irrigated catheters, thereby facilitating fluid management.

“Every patient and every arrhythmia are unique,” Francis Marchlinski, M.D., electrophysiology director at the University of Pennsylvania Health System, said upon the FDA’s blessing. “This approval and the PRECEPT data provide evidence to support a tailored approach using the CARTO 3 System and THERMOCOOL SMARTTOUCH SF Catheter to treat persistent AF patients, who are more at risk for stroke and other complications from their AF.”

Managing those complications—particularly stroke—improved with the introduction of several clot removal devices last fall. In September, CERENOVUS premiered a guide sheath, large-bore catheter, and revascularization device, all of which aim to improve mechanical thrombectomy procedure outcomes.

The CEREBASE DA Guide Sheath has more trackability and support to help physicians better navigate “challenging” anatomy and secure distal access for geometric anchoring. The CERENOVUS Large Bore Catheter, on the other hand, is designed for atraumatic vessel wall interaction for balancing trackability with more durability and compatibility. According to the company, the catheter features excellent distal kink resistance in a thin wall design and it allows quick navigation to the middle cerebral artery based on an anatomically optimized design.

The EMBOTRAP III Revascularization Device, the latest-generation stent retriever, aims to engage various clot types, improve procedural confidence, and provide more tailored options to achieve the First Pass Effect (FPE), the complete or near-complete recanalization after one pass of a mechanical thrombectomy device. FPE is an independent predictor of good functional outcome and has been linked to expedited recovery times.

Finally, the CERENOVUS NIMBUS, launched in Europe last October, is designed to remove tough clots for revascularization in patients with acute ischemic stroke caused by a large vessel occlusion. The product’s design features proximal spiral and distal barrel sections; the spiral section is specifically designed to optimize blood vessel lumen coverage and device-clot interaction for better clot engagement and easier clot dislodgement. CERENOVUS claims the NIMBUS design potentially can improve reperfusion rates and reduce the number of necessary passes in tough clot cases.

“Stroke is a silent killer that can take a life within minutes, and we designed CERENOVUS Stroke Solutions to support physicians in successfully treating their patients efficiently and effectively,” Mark Dickinson, worldwide president of CERENOVUS, said in prepared remarks. “We are committed to developing differentiated solutions based on physicians’ real-world experiences to change the trajectory of stroke care.”

J&J had the same goal in mind with new surgical, orthopedic, and vision care offerings last year, though none of the solutions generated enough revenue to counteract COVID-19’s crippling (fiscal) blow. The Vision franchise was most critically impacted by the pandemic: Virus-driven sales descents in the Contact Lenses/Other and Surgical divisions (the former down 11.7 percent to $2.99 billion, the latter off by 25 percent to $925 million) reduced overall Vision revenue 15.2 percent to $3.91 billion despite an expanded TECNIS intraocular lens portfolio that included the Multifocal Toric II intraocular lens (IOL), the Synergy Toric II IOL, CATALYS System cOS 6.0 software, Synergy, and Eyhance IOL.

The TECNIS Multifocal Toric II IOL debuted in May 2020 in cylinder powers of 1.50, 2.25, 3.00, and 3.75 on the 3.25 D and 2.75 D multifocal add power designs. The lens features a new generation of frosted haptics, offering more surface texture and friction between the lens haptics and capsular bag. The TECNIS Synergy and TECNIS Eyhance IOLs hit the Canadian market last summer following Health Canada approval; Synergy eliminates visual gaps present in trifocal and other multifocal technology, while Eyhance features a power-progressive refractive design that minimizes halo, glare, or starbursts (i.e., bright circles of light surrounding headlights and other illuminary sources).

The newly-designed Synergy Toric II IOL (and its Simplicity Delivery System) launched in Europe last fall. Its nearly flat defocus curve and squared, frosted haptic design resists rotation common in astigmatism, and provides continuity without the visual gaps present in trifocal technology, covering 33 cm to distance. J&J also released new software with the lens (CATALYS System cOS 6.0, in collaboration with Cassini Technologies B.V.) to simplify astigmatism management workflow and increase operational efficiency. The software reduces calculation time by including computations of accurate incision parameters using built-in nomogram and the automatic input of accurate incision parameters into the treatment planning screen.

“The TECNIS Synergy Toric II IOL means we can now give cataract patients with astigmatism our most advanced IOL solution yet, whilst the CATALYST System cOS 6.0 is a software package that allows for better accuracy, speed, and ease of use for the surgeon for a whole range of astigmatism procedures,” Erin McEachren, regional vice president of Europe, Middle East, and Africa, for Johnson & Johnson Surgical Vision, said upon the lens’s market release. “This is the best of both worlds for people with cataracts and astigmatism—our best Toric II IOL in a preloaded delivery system with the most advanced software tool for ease, speed, and accuracy in aligning the lens. These latest additions build on our proud history of raising the standard of care for patients with cataracts, and ensure we stay true to our legacy of innovation.”

J&J tried maintaining that legacy within the Medical Devices segment, but COVID-19 considerably hindered the pace of innovation in 2020. New product introductions were relatively scarce in the Surgery and Orthopedics franchises as hospitals worldwide periodically suspended millions of elective procedures throughout the year (mostly within the second and third quarters).

Ethicon Inc., for instance, launched only one product—the ECHELON ENDOPATH Staple Line Reinforcement, a buttressing device for strengthening staple lines and reducing potential complications during bariatric, thoracic and general surgeries. It reportedly is the company’s first buttress solution specifically designed for use with ECHELON Flex Powered Staplers with GST reloads.

The ENDOPATH Staple Line’s mid-September unveiling occurred about six weeks after Ethicon received FDA breakthrough device designation for its transbronchial microwave ablation technology using robotic-assisted bronchoscopy. The designation pairs the NeuWave microwave ablation system with Auris Health’s Monarch platform, a robotic-assisted bronchoscopy solution that provides improved peripheral reach in the lungs with continuous real-time vision, precision, and control.

“We remain incredibly excited about the great potential of the end-to-end digital surgery ecosystem and are simultaneously developing three differentiated robotic programs and recently achieved a significant milestone with the FDA clearance for our VELYS Robotic-Assisted Solution designed for use with the ATTUNE Total Knee System,” Gorsky said in J&J’s 2020 annual report. “Our industry is just starting to unlock the full potential and benefits of these robotic and digital technologies—and it seems only fitting that the same company that helped pioneer sterile surgery 135 years ago is now poised to lead the way in bringing differentiated, cutting-edge, new solutions to the 21st-century operating room.”

Those cutting-edge solutions are critical now to J&J’s long-term growth prospects, given the financial damage the company sustained amid the pandemic. Surgery franchise sales were down 13.4 percent last year to $8.2 billion, with neither product division turning a profit. Advanced surgery revenue fell 6.2 percent to $3.83 billion, though the decline was partially offset by new product sales outside the United States and the resolution of an isolated supply disruption for Ethicon’s SURGIFLO Hemostatic Matrix in 2019.

General surgery proceeds sank 18.8 percent in 2020 to $4.39 billion, due mainly to COVID-19 and the aftereffects of a 3-year-old divestiture (advanced sterilization products, $2.8 billion).

“Our goal is to grow at or faster than the markets where we compete,” Gorsky told analysts during an earnings conference call earlier this year. “We believe the markets where we compete overall in surgery and orthopedics and vision care and others, cardiovascular, are in the 4 percent to 5 percent range. And that’s the goal for our businesses. Of course, with…2020 and the effect of COVID-19, that had a very significant impact.”

Its significance, however, was somewhat blunted in the Orthopedics franchise, which stemmed its losses better than its franchise brethren. The lower deficit total is quite surprising, really, considering the global orthopedics industry virtually went dormant while elective surgeries were suspended last spring and summer.

Total Orthopedics revenue fell 12.2 percent to $7.76 billion, driven by steep declines in all four product divisions. The 11 percent slide in Hips sales ($1.28 billion) was partially offset by strong demand for the Anterior approach (front of the hip), the ACTIS stem, and enabling technologies—KINCISE and VELYS Hip Navigation. The KINCISE Surgical Automated System is designed to replace the handheld mallet traditionally used in total hip arthroplasty, while VELYS aims to improve surgical accuracy.

Knees proceeds nosedived 21 percent last year to $1.17 billion, and Trauma sales slipped 3.9 percent to $2.61 billion. Spine, Sports & Other revenue declined 15.7 percent to $2.7 billion, but new product sales helped the division avert further losses.

Some of those new products included the FIBULINK Syndesmosis Repair System and Radial Head Replacement System, both of which launched last October in the United States.

The FIBULINK system treats traumatic syndesmosis injuries and restores the ankle’s physiologic motion. Developed by Durham, N.C.-based Akros Medical Inc. (acquired last year by DePuy Synthes), FIBULINK features a short high-strength suture bridge, which eliminates potential complications associated with broken syndesmotic screws. DePuy claims the product is the only flexible syndesmotic repair system that can fine-tune and readjust tension intraoperatively, allowing surgeons to tighten and reverse suture tension as necessary to optimize the final gap between the tibia and fibula.

FIBULINK implants are manufactured in stainless steel or titanium, and they are compatible with all DePuy Synthes distal fibula plates and any plate hole that accepts a 4 mm non-locking cortex screw. The system delivers biomechanical superiority over the Arthrex Syndesmosis TightRope XP Implant, with FIBULINK providing three times the fixation strength and 71 percent less elongation in a model simulating poor bone quality, according to DePuy Synthes Fatigue Loading and Static Failure data.

The FIBULINK Repair system eliminates the need for medial incisions or hardware in syndesmotic fixations, thus avoiding such complications as neurovascular structure damage or soft tissue entrapment that may occur with suture button constructs. The implant also helps improve procedural efficiency by delivering fixation through a single lateral incision.

“This launch allows us to bring a differentiated solution that combines the benefits of stability and flexibility in the treatment of these common injuries,” I.V. Hall, worldwide president of Trauma, Extremities, CMF, and Animal Health at DePuy Synthes, said upon the FIBULINK’s release. “The acquisition of Akros and subsequent launch of this key technology demonstrate a clear focus on accelerating meaningful innovation and strengthening DePuy Synthes’ Extremities portfolio—providing diverse solutions that enable customers to provide greater benefit to their patients.”

Another beneficial patient solution to debut last year was the Radial Head Replacement System, designed for patients with destabilized radial head fractures. The system includes side loading spacers and single-use instrument kits to save time in the operating room, improve efficiency, and reduce costs. It reportedly is the first system to use radiolucent trials that allow for better visualization of the elbow joint during trialing and more accurate implant sizing during surgery. The Radial Head Replacement System also offers smooth stemmed implants, which are designed to allow for unrestricted motion, allowing the stem to self-center inside the radial canal.

“We are pleased to integrate this technology into our portfolio alongside our current offerings and provide comprehensive solutions for the treatment of fractures and conditions in extremities,” Hall noted in a news release. “This launch allows us to bring a differentiated solution to surgeons treating the common injury of radial head fractures, while also providing greater efficiency and reducing costs.”

$25.96 Billion ($82.05B total)
Prior Fiscal: $26.99 Billion
Percentage Change: -3.8%
No. of Employees: 132,200 (total)

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. The Harvard University-educated scholar 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 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.

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

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 fiscal 2017 and the 6.7 percent expansion registered in FY18. Gross profit ebbed as well, flatlining at $54.5 billion, and net earnings (both basic and diluted) barely budged, rising just two cents (to $5.72 and $5.63, respectively).

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 less-than-stellar 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 dis- tribute 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.

Various factors contributed to last year’s $1.03 billion loss, including a 1.7 percent operational decrease, a 2.1 percent negative currency impact, and lower domestic and international sales. Acquisitions and divestitures also stymied gains, dragging down worldwide operational sales growth by 5.6 percent, according to J&J’s 2019 annual report.

Such sobering declines, however, failed to cloud the sunny portrait Gorsky painted of the Medical Devices unit’s financial health last year. Analyzing results through non-GAAP-colored lenses (they efficiently block out currency effects, special items, one-time M&A charges, and divestiture expenses), he touted the unit’s near-4 percent “underlying growth” and praised the Orthopaedics division’s improved performance.

“Medical Devices accelerated growth once again in 2019. As a result of our relentless focus on execution, improving our cadence of innovation and disciplined portfolio management, our underlying growth was just under 4 percent,” Gorsky said in the annual report. He cited electrophysiology, energy/endocutters, contact lenses, and orthopedics as major drivers of business growth.

Gorsky wasn’t totally off-base in his assessment—those areas were growth engines for the Medical Devices business last year, but their power was somewhat diminished by losses in other product silos. The 13.3 percent surge in Interventional Solutions sales, for instance, was offset by a 4 percent dip in overall Surgery revenue and a 31 percent descent in Specialty Surgery proceeds. The latter decrease primarily resulted from the $2.8 billion divestment of J&J’s Advanced Sterilization Products (ASP) business to Danaher spinout Fortive Corporation. Finalized in April 2019, the deal was part of J&J’s efforts to streamline its portfolio and jumpstart sagging device sales.

ASP manufactures low-temperature sterilization systems to disinfect and clean surgical instruments; its products include the Sterrad line, which uses hydrogen peroxide vapor to kill dangerous pathogens. The company’s 2018 net revenue approached $775 million.

The massive drop in Specialty Surgery sales last year (from $1.34 billion to $926 million) left the Surgery franchise $400 million poorer—revenue fell to $9.5 billion. Contributing to that shortfall was a 1.7 percent decrease in General Surgery proceeds, which were impacted by volatile currency rates, but sales gains in wound closure products averted further damage in the division (revenue totaled $4.48 billion).

Advanced Surgery managed to avoid the Surgery franchise’s financial carnage, as it increased revenue 2.3 percent to $4.09 billion on the strength of its endocutter, biosurgery, and energy products. J&J added to its biosurgical lineup in June 2019 with the U.S. Food and Drug Administration 510(k) clearance of its VISTASEAL applicators (35 cm and 45 cm), which spray a biological sealant to stem moderate bleeding during open or laparoscopic surgical procedures.

VISTASEAL’s airless spray products were the first to result from J&J’s partnership with plasma-derived medicine manufacturer Grifols, which developed the human fibrin sealant as an alternative to standard bleeding control techniques. The VISTASEAL dual applicator simultaneously delivers two biological components, the clotting proteins fibrinogen and thrombin. J&J is hopeful that VISTASEAL can help reduce the frequency of excessive bleeding during open surgeries and the potentially harmful complications arising from both fluid and air leaks.

“In our Surgery business, what you’re seeing is strong performance in areas like electrophysiology…14 percent growth in this [fourth] quarter with great new technology,” Gorsky said in a full-year 2019 earnings call. “You also saw good performance in our Energy business…We think one of the growth drivers is just overcoming our supply issue in 2020 that probably cut our biosurgery growth rate in half, especially in the latter part of the year. We think once we work our way through that, that’s going to be a growth driver for us.”

Maybe so, but that growth driver would have to reach far beyond the biosurgery division to effectively boost profits in Medical Devices. Only half of the business’s four franchises turned a profit last year, and only one posted growth in the double digits (Interventional Solutions). J&J officials linked that division’s stellar performance to strong growth in electrophysiology, which expanded 14 percent worldwide and 16 percent for the year. Electrophysiology moneymakers included the THERMOCOOL SMARTTOUCH SF Contact Force Sensing Cathether and the EMBOTRAP II Revascularization Device, a next-generation stent retriever designed to capture and remove life-threatening blood clots from the brain following an ischemic stroke. Last January, Cerenovus launched a global registry to gather and examine stroke-inducing blood clots removed from the brain with the EMBOTRAP device; the registry is intended to clarify the correlation between blood clot variations and treatment/outcomes.

Vision was the other cash cow for Medical Devices last year, though it turned out to be more of a cash calf due to U.S. competitive pressures and a sales tax jump in Japan that limited growth in both the Contact Lenses and Surgical divisions. Above-average market performance in intraocular lenses, primarily in Asia-Pacific, helped offset weak U.S. sales and lower market growth in refractive surgery, giving the Surgical (vision) unit a 1.6 percent loss for 2019 ($1.23 billion total revenue).

Contact Lenses/Other sales, conversely, climbed 2.7 percent to $3.39 billion, helping bump overall Vision franchise sales up 1.6 percent to $4.62 billion. In J&J’s glass half-full world, however, growth improved—nearly doubled—to 3 percent when adjusted for the impact of Japan’s higher sales tax, which took effect Oct. 1, 2019.

That same adjustment also bolstered Contact Lenses/Other growth in 2019 to 5 percent (vs. the GAAP-recorded 2.7 percent), pushing total sales to $3.39 billion. The improvement mostly came from robust demand for J&J’s ACUVUE OASYS lenses, particularly the OASYS with Transitions Light Intelligent Technology, which became available in the United States last March. The Transitions lenses seamlessly adapt to changing light, helping eyes recover from bright light up to five seconds faster, reducing halos and starbursts at night, and delivering more “effortless” sight with less squinting from dawn to dusk, according to the company.

“Born out of in-depth research and development around bothersome light, including clinical trials of more than 1,000 patients, ACUVUE OASYS with Transitions is an entirely new category of contact lenses,” Thomas Swinnen, president, North America at J&J Vision Care Inc., said last spring. “This product will give contact lens wearers a seamless way to managing changing light conditions in their everyday lives and activities, building on our commitment to helping people see better, connect better, and live better.”

And move better, too: J&J’s commitment to musculoskeletal care led to a bevy of new product introductions in 2019, including spine, hip, and knee implants. The company bolstered its hip portfolio in January with a new solution for femoral neck fracture repair, and added a cementless option to its ATTUNE Knee system in early September. The ATTUNE Cementless Knee features several patented technologies designed to improve knee function, including the ATTUNE GRADIUS Curve to provide stability through range of motion, and GLIDERIGHT Articulation to more accurately replicate the normal relationship between the patella and femur.

Despite a fourth-quarter surge in Cementless Knee sales and continued demand for the ATTUNE Revision Knee System throughout the year, total Knees product revenue fell 1.4 percent in 2019 to $1.48 billion. That loss, however, was equalized by a 1.4 percent gain in hip proceeds ($1.43 billion total), driven by strong market demand for the ACTIS stem, the KINCISE surgical automated system, and the anterior approach to hip replacement.

Spine & Other sales posted the largest decline in Orthopaedics last year: Revenue tumbled 2 percent to $3.2 billion but the loss was partially offset by a 0.8 percent increase in Trauma proceeds ($2.72 billion total). Trauma products fared better at home than abroad, rising 3.3 percent in the United States and falling 2.9 percent internationally.

Still and all, the gains in Trauma and Hips were no match for the losses recorded by Spine & Other and Knees. Consequently, Orthopaedics franchise sales slipped 0.5 percent to $8.83 billion, with a 1.2 percent operational growth neutralized by a negative currency impact of 1.7 percent compared to 2018.

COVID-19 Consequences

Q1 2020 Revenue: $20.69 Billion
Q1 2019 Revenue: $20.02 Billion
Percentage Change: +3.3%

The novel coronavirus has spared no one or nothing in its wake. And that includes the world’s largest healthcare conglomerate.

Like countless other businesses worldwide, Johnson & Johnson succumbed to the economic turmoil wrought by the virus, though it seems to have weathered the storm relatively better than many. So far.

The company reported a 3.3 percent increase in Q1 2020 sales ($20.69 billion total), a massive 54.6 percent surge in net earnings, and an equally impressive 56.1 percent jump in earnings per share, to $2.17. J&J also announced a 6.3 percent increase in the quarterly dividend rate, from 95 cents per share to $1.01 per share.

Consumer Health and Pharmaceutical revenue flourished in the quarter (ended March 31), rising 9.2 percent and 8.7 percent respectively, but Medical Devices sales fell 8.2 percent (6.9 percent operational) to $5.93 billion as hospitals suspended elective and non-essential surgical procedures to free up resources. The deferral mostly impacted the Devices unit’s Interventional Solutions, Orthopaedics, Surgery, and Vision franchises.

In addition to stifling Medical Devices proceeds, the virus also forced J&J to cut its 2020 guidance; as of mid-April, the company forecast full-year sales to range between $77.5 billion and $80.5 billion, down from a previous estimate of $85.4 billion to $86.2 billion. Adjusted EPS is now predicted to fall from $8.95-$9.10 per share to $7.50-$7.90.

J&J expects sales to worsen in the second quarter (ended June 30), even as elective surgeries gradually resume. Chairman/CEO Alex Gorsky is confident his company can weather the storm, telling investors on a first-quarter conference call that J&J “was built for times like this,” adding: “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.

“We’re manufacturing at risk to ensure that should the clinical development and the trials be successful, we are in a position to kind of flip the switch and ready to go,” J&J CFO Joe Wolk told Yahoo Finance in April, “to create great access across the globe.”

AT A GLANCE
$26.99 Billion ($81.6B total)
Prior Fiscal: $26.59 Billion
Percentage Change: +1.5%
No. of Employees: 135,100 (total)

There’s no escaping the Credo.

It’s literally everywhere in Johnson & Johnson’s world headquarters building—inscribed on an 8-foot-tall limestone slab in the structure’s expansive front lobby, mounted in all offices and conference rooms, supersized for reference within the CEO’s workspace, posted at all significant company-sponsored events, and featured prominently in the annual report. It’s also present at all employee work stations and in the homes of most long-serving staff (that practice ended in 2006). Moreover, the Credo (pronounced “cray-dough”) appears in book form (a compilation of 65 copies from various countries), and the document itself has been translated into 35 languages/dialects for placement in 800 facilities worldwide.

The Credo truly is everywhere. But its purpose extends well beyond sheer decoration. The document serves as inspiration for regular company-wide events like “Credo challenges,” (similar to corporate crisis drills) where executives analyze business decisions through Credo parameters and biennial surveys that solicit input on J&J’s overall consummation of Credo standards.

“Our Credo has been a guiding light for our entire organization…” J&J Chairman/CEO Alex Gorsky said in a company-sponsored Q&A late last year. “Through periods of immense change, it clearly conveyed a set of values that influenced not only what we needed to achieve, but also the actions we needed to take to reach those achievements.”

Indeed, J&J’s Credo is a blueprint of the company’s principles—a moral compass, so to speak, that guides all collective actions. Although its origins can be traced to J&J’s founding, the Credo didn’t become an official document until 1943, when the late president/Chairman Robert Wood Johnson II reluctantly decided to take the company public. Concerned that market pressures and sales would eventually compromise corporate values, Johnson penned a 308-word mission statement establishing J&J’s now-iconic “patients before profits” ideology.

Such a hierarchy—patients first, followed by employees, communities, and shareholders (in that order)—might seem counterproductive to the very notion of capitalism, particularly considering J&J’s $81.6 billion healthcare empire wasn’t built entirely on goodwill. Yet history has clearly proven the value of adhering to Credo dogma.

It was the Credo, after all, that turned one of J&J’s darkest moments into perhaps its greatest triumph, rescuing the company’s sullied reputation after cyanide-laced extra-strength Tylenol capsules killed seven Chicago-area residents in the fall of 1982; the deaths, consequently, reduced J&J’s share of the $1.2 billion global analgesic market by five-fold (from 35 percent to 7 percent).

Guided by its patient-first philosophy, J&J initiated a $100 million national recall of Tylenol and re-launched the product two months later in tamper-proof packaging. The company’s honest, transparent approach to the ordeal is considered the gold standard in corporate crisis management, and has served as the basis for numerous business school case studies over the last three decades. More importantly, however, the Credo-inspired remedy saved both J&J’s reputation and the Tylenol brand: By the end of 1983, J&J (via Tylenol) had reclaimed its 35 percent share of the worldwide analgesic market.

“The Credo is structured in such a way that if we serve the patient, we will always do well. If you truly want to serve your shareholders, you should keep the patient in mind,” Kate Merton, head of Johnson & Johnson Innovation, JLABS New York, Boston, and Philadelphia, told Forbes in January. “If you want to help your employee base, you should keep the patient in mind. If we lose track of what we are really here for, then both of those groups will fail, and we will fail as a business to generate revenue and give a return to our shareholders.”

J&J reinforced its allegiance to patients and employees last year by giving the 75-year-old Credo a 21-century makeover, tweaking the document’s language to foster better job fulfillment, and a more diverse, healthy, inclusive workforce. The company also added phrasing to address the changing healthcare ecosystem and the importance of improved global access to medical care.

“…Our Credo is a living and breathing document. It’s both timely and timeless. Several times over the years, we’ve revised it slightly to ensure it remains just as forward-thinking as the day it was introduced,” Gorsky noted in the company Q&A. “In 1987, the last time changes were made, the word ‘fathers’ was added to accompany ‘mothers’ in the first paragraph, and a nod to work/life balance was included…Each time Our Credo has been updated, it has reflected the changing world in which we live and operate.”

The Credo’s most recent updates likely were inspired by the rapid rise of digital health and data analytics—the building blocks of connected, personalized care solutions. J&J has invested heavily in these areas in recent years to remain on the forefront of the digital revolution, devising mobile apps for joint pain and blood glucose management, as well as an online ecosystem for knee surgery consults. The company also is developing a digital surgery platform through its well-publicized partnership with Alphabet’s life sciences arm, Verily; details of the project are scant, but the technology reportedly combines robotics, visualization, advanced instrumentation, data analytics, machine learning, and Cloud-based connectivity to create a solution that will rival the likes of Intuitive Surgical’s da Vinci robotic system.

Currently slated for debut next year, the Verily innovation is destined to become a cornerstone of J&J’s digital surgery platform and boost the company’s role in the burgeoning medical robotics arena. J&J fortified that role last year with the February 2018 acquisition of Orthotaxy, a privately held developer of software-enabled surgical technologies, including a robotic-assisted surgery solution.

Like its Verily-developed counterpart, the Orthotaxy robotic system has a 2020 launch date. And while it certainly qualifies as a medical “robot,” the device in no way resembles other systems currently in use: It’s small, portable, and does not use disposable instruments (a potential cost savings of $1,500-$2,500 per procedure). Also, no CT scans or special technicians are required to design and execute the surgical plan.

“We took our time looking at robotics. What we were looking for in robotics was something that really would move the needle in terms of outcomes, without interrupting workflow or adding to the complexity of a procedure,” Euan Thompson, Ph.D., J&J’s global head of R&D, Digital Technology, and Innovation, told In Vivo last July. “We see large, cumbersome systems in the million-dollar range that have to be wheeled into the OR for each procedure, get in the surgeon’s way and very often require support from a dedicated team to enable the surgeon to operate it. We didn’t want to go in that direction. When we found the Orthotaxy system, we believe we saw a very different type of robot—a platform rather than a system.”

ANALYST INSIGHTS: With its shared $450 million investment (with Google Verily) in robotic company Verb Surgical, J&J is another entity with a heavy commitment to robotics in its future. They will have a challenge to displace industry robotic leader Intuitive Surgical in general surgery. In orthopedics and spine segments, their competitors are also ahead in robotic assist platforms—creating pressure on the DePuy division to continue to make investments for its future ability to compete in these areas.

—Dave Sheppard, Co-Founder and Managing Director, MedWorld Advisors

“The concept can be applied to different techniques,” he continued. “In total knee replacement, the end effector is a guide system that is continually adjusting the guide block, with the surgeon remaining in control and using the saw through the guide block. The surgeon is doing the cut, but the accuracy is being controlled by the robotic alignment assisted by the continuously updating Orthotaxy system. In spine procedures, the saw guide block would be replaced with a drill guide component—the system refreshes in the same way for, say pedicle screws, to continuously guide alignment. It’s a modular concept. It doesn’t get in the way of work flows. We’ve found it easy to use, intuitive and extremely accurate. This is what we feel is the future.”

J&J is banking heavily on that future to rescue its underwhelming Medical Devices business. Despite increasing its total sales last year, the struggling unit posted the lowest growth rate among the healthcare behemoth’s three major product segments—total revenue rose just 1.5 percent (1.1 percent operational) to $26.99 billion in 2018, trailing the 1.8 percent hike in Consumer proceeds and the 12.4 percent jump in Pharmaceutical sales.

Growth was inconsistent throughout the segment, with solid gains in Surgery, Vision, and Interventional Solutions (previously Cardiovascular) offset by losses in Orthopaedics and Diabetes Care. The latter product franchise posted the largest deficit in 2018 ($606 million), thanks primarily to the $2.1 billion divestiture of J&J’s LifeScan business last spring. Inherited via the 2005 Animas Corporation acquisition, LifeScan developed and sold blood glucose monitoring products (meters, testing strips, lancets), point-of-care testing devices, and integrated digital solutions under the OneTouch brand. The business served nearly 20 million patients in more than 90 countries.

LifeScan’s sale nearly completes J&J’s retreat from the lucrative but increasingly competitive diabetes care market. In the fall of 2017, the company shut its insulin pump manufacturing unit (Animas) and consigned customers to rivals Medtronic plc, Insulet Corporation, and Tandem Diabetes Care Inc. With LifeScan gone, J&J has only a few assets in the space, namely, offerings in bariatric surgery, its SGLT-2 inhibitor Invokana (canagliflozin), and related products.

“…following a thorough review of all strategic options, we feel confident the [LifeScan] business would have a promising future with Platinum Equity,” Ashley McEvoy, company group chairman for consumer Medical Devices, said when J&J was first approached about the sale in March 2018. “This initiative is part of our ongoing, disciplined approach to portfolio management to focus on our most promising opportunities to help patients and drive growth.”

Those opportunities clearly resided last year in surgical products, contact lenses, electrophysiology devices, and atrial fibrillation treatment, according to J&J’s 2018 annual report. Surgery franchise sales increased 3.6 percent to $9.9 billion, with growth fueled by gains in two of its three product divisions.

Advanced Surgery proceeds swelled 6.5 percent to $4 billion amid solid demand for endocutter, biosurgery, and energy devices, while General Surgery revenue climbed 2.1 percent to $4.55 billion. Specialty Surgery finances, on the other hand, flatlined at $1.34 billion, owing largely to stagnant sales in Ethicon Inc.’s Advanced Sterilization Products (ASP) business, a provider of equipment, consumables, and software used in low-temperature terminal sterilization and high-level surgical instrument disinfection.

Such languor ultimately inspired another round of portfolio molting last summer. With negotiations barely underway in the LifeScan deal, J&J agreed to unload the ASP unit to Everett, Wash.-based Fortive Corporation for $2.8 billion. The sale—which closed only three months ago—marked the company’s fifth major divestment in as many years and further proves J&J’s dedication to portfolio optimization. Since 2014, the company has shed underperforming business units like Ortho-Clinical Diagnostics, Cordis, Codman, and Animas, in order to focus on more profitable medical technologies. “As we balance the interests of all our stakeholders to deliver the greatest value to customers, health care providers, and shareholders, we must continuously assess strategic fit and explore alternatives for our businesses,” Shlomi Nachman, company group chairman for Interventional Solutions and Specialty Surgery, said in announcing the ASP sale in June 2018.

Such a strategy is likely to continue as J&J strives to reinvigorate growth in its medtech unit. Hence, Orthopaedics might be next on the chopping block unless the franchise can stop hemorrhaging profits: Annual sales have tanked 8.17 percent since 2015, with Spine the worst offender (down 16.4 percent). Last year, Orthopaedics revenue fell 1.9 percent to $8.88 billion, as losses in Knees and Spine offset gains in Hips and Trauma. Knee proceeds slipped 1.4 percent to $1.5 billion due to U.S. competition, but the decline was somewhat muted by growth in Asia-Pacific, according to J&J’s annual report. Spine’s 7.3 percent sales slide (to $3.26 billion) resulted mostly from market share loss and lingering effects of the Codman Neurosurgery divestment in 2017. Contrarily, new products fueled Hip and Trauma sales growth—1.7 percent and 3.2 percent, respectively.

The Vision franchise was J&J’s second-best performing unit in fiscal 2018 (year ended Dec. 31), growing revenue 12.1 percent to $4.55 billion on solid sales of contact lenses and cataract surgical products. Surgical proceeds, in fact, posted the best annual growth in the Medical Devices segment, surging 21.8 percent to $1.25 billion; contact lens revenue was a distant second, ballooning 8.8 percent ($3.3 billion) due to robust demand for OASYS astigmatism and daily disposable contact lenses.

J&J is attempting to increase that demand with new light-sensitive, vision-correcting contact lenses it developed in partnership with Transition Optical. Named one of the best inventions of 2018 by Time magazine, the contacts (ACUVUE OASYS with Transition Light Intelligent Technology) contain a photochromic filter that continuously balances the amount of light entering the eye for maximum comfort and protection against blue light and ultraviolet rays.

“This innovation was born out of deep research into consumer lifestyle needs and fits our future-forward approach to caring for human sight,” Dr. Xiao-Yu Song, global head of R&D for Johnson & Johnson Vision, said in unveiling the new lenses. “ACUVUE OASYS with Transitions creates and defines an entirely new category of contact lenses that will address unmet needs for patients.”

Addressing unmet patient needs helped the Interventional Solutions franchise achieve double-digit growth last year. Revenue spiked 15.2 percent to $2.64 billion on strong electrophysiology product demand, higher numbers of atrial fibrillation procedures and continued uptake of the company’s THERMOCOOL SMARTTOUCH Contact Force Sensing Catheter, a U.S. Food and Drug Administration-approved device released in August 2016 that pairs contact force technology with a porous tip for optimum efficiency.

“In Medical Devices, consistent sales momentum throughout the year was fueled by Interventional Solutions, Advanced Surgery and Vision,” Gorsky told analysts during an earnings conference call earlier this year. “We promised improved performance starting in 2018, and our team is delivering on this promise by improving our cadence of innovation, coupled with continued portfolio optimization…that we expect will further augment our future growth.”

That cadence of innovation produced 21 major product launches last year in the Medical Devices segment. Some of the more notable debuts included:

• • SURGICEL Powder Absorbable Hemostat, a powdered adjunctive hemostat designed to help surgeons control disruptive bleeding more efficiently. The powder spreads across broad surfaces to quickly stop bleeding (reportedly in 30 seconds, 89 percent faster than rival products). The powder also provides surgeons with added handling and versatility for various procedures.

• • TruDi Navigation System, a real-time, 3D image-guided navigation system designed for ENT (ear, nose, throat) procedures. TruDi is designed specifically for intranasal and paranasal image-guided navigation procedures, though it also enables the use of the RELIEVA Spinplus Nav 3D navigation-enabled balloon sinuplasty system for treating chronic sinusitis.

• • Ethicon’s Bariatric Revision Surgical Solution, a portfolio featuring bariatric revision surgery training and education packages as well as the HARMONIC HD 1000i Shears for dissection and tissue sealing; the ECHELON FLEX GST stapler, STRATAFIX Knotless Tissue Control Devices for suturing, and SURGICEL SNoW Absorbable Hemostat.

• • MENTOR Worldwide LLC’s CPX4 Breast Tissue Expanders with a smooth surface for easy insertion and removal. The device also features additional suture tabs for better fixation and minimal rotation risk in subcutaneous and submuscular breast reconstruction procedures.

• • DePuy Synthes’ ACTIS Total Hip System, an implant suitable for both tissue-sparing (Anterior) and traditional approaches in hip replacements. The product incorporates features like a medial collar, triple-taper geometry, and 12 sizes to allow for a precise anatomical fit.

• • SENTIO MMG, a digital mechanomyography platform designed to assess nerve status and identify and avoid peripheral nerves during spine surgery. SENTIO’s platform uses adhesive smart-sensors that are applied to the skin and provide surgeons with real-time feedback on nerve location. The technology has a minimal O.R. footprint and eliminates the need for a neuromonitoring specialist to be present during surgery.

• • EMBOTRAP II Revascularization Device, a stent retriever made to capture and retrieve blood clots from the brain after an ischemic stroke. Manufactured by Cerenovus, the device is most effective within eight hours of the onset of stroke symptoms. The best candidates for treatment with EMBOTRAP II are patients who are ineligible for intravenous tissue plasminogen activator (IV t-PA) or who fail IV t-PA therapy.

$26.6 Billion ($76.4B total)
NO. OF EMPLOYEES: 134,000

“The future is there…looking back at us. Trying to make sense of the fiction we will have become.

— William Gibson, “Pattern Recognition”

Some companies chase the future. Others shape it.

Apple clearly falls into the latter category. From its first computers—the rudimentary but revolutionary pre-assembled Apple 1 and graphical user interface-touting Lisa (the one that introduced the “mouse”)—to the pocket-sized iPod, touch computing iPhone, and netbook-killing iPad, Apple truly has changed the way humans socialize and communicate.

Google and Tesla are top morrow moulders as well. The former entity essentially cataloged the Web, giving structure to the jumbled mess of digital data that once littered the information superhighway. Its algorithms and index updates over the last 20 years have turned the tech giant into the go-to source of information (and quite a popular transitive verb). Tesla, on the other hand, is transforming the auto industry with its electric cars and autonomous (self-driving) vehicles, while also becoming a poster child for sustainability (its Powerwall rechargeable home battery system is guaranteed to store 70 percent of its rated power output at 10 years).

Johnson & Johnson considers itself a future forger too. Actually, the company’s chief executive claims the multinational conglomerate has dedicated its life to defining healthcare’s future. “Through the decades, Johnson & Johnson has advanced with the evolution of science and technology…” Chairman and CEO Alex Gorsky reminded shareholders at the start of the firm’s 2017 annual report. “In fact, every year for the past 132 years, Johnson & Johnson has been involved in defining the future of healthcare.”

Maybe not every year, admittedly. But certainly more often than not, J&J has been at the forefront of significant medical breakthroughs: It introduced the world to sterile surgical dressings and sutures (1887); first aid kits (1888); affordable dental floss (1898); BAND-AID adhesive bandages (1921); synthetic sterile sutures (1969); a disposable skin stapler (1978); coated sutures (1979); extended-wear disposable contact lenses (1987); minimally invasive gall bladder removal (1988); low-temperature gas plasma sterilization (1992); and a topical skin adhesive glue (1998).

ANALYST INSIGHTS: Since taking over the Medical Devices Businesses at J&J, Sandi Peterson has had an immediate impact on the J&J portfolio—leading to decisions to exit both its multi-billion dollar Sterilization and Diabetes businesses. With Sandi’s announced retirement later in 2018, watch for J&J to be efficient in bolt-on acquisitions for its core franchises (Ethicon, DePuy, etc.) while waiting to see how its investment in Verb Surgical (robotics) begins to take shape.

—Dave Sheppard, Co-Founder and Principal, MedWorld Advisors

The company picked up the pace of innovation with the millennium’s arrival, developing a coated antibacterial suture (2003); silicone gel implants (2006); a tissue expander with suturing tabs (2008); and a single-handed balloon sinuplasty device (2012), among others. Over the last few years, however, J&J has somewhat shifted its focus to better target (and shape) both digital healthcare and value-based medicine. In 2015, for example, the company teamed up with IBM’s Watson Health unit to create consumer-focused virtual coaching apps for knee replacement patients. Using Watson’s cognitive computing, the app predicts outcomes, suggests treatment plans, and provides personalized encouragement to patients during recovery.

Through its Ethicon subsidiary, J&J also has partnered with Alphabet Inc.’s Verily Life Sciences to develop a new robotic-assisted surgical solutions platform for improved access to minimally invasive surgery, greater hospital efficiency, and enhanced patient outcomes. Since the pairing, the partners have developed a surgical platform prototype encompassing robotics, visualization, advanced instrumentation, data analytics, and connectivity—an innovation the duo is calling “Surgery 4.0.”

J&J’s value-based healthcare initiatives aim to ease the transition to alternative reimbursement models and reinforce patient engagement, preventative care, and operational efficiency. Its Health and Wellness Technology Accelerator—a venture created in conjunction with Sunnyvale, Calif.-based Plug and Play Tech Center—specifically targets technologies that address nutrition, physical activity, stress, and sleep, as well as alcohol addiction and smoking cessation.

Likewise, the company’s CareAdvantage program is a holistic, data-driven approach designed to help companies shift to payment models tied to quality and/or value. The initiative uses data-driven analysis and insights, on-site assessments, and focused action plans to improve operational efficiency in cardiovascular medicine, surgical oncology, obesity, and orthopedics based on goal-specific targeted metrics. The orthopedic component combines a cloud-based platform for patient interaction, episode data analysis, infection risk reduction best practices, pre- and post-operative care (setting) expectations, and a standardized hip fracture care program.

“…we are convinced that technology will not replace but rather will extend human caring…Ahead we see a future that lies beyond the intersection of science and technology,” Gorski wrote in his shareholder letter. “We are rocketing toward that future, toward the very edge of imagination and possibility. That’s exciting, of course, and just a little daunting at the same time. Getting to that future will require urgency, boldness, and vision—characteristics most often attributed to very successful startups. However, I believe it is also a great description of this company today—a 132-year-old startup.”

Not many “startups,” however, are as fiscally fruitful as J&J. Last year, the New Brunswick, N.J.-based company increased its total revenue 6.3 percent to $76.4 billion and grew its per-share stock price by $24.51, or 21.3 percent (ending 2017 at $139.72). Gains occurred in each of J&J’s three product franchises, with Pharmaceutical posting the largest rise (8.3 percent) followed by Medical Devices (5.9 percent) and Consumer (2.2 percent).

The sales surge in Medical Devices is a redemption of sorts, for past franchise sins. Declining revenue in recent years prompted the company to implement a massive restructuring in 2016 and replace its slower-growing businesses with more profitable technologies—a strategy that surely induced the $1.045 billion sale of DePuy Synthes’ Codman Neurosurgery business last February and the $4.33 billion purchase of Abbott Medical Optics in September 2016. The swap-out scheme also was responsible for a handful of smaller bolt-on acquisitions last year that augmented J&J’s surgical solutions portfolio and expanded its capabilities in acid reflux treatment, expandable spinal cage technology, 3D printing, bone defect remedies, and hemorrhagic and ischemic stroke care.

Before changing ownership, J&J’s Codman Neurosurgery business made two key acquisitions: Pulsar Vascular Inc. of Los Gatos, Calif., (December 2016) and Neuravi Ltd. of Galway, Ireland, (April 2017). The Pulsar deal added a brain aneurysm treatment device to J&J’s stroke care lineup; the PulseRider product is a minimally invasive, self-expanding nitinol implant used to bridge the neck of cerebral aneurysms during treatment of unruptured wide-neck intracranial aneurysms originating on or near a bifurcation. The device’s “saddle” shape stent leaves minimal metal in the parent artery, enabling easy access to the aneurysm for coiling while maintaining support. Neuravi’s CE-Marked EmboTrap, on the other hand, captures blood clots and opens up blocked vessels.

J&J eventually rolled the two assets into a new neurosurgery business called Cerenovus (Latin for “new” and “brain”). The unit also houses Codman’s existing neurological product portfolio.

“We’ve been divesting slower-growth areas or areas that we think are better off in someone else’s hands and investing in higher growth areas and new technologies,” executive vice president and chief financial officer Dominic J. Caruso told investors during an April 2017 first-quarter conference call. “This particular ischemic stroke treatment from Neuravi is already on the market in Europe…it provides for faster blood flow and more accurate retrieval of the clot within the neurovascular system. Our entire medical device business has largely been grown by these smaller, tuck-in, bolt-on acquisitions with technologies that advance the standard of care and with our scale in distribution, we’re able to do much better with that asset in our hands than in the hands of the previous owner.”

ANALYST INSIGHTS: JNJ closed on the sale of its Diabetes unit (Lifescan Inc.) that included Animas and Calibra Medical for $2.1 billion less than what was rumored a year ago. Most experts believed this was a fair price for the $1.5 billion revenue-generating business unit that was declining and facing continued pricing pressure. It appears that JNJ will continue to focus on specialty pharmaceuticals, Baby Boomer-focused medical devices (hips, knees, spine, etc.) to capitalize on the aging of America, and acquisitions in the above areas focusing on pharmaceuticals.

—Mark Bonifacio, Founder and President, Bonifacio Consulting Services

Sentio LLC, Megadyne Medical Products Inc., and Torax Medical Inc. agreed with Caruso’s assessment. The first is now part of DePuy Synthes, while the latter two are within Ethicon Inc.

Last June’s Sentio purchase adds nerve localization technology to DePuy’s offerings, enabling the business to strengthen its spine portfolio in both decompression and lateral surgery procedures, and build a platform for future innovation in minimally invasive (MI) surgery.

Ethicon is planning to build a similar platform with the help of Draper, Utah-based Megadyne Medical and St. Paul, Minn.-headquartered Torax Medical. The former company specialized in “start-to-finish” electrosurgical equipment and accessories—products that are part of a fast-growing segment of MI surgical tools. Market data show demand for these products is being driven by pressure to increase efficiency and reduce healthcare spending as well as provide alternative procedures for aging patients who cannot undergo traditional surgery.

Likewise, the February 2017 purchase of Torax Medical adds a MI treatment for gastroesophageal reflux disease (the Linx Reflux Management System) to J&J’s product lineup and gives patients a less invasive option to laparoscopic Nissen fundoplication, which involves wrapping the upper part of the stomach around the esophagus and stitching it in place.

“All of the actions we’ve taken invest in the platforms we believe have significant growth. We’ve been doing this both in terms of acquisitions, strategic partnerships, and investing in R&D,” Sandra E. Peterson, J&J executive vice president and group worldwide chairman, said during a third-quarter earnings conference call last fall. “We’ve made a significant bet in our neurovascular business, where stroke is a huge unmet need and it’s only growing. We now have a business, due to some things we did internally as well as a couple of acquisitions in the last 12 months. You should see us, over time, build that business the way we have built the EP business.”

Cerenovus’ construction blueprint will likely closely match the project scheme for J&J’s new Vision franchise, which was formed last winter with the completion of the $4.32 billion Abbott Medical Optics deal. The business, part of the overall Medical Devices franchise, consists of two platforms—Johnson & Johnson Surgical Vision Inc. (formally Abbott Medical Optics, consisting of ophthalmic products in both cataract and laser refractive surgery); and Johnson & Johnson Vision Care Inc., maker of Acuvue brand contact lenses.

Each platform received inaugural “welcome” packages via acquisition, with Research Triangle Park, N.C.-based TearScience rolled into the Surgical Vision segment and Sightbox Inc. folded into the Vision Care division. TearScience produces devices that treat meibomian gland dysfunction, a leading underlying cause of dry eye disease, while Sightbox offers an online membership-based subscription service for U.S. contact lens wearers.

“2017 was a year of transition in our Medical Devices business. We’ve taken a lot of action regarding innovation, we’ve taken a lot of action pruning our portfolio, and we’ve taken action as well to improve execution in the field,” Gorski said in a January 2018 earnings call. “What we are pleased about is the fact that we saw an increase in the number of [product] launches, and improved execution. Given some of the reorganizations that have occurred, we think this is what helped produce some of the improvement in results.”

Seemingly negligible forces like a 5.7 percent operational increase and 0.2 percent positive currency impact didn’t hurt, either, though solid gains from most all Medical Device divisions largely contributed to the $26.6 billion franchise’s overall sales growth. The Vision segment boasted the largest increase, lifting sales 46 percent over 2016 to $4.06 billion on the backs of Abbott Medical Optics-related sales and new contact lens product launches. The latest market entrants helped drive a 9 percent rise in contact lens sales (to $3.04 billion) in 2017, whereas Abbott’s former wares gave Vision Surgical a premiere $1.02 billion bonanza.

Cardiovascular’s 13.4 percent rise in revenue (to $2.09 billion) came primarily from robust eletrophysiology market growth and continued uptake of the division’s THERMOCOOL SMARTTOUCH Contact Force Sensing Catheter, a U.S. Food and Drug Administration-approved device released in August 2016 that pairs contact force technology with a porous tip for optimum efficiency.

Surgery sales climbed 2.8 percent to $9.56 billion despite a 5.4 percent drop in Specialty Surgery proceeds (to $1.34 billion) due to lower demand for aesthetic, advanced sterilization, and Sterilmed Inc. reprocessed devices. Advanced and General Surgery counteracted the loss with 6.8 percent and 2.3 percent revenue increases ($3.76 billion and $4.46 billion, respectively), according to J&J’s 2017 annual report. The addition of Megadyne Medical’s lineup helped fuel growth in Advanced Surgery, as did strong sales of endocutter, biosurgery, and energy products like the ENSEAL X1 Large Jaw Tissue Sealer released last March. Designed for use in open general, gynecologic, urologic, thoracic, and vascular procedures, the ENSEAL X1 is an advanced bipolar device that provides better hemostasis and tissue management, and improved ergonomics.

Similarly, Torax Medical’s lineup bolstered General Surgery proceeds, but the division also benefited from strong demand for suture products, including the STRATAFIX brand of barbed sutures (introduced in conjunction with DePuy Synthes in March 2017) and the PROXISURE Suturing Device (released last August).

The STRATAFIX Knotless Tissue Control Devices feature barbs spaced 1 mm apart spiraling along a length of string that change direction midway down the suture; the design gives surgeons more control and flexibility while maintaining the necessary strength to hold tissues together without using knots.

PROXISURE is an advanced laparoscopic suturing device with wrist-like maneuverability and a curved needle for improved stitching precision in close spaces. The curved needle passes 180 degrees with each trigger pull, and is capable of suturing into flat or contoured surfaces. It can be used in MI surgeries for placing interrupted or running stitches in soft tissue.

“With the patient’s health at the forefront of our thinking, we aimed to introduce a suturing device that will help reduce the margin of error in minimally invasive surgery,” Ethicon Franchise Medical Director Dr. Niels-Derrek Schmitz noted upon the PROXISURE’s release.

Improved outcomes were foremost in thought within Orthopaedics as well: Sentio’s nerve localization platform, which locates nerves via adhesive skin sensors, can be set up by O.R. personnel rather than a neuromonitoring specialist. And, both the VIPER PRIME System and single-use CONCORDE Clear MIS Discectomy Tool aim to simplify minimally invasive spinal fusion surgery. The VIPER System combines multiple instruments into one pedicle screw inserter tool that reduces the number of instrument passes. CONCORDE, on the other hand, allows surgeons to complete the degenerated disc-clearing process faster on average and more efficiently compared to traditional discectomy tools while increasing the amount of disc material removed.

Such innovations, however, failed to move the needle forward in Orthopaedics last year. Division sales slipped 0.8 percent to $9.26 billion, as flatlining knee proceeds ($1.52 billion) and declining spine revenue (down 4 percent from 2016 to $3.72 billion) offset a 2.4 percent jump in hip sales ($1.39 billion) and 1.8 percent rise in trauma proceeds ($2.61 billion). J&J blamed the loss in spine revenue to pricing, competitive pressures, and the Codman Neurosurgery divestiture.

J&J’s departure from the North American insulin pump market had a similar effect on its Diabetes Care segment, reducing sales 9.7 percent to $1.61 billion. The company revealed its decision in early October and cited several reasons for the sudden withdrawal: changing customer needs, market dynamics, price declines, and increased competition (the last two also negatively impacted overall Diabetes franchise revenue).

J&J claimed the combination of challenges made it “too difficult to sustain the insulin pump business” (Animas Corp.) in the United States and Canada. The move does not affect Vibe and OneTouch Ping insulin pump sales outside North America. J&J referred nearly 90,000 U.S. and Canadian Animas pump users to Medtronic plc for supplies but noted that provisions will only be available from the rival firm through Sept. 30, 2019.

“We are committed to having all of our businesses deliver the highest levels of innovation, customer satisfaction, and overall performance,” Gorski said in J&J’s 2017 annual report. “Considering the progress we’ve made in our Medical Devices business, we are pleased, but never satisfied. We know there is still a great deal of work ahead of us to ensure we are ideally positioned to consistently deliver innovative solutions and value in 2018 and beyond.”

$25.1 Billion ($71.9B total)
NO. OF EMPLOYEES: 126,400

“In the long history of humankind (and animal kind, too) those who learned to collaborate and improvise most effectively have prevailed.”

— Charles Darwin

Great innovation is seldom hatched in isolation.

That Eureka! moment—long exemplified through lightbulbs and thought bubbles—is just as fictional as the iconic symbols themselves. Consider for a moment the classic yarns of solitary genius forever etched in American folklore: A young Steve Jobs inventing the home computer in his parents’ Silicon Valley garage; Alexander Graham Bell shouting for his assistant upon creating the telephone; Thomas Edison perfecting the lightbulb in a deserted laboratory; and Isaac Singer working interminably to patent the sewing machine.

All transformative inventions. All born independently in a spontaneous moment of creative brilliance.

All myths.

Jobs certainly had a hand in transforming the computer industry, but his role has been considerably romanticized over the years. The first Apple computer, actually, was neither the product of rudimentary garage work nor Jobs’ engineering savvy but rather the ingenuity of Apple Inc. co-founder Steve Wozniak. A self-proclaimed geek, Wozniak built the machine—duly named the Apple-1—after work hours in his northern California apartment and his tiny Hewlett-Packard cubicle (he designed calculators for the company in the early 1970s).

“Actually, there was no design nor construction of this computer in any garage,” he told Gizmodo in a comment section of a 2014 post about the Apple-1. “The designs were passed out freely with no copyright notice so that others could build a useful computer at low cost. Others even had hand-built versions of this computer before Steve Jobs even knew it existed…Steve Jobs did do the business end of getting the thing productized, but at first, it was just to be a PC board alone, with no parts on it…The Apple-1 wasn’t designed to be a computer as much as modifying my hand-built terminal (Arpanet days) to be a computer. Jobs did all the business, getting parts, getting sales, getting publicity, from his bedroom. The manufacturing was done in Santa Clara at the same place the PC boards were made. The garage had a bench but it was only really needed part of a day each week to check out the boards and make sure they worked.”

So much for the legend. Jobs’ true role in digitizing the planet was not one of inventor but of visionary. Like most gifted leaders, he recognized good ideas and successfully refined them, creating life-changing technology in the process. He accomplished this not only with the Apple-1, but with the Macintosh as well. Jobs’ stroke of genius for the Macintosh occurred not in a secluded garage or private bedroom but during his now-infamous 1979 visit to Xerox PARC, the R&D arm of Xerox Corporation, where engineers had built a computer featuring a graphical user interface, bitmapping, and a “mouse” (in truth, PARC couldn’t legitimately take credit for the mouse concept, as it technically improved upon a 1963 invention by a Stanford Research Institute computer scientist).

Jobs experienced similar “a-ha” epiphanies in developing the iPod (based on primitive portable digital music players of the mid- to late 1990s, which he contended “truly sucked”), the iPhone (a vast improvement from the first class of smartphones), and the iPad (the brainchild of a Microsoft engineer who was married to a Jobs family friend and invited the Apple executive to his 50th birthday party). He was, as author Walter Isaacson asserts in his 2011 biography, “Steve Jobs,”  a master  “tweaker.”

“In the eulogies that followed Jobs’s death…he was repeatedly referred to as a large-scale visionary and inventor,” New Yorker writer Malcolm Gladwell noted in a November 2011 review of Isaacson’s book. “But Isaacson’s biography suggests that he was much more of a tweaker. Jobs’s sensibility was editorial, not inventive. His gift lay in taking what was in front of him—the tablet with stylus—and ruthlessly refining it. Jobs was someone who took other people’s ideas and changed them. He was a tweaker to the last, endlessly refining the same territory he had claimed as a young man.”

History is replete with such resourceful refinement. Some of the most renowned inventions, in fact, have been fostered through collaborative “tweaks” rather than solo creativity (namely, the spinning mule, telephone, sewing machine, and lightbulb, among others). The magic of innovation, it seems, is best conjured in groups.

Buoyed by recent research, companies are increasingly embracing the concept of collective creativity, harnessing innovation from their employees as well as from outsiders such as suppliers or competitors. Procter & Gamble was an early proponent of the idea: Seventeen years ago, the consumer goods manufacturer first took a collaborative approach to innovation by splitting new idea development evenly between its own laboratories and outside sources. One of the most successful descendants of the program was the Swiffer, a handheld dusting solution developed by Unicharm Corporation, a Japanese manufacturer of disposable hygiene products, household cleaning goods, and diapers (both for infants and adults). Rather than develop a rival product, P&G purchased the rights to Unicharm’s duster outside of Japan and collected $100 million in sales within the first four months of the Swiffer’s market release.

“…innovation and collaboration are not mutually exclusive; they feed and build upon each other. It’s not an ‘either-or.’ Innovation happens through collaboration,” Forbes contributor Kate Vitasek wrote in 2015. “Today’s business models are more dependent than ever on complex, cross-company collaboration for business innovation. The future will likely be won by those who don’t wait for lightbulb moments from a single genius, but rather develop highly collaborative win-win relationships that leverage the collective power of many.”

Johnson & Johnson is aiming to become one of those prospective champions as it battles for market share and relevancy in an industry fraught with change. Fundamental shifts in reimbursement, consumer empowerment, healthcare delivery models, digital engagement, and the competitive landscape are blurring the lines between medtech, health IT, and therapeutics. Moreover, the switch from volume- to value-based care has created a clear demand for real-world metrics and service-driven solutions, prompting medtech firms to revamp their traditional business models.

JNJ, of course, is no stranger to business model revision, having overhauled its corporate template countless times over its 131-year history to adapt to an evolving environment. In 2016, for example, the global healthcare conglomerate streamlined its consumer and medical devices operations in an effort to centralize hospital product services and create bundled packages for customers. JNJ realigned its formerly decentralized and autonomously managed Medical Devices business under one Medical Device Management unit with three global franchises (Ethicon Surgical, Biosense Webster Cardiovascular, and DePuy Synthes Orthopaedics), a single research and development segment, and one supply chain unit.

ANALYST INSIGHTS: While having an enviable global sales and marketing organization, J&J’s Medical Devices franchise has struggled to get new products to market as rapidly as its competition. There’s been disruption and some innovative thinking in the development groups, manufacturing, and among supply chain partners. While J&J and Alphabet’s Verb Surgical robotic devices capture headlines, Medical Devices will have to consistently deliver product in a timely manner if it wishes to defend its market position. Recent signs are positive but Medical Device managers know that J&J corporate is under pressure to consider the sale of the unit if growth can’t be accelerated. Gary Pruden’s departure indicates results must come soon.

—Tony Freeman, President, AS Freeman Advisors LLC

The realignment is just one of the strategies JNJ is implementing to revitalize its underwhelming Medical Devices business, which reported flat sales of $25.1 billion last year. Weak product demand, volatile exchange rates, and dwindling international revenue exacerbated the devices unit’s 2016 woes, though the performance represented a significant improvement from the 8.7 percent sales slide recorded in 2015.

“Our near-term priority in Medical Devices is to accelerate growth through innovation, portfolio management, and new business models,” JNJ Chairman and CEO Alex Gorsky told shareholders in the company’s 2016 annual report. “Our company’s structure allows us to interconnect our breadth and depth to drive innovation, and to take advantage of growth opportunities wherever they may be. Our Medical Devices business refocused and accelerated our pace of innovation and developed novel commercial models to meet the evolving needs of today’s heathcare system.”

One of those “novel” business models was CareAdvantage, a program developed in response to a U.S. government effort to encourage greater value-based purchasing. Marketed as a branded assortment of value-based service offerings and risk-sharing opportunities for hospitals, the initiative gives healthcare institutions the opportunity to work with JNJ as both a supplier and value-based care provider on ways to improve care in surgical, cardiovascular, and orthopedic applications. The CareAdvantage program is designed to mobilize the service capabilities of JNJ’s businesses under a coordinated, branded framework and make it easier for hospital systems to engage with the company as a strategic partner.

“As healthcare continues to change, health systems and their suppliers must work in close alignment to find ways to meet the opportunities and challenges of value-based care,” Tim Schmid, JNJ Medical Device Companies chief strategic officer, said when CareAdvantage debuted. “CareAdvantage begins by listening to and understanding individual health system needs, leading to a customized plan of action to help deliver value at every point along the care pathway.”

JNJ’s value dispatch system, however, was not solely dependent upon business model innovation in 2016. The company also embraced the tried-and-true methods of M&A and collaboration, with the latter strategy employed to amplify its market presence in 3D printing, diabetes care, medical device and clinical trial development, and European biotechnology.

JNJ opened its first non-North American biotech incubator (JLINX) last summer in Beerse, Belgium, in conjunction with life sciences investment firm Bioqube Ventures. JLINX provides scientists and early-stage entrepreneurs with access to venture capital, R&D expertise, and updated facilities, generally targeting companies from the preclinical stage through early phase 1. The initiative, according to Bioqube bigwigs, is designed to bridge the funding gap between university-based research and clinical product development.

JNJ stayed a bit closer to home (2,769 miles to be exact) with its Texas Medical Center (TMC) alliance. Through its innovation arm, Johnson & Johnson Innovation LLC (JJI), the company announced plans last fall to expand its TMC role to include a Center for Device Innovation, which is tasked with fostering accelerated medical device development via partnerships and potential acquisitions of small-scale startups. It is located next to another JNJ project—JLABS at TMC—as well as the medical center’s two life sciences startup incubators, TMCx and TMCx+.

JJI further endeared itself to the TMC community by expanding partnerships among other member institutions, including the Baylor College of Medicine (medical device development through open innovation); the Houston Methodist Research Institute (translational research activities for human clinical trials); the Texas Heart Institute (surgical device research); and the TMC Clinical Trials Institute (accelerated medical device clinical trials).

The 3D printing alliances JNJ forged last year with HP and Carbon 3D had a dual purpose, serving as both a springboard for future growth and a major step forward in the company’s ambitious intentions for the technology. Ultimately, JNJ plans to use 3D printing in combination with other scientific advancements to overhaul the production process and supply chain for orthopedic, eye health, and consumer products. One of the firm’s more interesting concepts in development is a 3D-printed, sunlight-enabled personalized contact lens for treating presbyopia (farsightedness). R&D executives claim the lens would contain sensors and microprocessors to customize vision and fit for the wearer.

JNJ’s other leap of faith landed the company in the mushrooming diabetes monitoring and treatment space, where enterprises like San Diego, Calif.-based Dexcom Inc. have steadily gained market share. The increased competition is prompting outsiders such as Google’s Verily Life Sciences, Apple, and newcomers like Glooko, Sano, and Semma Therapeutics to team up with existing players to develop new products.

JNJ’s rookie draft pick was digital health firm WellDoc. The Baltimore, Md.-based company agreed to integrate its BlueStar product, a U.S. Food and Drug Administration (FDA)-cleared digital therapeutic for adults with Type 2 diabetes, with LifeScan’s OneTouch Verio Flex Bluetooth Smart blood glucose monitoring system and OneTouch Reveal mobile app. The pairing seeks to leverage LifeScan’s blood glucose monitoring system and mobile app with the data analytics and patient engagement of WellDoc’s reimbursable mobile prescription therapy to create a real-time, personalized approach to Type 2 diabetes management.

ANALYST INSIGHTS: The future of Medical Devices continues to be a hot topic at J&J. Do they spin it off? Do they invest and acquire? Newly appointed Hospital Medical Devices Leader Sandi Peterson has bold decisions to make in the coming year.

—Dave Sheppard, Co-Founder and Principal, MedWorld Advisors

JNJ received FDA approval for the OneTouch Verio-BlueStar integration in December 2016—far too late to impact JNJ’s struggling Diabetes business, which experienced a 7.2 percent sales slide (to $1.79 billion) last year due to price declines and competitive pressures. The dismal showing has prompted company executives to explore strategic options—“operating partnerships, joint ventures or strategic alliances, an outright sale, or other alternatives either separately or together”—for the businesses that include Animas, LifeScan, and Calibra Medical, the latter having been acquired in 2012.

“…it’s always a difficult decision and when you look at your portfolio and as I frequently describe, it is a little bit like your children, you love all of them,” Gorsky said earlier this year during an earnings conference call with analysts. “…just from time to time we are trying to make decisions that we think ultimately are in the best long-term interest of our customers…”

And shareholders, obviously.

While a divestiture may ultimately be in JNJ’s best interest, it is unlikely to single handedly reverse the Medical Devices business’s faltering fiscal fortunes. Only one of its five segments reported solid sales growth in 2016 and two remained flat, expanding less than 1 percent each. Still, the pecuniary hemorrhaging slowed considerably from the previous year, as only three product franchises extended their slump. The turnaround, albeit slight, is a testament to the company’s new growth strategy of swapping out low-yielding fruit for a more profitable crop.

JNJ’s exchange rate intensified considerably last year as the multinational firm sought out high-growth targets in the fast-growing extremities, neurovascular, surgical oncology, and eye health sectors. Perhaps its most savvy move was the $4.3 billion deal for Abbott Medical Optics, the eye care unit of rival healthcare conglomerate Abbott Laboratories. The unit’s ophthalmic portfolio—covering cataract surgery, laser refractive surgery, and consumer eye health (lens solution, eye drops, etc.)—is a good match for JNJ’s Acuvue contact lens business and will help the company establish a foothold in the thriving cataract surgery market.

“Eye health is one of the largest, fastest-growing, and most underserved segments in healthcare today,” Ashley McEnvoy, company group chairman at JNJ’s vision care unit, said upon disclosing the September transaction. “With the acquisition of Abbott Medical Optics’ surgical ophthalmic portfolio, coupled with our contact lens business, we will become a more broad-based leader in vision care. Importantly, with this acquisition, we will enter cataract surgery—one of the most commonly performed surgeries and the number one cause of preventable blindness.”

Similarly, JNJ purchased admission to the surgical oncology market with Ethicon’s acquisition of Madison, Wis.-based startup NeuWave Medical, whose soft tissue microwave ablation technology is used in more than half of America’s top cancer centers. NeuWave’s microwave ablation delivers focused heat to eliminate body lesions. Antennas, or probes, are placed directly into lesions and emit microwave energy from their tips to rapidly oscillate water molecules within the lesion. This causes friction and heat, thereby destroying the lesion while protecting non-targeted tissue.

Codman Neuro bolstered JNJ’s presence in the neurovascular market with its late-year deal for Pulsar Vascular Inc., a Los Gatos, Calif., company founded in 2005 that created a product for treating brain aneurysms. The firm’s proprietary device, the PulseRider, is a minimally invasive, self-expanding nitinol implant used to bridge the neck of cerebral aneurysms during treatment of unruptured wide-neck intracranial aneurysms originating on or near a bifurcation. A patented “saddle” shape stent leaves minimal metal in the parent artery, enabling easy access to the aneurysm for coiling while maintaining support. Codman Neuro was previously the exclusive distributor of the device in Europe, where it was awarded CE mark approval in 2013. Pulsar Vascular has completed a U.S. investigational device exemption clinical trial and is awaiting humanitarian device exemption approval.

“We’ve been divesting slower-growth areas or areas that we think are better off in someone else’s hands and investing in higher-growth areas and new technologies,” JNJ executive vice president and chief financial officer Dominic Caruso told analysts during a spring 2017 conference call.

One of those new technologies is nitinol, a shape memory alloy comprised of equal parts nickel and titanium. Under certain (high) temperatures, the material can become stronger, more flexible, and change shape, making it ideal for musculoskeletal applications. San Antonio, Texas-based BioMedical Enterprises Inc. (BME) has claimed market leadership in this field, having used the metal to manufacture implants for treating various foot, ankle, hand, and wrist conditions, including bunions and hammertoes.

BME’s supremacy in the nitinol implant market most likely convinced DePuy Synthes Companies to align itself with the startup. The larger entity, after all, considers itself an extremities sector leader, and has been actively broadening its orthopedic portfolio of late. Last March, for instance, DePuy negotiated a deal with Israeli investment firm Rainbow Medical Ltd. to co-develop a minimally invasive implant for treating spinal degenerative disc disease, and in November 2015, the company introduced a new joint replacement offering to meet growing demand in outpatient reconstructive surgeries.

BioMedical Enterprises tucked itself under DePuy’s corporate umbrella in May 2016. “BME’s technology is an excellent complement to our portfolio of solutions that spans all of orthopaedics,” Ciro Römer, company group chairman at DePuy Synthes, said in announcing the acquisition. “The BME portfolio will be integrated into our trauma platform, where we will be able to expand the availability of these solutions, increase the pace of innovation in this area, and reach more patients around the world.”

Incorporating BME’s nitinol products into DePuy’s trauma portfolio proved fiscally prudent, as trauma product revenue rose 1.6 percent to $2.57 billion last year. That increase, along with modest gains in artificial hips and knees, lifted overall Orthopaedics sales 0.8 percent ($72 million) to $9.33 billion in the year ended Dec. 31, 2016. Notable growth drivers included the TFN-Advanced Proximal Femoral Nailing System, DePuy’s primary hip stem platform, and the Attune knee system, which boasts a clinically proven 98.61 percent survivorship at three years. Large-joint sales, by and large, kept the Orthopaedics business in the black in 2016: Hip and knee proceeds climbed 2.2 percent and 1.9 percent, respectively, to $1.36 billion and $1.52 billion. The gains helped offset another poor showing from the languishing spinal franchise, where sales were off 0.7 percent, though the loss slowed dramatically from the previous year’s 5.5 percent revenue slide.

Spinal and Orthopaedics sales followed the same general blueprint set by the convalescing medical devices business. Many product franchises, in fact, took their cue from the parental unit, reporting losses that were significantly smaller declines from 2015.

The general surgery franchise, for example, stemmed the bleeding by 7.1 percent last year. Revenue fell 2.7 percent to $4.36 billion, succumbing to lower demand for women’s health and urology products as well as pricing pressures. Nevertheless, the decrease was a marked change from 2015, when sales dwindled 9.8 percent.

Specialty surgery proceeds slipped 2.9 percent to $1.41 billion (a 0.4 percent “improvement” from 2015) due to lower Acclarent and advanced sterilization product sales outside the United States, divestitures, and competitive pressures in the device reprocessing/remanufacturing sector. Advanced surgical revenue, on the other hand, jumped 7.4 percent to $3.51 billion on strong demand, better market penetration, and new product launches in the endocutter, energy, and biosurgical fields. The NeuWave Medical purchase also boosted advanced surgical sales.

The progress in each surgical franchise helped raise total Surgery proceeds 0.9 percent last year to $9.29 billion.

JNJ’s Vision Care segment took the medical devices growth formula to the extreme, bouncing back from a 7.5 percent loss in 2015 to expand revenue 6.8 percent to $2.78 billion in 2016. The company attributed the hike solely to new product launches.

The opposite occurred within the Cardiovascular segment. The sales gap widened from 7.8 percent in 2015 to 9.2 percent last year (falling from $2.03 billion to $1.85 billion), thanks mostly to the lingering impact of JNJ’s divestiture of its Cordis business to Cardinal Health nearly two years ago. The sale “more than offset” strong operational growth in the company’s electrophysiology business, market growth, and new product launches.

$25.1 Billion ($70B total)
NUMBER OF EMPLOYEES: 127,100

“Innovation is the specific instrument of entrepreneurship. The act that endows resources with a new capacity to create wealth.”

— Peter Drucker

Innovation is a woefully misunderstood concept. Ubiquitous, mysterious, and stubbornly elusive, that darling of business buzzwords has become synonymous with the loftiest of human ambitions: power, fame, and wealth. Like its counterpart, “leadership,” the word can stand firmly on its own but also pairs well with many adjectives; it signifies both everything and nothing, assuming various meanings depending on interpretation.

Yet, despite its popularity (Amazon lists more than 70,000 book titles on the subject), innovation is, at best, a vague, loosely-defined concept within most corporate circles. Its basic definition—systematically finding, encouraging, and implementing new ideas—has become buried beneath all the variations, nuances, tools, techniques, models, frameworks, and paradigms associated with the word.

Even in its most elemental form, though, innovation isn’t quite so simple. It’s certainly not as basal as the old adage alleges—necessity is not always the sole spawn of invention. “We can all agree that a problem can be a catalyst for a solution, and that many business innovations are born of business challenges,” author/speaker/business strategist/consultant/entrepreneur Larry Myler wrote in a June 2014 Forbes column. “But is it really that simple?”

Not really. Myler contends there are four distinct levels of innovation, the first being problem-solving. Deemed a “reactive” approach to innovation, this method can be both powerful and prolific as long as the problems and solutions are chosen and crafted carefully, Myler claims.

Preventing problems (Level No. 2) is an effective approach as well, though it can be difficult to find and rally the proper resources for executing change. Likewise, “continuous improvement” (Level No. 3) helps companies evolve with the market, but it can also endanger their past progress. “If it ain’t broke, break it is a fun maxim…” Myler writes in his column, “but…replacing a perfectly good business system, albeit for the greater good in the end, creates real problems in the near-term.”

Or, it can act as a springboard to the final level (four), where innovation is achieved through reinvention, or “creation of a new future.” This method, however, is one of the most challenging ways to innovate, as it requires companies abandon traditional ideation discovery processes in favor of unconventional practices. The Henry Ford Innovation Institute and companies like Google and Facebook, for instance, are banking their futures on impromptu workforce “collisions” designed to encourage random (but slightly orchestrated) encounters and idea-sharing among employees. Similarly, Yahoo banned telecommuting in 2013 to boost its grassroots thinktank prowess.

Such forward-thinking strategies, of course, are not foolproof, but without them companies risk possible extinction. “With today’s unprecedented pace of change, the pressure on companies to reinvent themselves is relentless,” Myler noted. “It is sobering to consider the number of companies…that have fallen into mediocrity or worse. Disruptive forces are constantly lurking in the shadows, ready to pounce on unwary, and therefore unprepared, successful companies. Staying relevant and competitive is no easy task.”

The job can be particularly difficult for large multinationals, which often fall victim to their own complacency, inflexibility, and tunnel vision. Johnson & Johnson currently is struggling with professional relevancy as it wrestles with a medtech market slowdown driven by cost-conscious hospitals and group purchasing organizations.

The $381 billion global market for medical devices is growing 3 to 4 percent annually, down from a double-digit rate in the early part of the millennium, according to various industry reports. JNJ’s medical device sales have slowed dramatically in the last few years, falling 7.3 percent and 3.3 percent respectively, in the final two quarters of 2015.

Despite the downturn, the 130-year-old company is confident it can remain a formidable force in the medical device sector by tackling innovation on several different levels.

With overall sales down 5.7 percent and its medical device revenue falling 8.7 percent in 2015, JNJ is taking a reactionary approach to innovation, integrating its Surgery and Orthopaedics businesses into a single Medical Devices Group under the leadership of Gary Pruden. The company is also cutting about 3,000 jobs within the Group over the next two years, or roughly 4 to 6 percent of the division’s global workforce in an effort to generate as much as $1 billion in annual savings by the end of 2018. JNJ executives claim the sum potentially could boost earnings growth.

“For 130 years, our company has been driving breakthrough innovation in healthcare—from revolutionizing wound care in the 1880s to developing cures, vaccines, and treatments for some of today’s most pressing diseases in the world,” CEO and Board Chairman Alex Gorsky wrote in his 2015 annual letter to shareholders. “We are acutely aware of the need to evaluate our business against the changing healthcare environment and to challenge ourselves based on the results we deliver. At Johnson & Johnson, we believe the most important contribution we can make to the dynamic challenges we are facing is innovation—innovation in products, services, solutions, and in everything we do.”

Some of those solutions have been crafted using Myler’s second-level approach to innovation (i.e., problem prevention). Over the last few years, the company has steadily been streamlining its Medical Device division, a former pecuniary powerhouse that once generated significant profits from its sales of stents, artificial joints, and surgical tools. But pricing pressure and strong competition from Medtronic plc, Abbott Laboratories, Boston Scientific Corp., and lesser-known firms have gradually eroded JNJ’s market share.

Consequently, the company has all but abandoned the stent business it had pioneered, and has been selling small, slower-growing units. Last March, for example, JNJ sold its Cordis business to Cardinal Health for $1.9 billion in cash, or about $1.59 billion (net of the value of tax benefits). The deal nearly matches the unit’s 1996 purchase price ($1.8 billion), enabling JNJ to break even on its original investment.

Headquartered in Fremont, Calif., Cordis garnered $780 million in 2014 sales. The division manufactures cardiology and endovascular products, including diagnostic and interventional devices such as catheters, balloons, stents, guidewires, and vascular closure equipment. Although its single largest market is the United States, Cordis collects about 70 percent of its total sales from outside America; the business has operations in more than 50 countries, including China, Japan, Germany, Italy, France, Brazil, and the United Kingdom.

“This initiative is part of our ongoing disciplined portfolio management approach to focus on our most promising opportunities to help patients and drive growth,” Gary Pruden, chairman of JNJ’s Global Surgery Group, said in a formal news release about the acquisition. “Cordis has made significant contributions to the field of cardiovascular care, and we believe the business has a promising future…”

The Cordis sale was the second major divestiture for JNJ in nine months. In June 2014, the company sold its Ortho-Clinical Diagnostics unit to private equity firm The Carlyle Group for $4.2 billion. Yet, even with those two transactions, the company still has 11 different medical device businesses, including BioSense Webster, the troubled orthopedic and neurological-focused DePuy Synthes, Janssen Diagnostics, and advanced surgical care units Ethicon and Ethicon Endo-Surgery.

“We have to put the patient in the center and reward innovations that drive better outcomes and long-term value,” Gorsky told investors at the start of JNJ’s 2015 annual report. “The promise of innovation in healthcare is great, but it comes with the need for forward-focused investment in R&D, a holistic approach to evolving global healthcare markets and bold future-facing strategies.”

Those strategies could potentially help JNJ reinvent itself, thereby helping the New Brunswick, N.J.-based company attain the fourth level of innovation. JNJ’s multi-faceted gameplan involves revamping its selling strategy, focusing on key markets (China, Japan, and the United States), and pursuing such high-growth areas as staplers and surgical robotics. The latter sector could be JNJ’s ticket to a “new future,” as the global market for surgical assistance devices is expected to more than double by 2019, ballooning from $62 million to $170 million, according to Business Insider.

The company is taking that leap of faith with Google, having created an independent surgical solutions firm called Verb Surgical Inc. to develop a robotic-assisted surgical platform that will help simplify medical procedures. The new venture is helmed by President and CEO Scott Huennekens, who led catheter-based imaging company Volcano Corporation through a 2006 IPO and then grew the company to about $400 million in annual sales before closing a $1.2 billion acquisition by Royal Philips.

JNJ’s collaboration with Google—announced last March—is designed to integrate the Internet giant’s expertise in computer science, advanced imaging, and sensors into O.R. tools. Real-time image analysis, according to executives, could help surgeons see better and software could highlight blood vessels, nerves, or the edges of tumors that are difficult to see with the naked eye. The two companies also hope to better organize the information surgeons need when they operate. Surgeons typically consult multiple separate screens in the operating room to check preoperative medical images like MRIs, results of previous surgeries and lab tests, or to better understand ways to navigate an unusual anatomical structure.

Software could place these images on the same screen that surgeons use to control robotic tools, reducing the need to look away at other screens during the procedures, Google bigwigs said. If the partnership bears fruit, it could pit JNJ against Intuitive Surgical Inc., a Silicon Valley maker of the da Vinci robot, which enables surgeons to remotely control instruments from a computer console. Intuitive is the dominant maker of surgical robots, though its sales slowed recently due to declines in use among gynecologic surgeons.

JNJ isn’t staking its future solely with Google, though. The company partnered last year with International Business Machines Corp. (IBM) to create virtual coaching services for patients; by combining IBM’s Watson cognitive computing and analytics platform with Apple’s user experience design, the coupling will attempt to predict patient outcomes, suggest treatment plans, and give patients targeted encouragement during the recovery process. Likewise, JNJ’s union with the AO Foundation is designed to deliver professional education and develop innovations to improve both patient outcomes and efficiency of care, a journey both entities jointly began in 1960.

The two organizations are collaborating on new innovation and will work to certify DePuy Synthes products by the AO Technical Commission for use in the foundation’s educational activities, in which more than 200,000 healthcare professionals are expected to participate during the next five years.

JNJ is also forging a new future through M&A. Its DePuy Synthes division, for example, added new capabilities to its lineup with the purchase of Salt Lake City, Utah-based Olive Medical Corporation in February 2015. Founded in 2009, Olive Medical manufactures high-definition visualization systems for minimally invasive surgery; its camera control unit and camera head capture full HD video, and illuminate consistent white light to the surgical site.

The deal gives DePuy Synthes Mitek Sports Medicine full use of Olive Medical’s imaging technology in its arthroscopy product line, presumably improving visualization in patients with shoulder, hip, knee, and small-joint maladies. It could also help JNJ simplify supplier networks for clinicians and medical service providers, company officials noted.

Biosense Webster Inc. strengthened JNJ’s position in the antistroke market with its November purchase of Coherex Medical Inc., maker of the CE-marked Coherex WaveCrest Left Atrial Appendage Occlusion System. Like Boston Scientific’s Watchman, the WaveCrest is designed to prevent stroke by plugging the heart’s left atrial appendage in patients with atrial fibrillation, making it a mechanical alternative to blood thinners such as warfarin.

Coherex has marketed WaveCrest as a product with the most anchoring points of any LAA occluder and a distal injection port to assess device stability during implantation. The Salt Lake City company has also claimed it is made of a substance that minimizes blood clot formation on the device surface.

European regulators approved WaveCrest in 2013 (it competes in that market with Boston Scientific’s second-generation Watchman FLX and St. Jude Medical Inc.’s Amplatzer Amulet) but the product is not available for investigational use in the United States. Coherex is planning to conduct clinical trials for Japanese and American approvals, but the device faces an uphill battle domestically due to reimbursement issues, new blood-thinning medications, and lingering questions about the safety of its implantation procedure.

Nevertheless, the Coherex deal is an astute attempt by Biosense Webster to supplement its interventional offerings with an implantable alternative. The company’s nMARQ Circular Catheter destroys tissue (radiofrequency ablation), while its Soundstar Catheter uses ultrasound technology to map cardiac anatomy.

Divide and Conquer?

Daniel O’Keefe is not a man who is easily discouraged.

Earlier this year—for the third time in roughly six months—the Artisan Partners managing director/portfolio manager proposed that JNJ split into three separate businesses (pharmaceutical, consumer, medical devices) to improve the company’s financial health. “I have engaged with the management of JNJ on two separate occasions over the past several months on matters that are of great concern to me and in my view should be of great concern to anyone interested in the company’s long-term value,” O’Keefe wrote in a Jan. 28 open letter to JNJ’s board. “There is no evidence that JNJ’s conglomerate structure creates value for shareholders. Two of the three businesses are among the worst-performing participants in their industry. In my view, separation of the three businesses would create immediate near and long-term value as greater focus and accountability is brought to bear.”

O’Keefe details his objections to JNJ’s existing structure in the letter, citing the company’s “extensive” M&A activity, product liability, and expenses as the main profit plunderers. He considers the 2012 Synthes acquisition “disastrous” and JNJ’s overall reinvestment practices “unacceptable.”

“I urge the board to…adopt new, publicly-disclosed financial targets for the faltering medical devices and consumer businesses,” wrote O’Keefe, whose firm has invested at least $445 million in JNJ. “Absent their return to industry-leading performance, the Board should commit to spin those businesses off to shareholders so that new, focused, and accountable management teams can lead them into the future.”

O’Keefe isn’t the first investment expert to suggest a JNJ split. Goldman Sachs analyst Jami Rubin has supported such a move since 2012, and CNBC stock market commentator Jim Cramer argued in favor of it last summer. So far, JNJ management has not publicly commented on the numerous calls for a split, though executives have acknowledged the poor performances of the Consumer and Medical Devices segments.

“Our Medical Devices business did not achieve its revenue ambitions for the year,” Gorsky said in the 2015 annual report. “As part of the restructuring we announced in January 2016, we are undertaking actions to further strengthen our go-to market model, accelerate the pace of innovation, prioritize key platforms and geographies, and streamline operations…We will continue to take the bold but appropriate steps to put our Medical Devices business in the best position to deliver more value for customers, our company, and for our shareholders.”

That might take some time, though. A 1.4 percent operational decline, 7.3 percent negative currency impact, and divestitures of the Ortho-Clinical Diagnostics and Cordis businesses contributed to a $2.38 billion decline in Medical Devices revenue in fiscal 2015 (year ended Dec. 31). U.S. sales slipped 1 percent to $12.1 billion, while international proceeds fell 14.8 percent to $13 billion due to a 1.7 percent operational decrease and a 13.1 percent negative currency impact.

The Medical Devices segment sustained losses in nearly every business unit, with Diagnostics (naturally) taking the largest plunge—91.1 percent—going from $962 million in 2014 to $86 million last year. Diabetes care came in a distant second, falling 10 percent to $1.92 billion; executives blamed the decrease on lower prices and volatile foreign currency rates, but both factors were partially neutralized by solid sales of Animas Vibe products. JNJ’s Vibe insulin pump is the first to pair with Dexcom’s G4 Platinum continuous glucose monitor, sampling interstitial fluid every five minutes and providing a trending chart of sugar levels. The waterproof Animas device displays readings obtained wirelessly from the G4 Platinum glucometer.

General surgery proceeds took the third-largest nosedive last year, plummeting 9.8 percent to $4.48 billion. Overall, JNJ’s Surgery unit sales shrunk 5.1 percent to $9.21 billion despite a 1.2 percent increase in advanced surgery revenue ($3.27 billion), market growth, better device saturation in certain geographical areas, and new product launches.

Among the various debuts last year was the Echelon Flex Powered Vascular Stapler, a device featuring a narrow anvil, an articulating shaft, and advanced placement tip designed for better visibility, navigation, and precise placement during thoracic and other procedures, including video-assisted thoracoscopic surgery for lung cancer. The product’s curved, blunt anvil is 26 percent more narrow and its shaft is 26 percent thinner than Covidien’s Endo GIA Curved Tip Reload system, offering the greatest angle of reach, according to JNJ executives. The stapler also provides 11 percent greater manual articulation in each direction, allowing more flexibility during final placement.

“Thoracic surgery is performed in restricted narrow spaces around delicate vascular anatomy,” noted Robert J. Cerfolio, M.D., F.A.C.S., FCCP professor, Division of Cardiothoracic Surgery and section chief of Thoracic Surgery at the University of Alabama at Birmingham. “This powered thin lower profile stapler is designed to improve access, visibility, and stability, and delivers a secure, hemostatic staple line. It is a significant advance that may help surgeons avoid potential complications and improve patient outcomes.”

The Cardiovascular division’s troubles stemmed primarily from the Cordis business divestiture. Sales sank 7.8 percent to $2 billion, though strong operational growth in the electrophysiology subsector—driven by solid gains in ThermoCool SmartTouch catheter revenue—helped slow the overall hemorrhaging. Approved by the U.S. Food and Drug Administration in early 2014, the ThermoCool catheter enables direct and real-time measurement of contact force during catheter ablation procedures for patients with drug-resistant paroxysmal atrial fibrillation, sustained monomorphic ischemic ventricular tachycardia, and Type I atrial flutter.

Lower prices and volatile foreign currency rates doomed Vision Care sales, which slid 7.5 percent to $2.6 billion. Similarly, Orthopaedics revenue fell victim to soft demand, pricing pressures, and inventory level reductions (mostly in China). Proceeds decreased 4.3 percent to $9.26 billion, though JNJ did generate strong sales of hips, the Attune Knee System, trauma TFNA nailing system, and Orthovisc/Monovisc sports medicine products.

The Attune’s rotating platform design increases the level of conformity to provide stability while delivering freedom of mobility, according to DePuy Synthes. Rotating platform knees aim to restore more natural movement to the joint by allowing the bearing to rotate in the same manner as an anatomical knee. Rotating knees also are designed to reduce stress and wear on the implant by 94 percent.

$27.5 Billion ($74.3B total)
NO. OF EMPLOYEES: 126,500

“Creating a strong business and building a better world are not conflicting goals—they are both essential ingredients for long-term success.”

— William Clay Ford Jr., executive chairman, Ford Motor Co.

Milton Friedman remains as controversial a figure in death as he was in life.

Renowned for his free-market ideology and conservatism, Friedman’s antistatist views—mainly, the belief that unimpeded private competition produces better results than government—are still contentious subjects, nearly nine years after his demise. Yet the most fervent debates continue to revolve around his stance on corporate social responsibility, a concept he labeled “nonsensical” and harmful to the foundations of a free society. Writing in The New York Times magazine in September 1970, the Nobel Prize laureate impenitently proclaimed that business has “only one social responsibility—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”

Friedman believed corporations are inhuman entities that cannot possibly have real responsibilities. In the ideal free market, he contended, “all cooperation is voluntary…There are not values, no ‘social’ responsibilities in any sense other than the shared values and responsibilities of individuals.”

Friedman’s unconventional business strategy initially resounded with Americans (journalist/author George Will called him “the most consequential public intellectual of the 20th century”) but support for the doctrine has dwindled considerably as companies respond to consumer demands for reputational excellence.

Numerous studies have shown that corporate social responsibility (CSR) policies influence consumer purchasing decisions. A survey by branding firm Landor Associates concluded that 77 percent of consumers believe it is important for companies to be socially responsible. “There’s a heightened awareness of the need to be, and to be seen as, a good corporate citizen,” noted Robert Grosshandler, CEO of iGive.com, which allows consumers to support their favorite charities through shopping.

Johnson & Johnson realized the value of good corporate citizenship quite some time ago. The company bible, a.k.a. its 72-year-old Credo, pledges responsibility to the “world community” as well as those in which the diversified healthcare firm operates. “We must be good citizens—support good works and charities and bear our fair share of taxes,” the Credo reads. “We must encourage civic improvements and better health and education. We must maintain in good order the property we are privileged to use, protecting the environment and natural resources.”

Like many companies, JNJ has refined its approach to CSR over the years by closely relating social causes to its core businesses, an approach scholars have dubbed “socially responsible capitalism.” Last year, for example, the company eliminated PVC (polyvinyl chloride) in its Enseal G2 Articulating Tissue sealers, and cut its energy and water consumption by 44 percent and 43 percent respectively, in disinfecting/sterilizing the DePuy Synthes TruMatch personalized Sigma Knee implants.

By embodying CSR initiatives into its business strategy, JNJ is both a good corporate citizen and a savvy investor—a combination that has helped the company continually boost its bottom line.

“Our credo is absolutely central to our culture and impacts everything we do. It reminds us that we are responsible to patients, medical professionals, consumers, families and communities worldwide, and it motivates our employees to come to work every day with the passion to make a difference in the world…” CEO/Board Chairman Alex Gorsky told Leaders Magazine last spring. “We share a belief that if we take care of those responsibilities, then everything else will take care of itself. Throughout our history, this has been true.”

And it was true last year as well. The New Brunswick, N.J.-based company grew sales 4.2 percent in 2014 to $74.3 billion, bolstered mainly by a 15 percent jump in global pharmaceutical revenue ($32.3 billion). The increase in drug sales offset a 1.3 percent slide in worldwide Consumer sales ($14.5 billion) and a 3.4 percent decrease in Medical Devices proceeds ($27.5 billion). Excluding the net impact of M&A activity, including the June 2014 divestiture of Ortho Clinical Diagnostics, the medical devices segment had underlying operational growth of 1.5 percent.

JNJ’s Pharmaceutical segment traditionally has outperformed its brethren, but executives are planning to even the score a bit by seeking approval of more than 30 major products in its Medical Devices division by the end of 2016 while also focusing on fast-growing emerging markets. Much of that focus will be centered on China and Russia, where the medtech sector is growing three to four times faster than in developed markets.

“China is important to every medical device company given the number of people and the size of the market opportunity,” Glenn Novarro, an analyst with RBC Capital Markets in New York, told Bloomberg Business. “JNJ is one of the early investors in China and it’s paying off. They are ahead of the curve.”

And the company has managed to stay ahead of the curve by avoiding the bribery probes that have snared the likes of GlaxoSmithKline, and taking advantage of the Middle Kingdom’s growing middle class, government investments, and prevalence of traditionally Western diseases. The company partnered with Waltham, Mass.-based Nova Biomedical Corp. last spring to sell its StatStrip, a blood glucose testing system, to Chinese hospitals, where 60 percent of care occurs. Wise move, considering the country now lodges roughly one-quarter of the planet’s diabetics, whose rising incomes are allowing them greater access to medical care to treat the disease.

“It’s unfortunate that a lot of Western habits are being taken up in China, and incidence of diabetes is going up,” said Ashley, McEvoy, JNJ’s group chair- man for diabetes and vision care.

JNJ is eyeing China’s $250 million vision market as well, intent on capitalizing on the government’s commitment to vision care coverage, including contact lenses for those younger than 18.

Bone plates and screws are part of the company’s “one step ahead” plan too: The firm conducted clinical trials with the bone repair devices manufactured at its Suzhou facility, and is branding them as locally made products to make them eligible for higher reimbursement from the Chinese government.

“My personal vision is to innovate more out of China, taking advantage of new thinking within R&D [research and development] to develop simpler, easier to use and more affordable products,” Michel Orsinger, worldwide chairman of JNJ’s global orthopedics group, told Bloomberg. “And we want to launch them not only in China but bring them into western countries, a reverse innovation.”

Orsinger’s vision could soon become a reality: Last fall, JNJ opened the Asia Pacific Innovation Center, a Shanghai-based medtech incubator with satellite hubs in Singapore, Australia and Japan. Armed with local science and technology experts and deal-making capabilities, the center is tasked with identifying and developing promising early-stage opportunities in drugs, medical devices/diagnostics, and consumer healthcare products.

The Center already has fostered several new collaborations in both Australia and China, including the establishment of a partnering office at Suzhou BioBAY, an incubator with more than 400 companies in the areas of drug discovery, biotech, in-vitro diagnostics, medical devices and nanotechnology. The office, according to executives, will function as an extension of the Center to work with academics and entrepreneurs on a more local basis. The Center’s partnering offices are part of a broader strategy to interact more directly with life science clusters worldwide.

“The Johnson & Johnson Family of Companies has a long standing presence in China extending back almost 30 years. Our on the ground presence across the region allows us to work side by side with our partners with speed, agility, and insight to translate innovations into new products,” noted Jesse Wu, chairman, Johnson & Johnson China. “The Asia Pacific Innovation Center supports our larger goal to address China’s specific healthcare needs, invest in local capabilities, and increase our external collaborations.”

The Numbers Game

JNJ’s Medical Devices division accounted for 37 percent of the firm’s total worldwide sales in fiscal year 2014 (ended Dec. 31). The segment houses 11 businesses under its roof, including BioSense Webster; the troubled orthopedic and neurological focused DePuy Synthes; Janssen Diagnostics; and advanced surgical care units Ethicon and Ethicon Endo-Surgery.

The division’s best performers were its orthopedic, specialty surgery and cardiovascular care franchises, the latter of which outpaced its running mates in sales growth. Cardiovascular revenue swelled 6.3 percent to $2.2 billion, due mostly to the 18 percent growth of Biosense Webster electrophysiology products.

The company overcame lingering pricing pressure to increase orthopedic revenue by 1.7 percent to $9.67 billion—roughly one-third of the Medical Devices segment’s 2014 gross. Executives attributed the gain to robust sales of trauma, sports medicine, hip and knee products, some of which made their debut last spring.

The company launched a bevy of new joint replacement parts within a two-month period, adding a rotating platform design and anatomic patella to the Attune Knee System lineup in March and debuting a hip system and anatomic shoulder in May.

The Attune rotating platform design increases the level of conformity to provide stability while delivering freedom of mobility, DePuy Synthes bigwigs noted. Rotating platform knees aim to restore more natural movement to the joint by allowing the bearing to rotate in the same manner as an anatomical knee. Rotating knees also are designed to reduce stress and wear on the implant by 94 percent.

The anatomic patella—unique to DePuy Synthes—works with the Attune knee femoral components and is compatible with both the Attune fixed bearing and rotating platform knees. It is designed to have more natural sagittal plane kinematics than traditional dome style patella components; the more natural kinematics can reduce soft tissue interaction with the femoral component and thereby help prevent soft tissue irritation, according to product spec sheets. Also, the unique kinematics of the anatomic patella are designed to increase quadriceps efficiency in deep flexion, allowing the knee to more easily flex and extend.

Less than 24 hours after unveiling its Attune enhancements, the company introduced the DePuy Synthes Advantage, a suite of provider-focused solutions that complement the firm’s product portfolio and help improve clinical and economic outcomes.

The Advantage suite features an exclusive licensing agreement with MedTrak to offer subscription-based services through a software solution called CareSense. The software allows healthcare providers to collect and analyze real-time data on the “triple aim” measures (patient outcomes, patient satisfaction and costs).

The suite also includes the Geriatric Fracture Program, a tool designed to streamline and standardize preoperative assessments to enable geriatric patients to undergo surgery within 24 hours of injury.

“By providing solutions that, for example, are designed to save time in the operating room, potentially reduce hospital stays or provide real-time analytics that lead to improved efficiency and patient satisfaction, we create value for the healthcare system as a whole,” said Gary Fischetti, company group chairman of Orthopedics.

In May, DePuy Synthes supplemented its Attune rotating platform system with the addition of the Trumatch Resection Guide and Pin Guide solution. The company also enhanced its hip and shoulder portfolios with the release of the Corail Revision Hip system and Global Unite Anatomic Shoulder.

The Corail hip is claimed to be the first tapered wedge revision stem in the United States, designed to help treat patients with mild to moderate femoral defects who need hip revisions, whereas the Global Unite shoulder allows surgeons to use the same humeral stem to repair shoulder fractures, perform total shoulder replacements or reverse total replacements using the previously implanted humeral stem without the use of a stack-on adaptor.

Though it achieved commendable victories in orthopedics, specialty surgery and cardiovascular care, JNJ couldn’t overcome the pricing pressures, foreign currency fluctuations and increased competition that victimized its other franchises last year.

Vision care sales, for instance, fell 4.1 percent to $2.81 billion and diabetes care revenue slipped 7.2 percent to $2.14 billion, although strong European sales and volume growth respectively stemmed some of the bleeding in those sub-segments.

Similarly, strong global sales of sutures and the popularity of the Echelon Flex Powered Endopath Stapler abroad kept the company’s surgical care losses to a minimum. Proceeds fell 1.5 percent to $6.17 billion, due mostly to foreign currency fluctuations and the divestiture of several women’s health products.

JNJ tried battling its sagging surgical care fortunes with the third-quarter release of the Echelon Flex GST System and Incraft AAA stent graft, but neither new product could prevent the franchise from losing money.

The Echelon Flex GST power stapler and reload system is designed to provide a better grip on tissue for the least tissue slippage during firing. Through its proprietary gripping surface technology (GST), the Echelon Flex system provides a more secure hold on tissue to deliver four times less slippage for more targeted tissue transections and the potential to eliminate one reload per procedure, an efficiency that ultimately could save money, the company said when it launched the product. Less tissue slippage during firing also can help provide more consistent staple formation across various tissue thicknesses with each reload.

JNJ’s Cordis unit launched the Incraft AAA stent graft abroad in September after winning regulatory approvals in Europe and Canada. Incraft represents a less invasive option for endovascular repair of abdominal aortic aneurysms (AAA), a condition that affects an estimated 24 million patients worldwide.

The Incraft approvals were based in part on results from the INNOVATION clinical trial, conducted in 2010, which found no cases of aneurysm enlargement, endoleaks, device- or procedure-related major adverse events, stent-graft migrations or stent fractures after two years of treatment. Only one patient had a stent occlusion, but it was attributed to shrinkage of the aneurysm.

The Incraft system is not yet approved in the United States, but has investigational device exemption consent for use in clinical trials. Cordis is also pursuing approval for the Incraft stent in Japan.

JNJ’s worst-performing franchise was diagnostics, down 49 percent year-over-year at $962 million, according to the company’s 2014 annual report. Executives attributed the decline to the $4.1 billion sale of the Ortho Clinical Diagnostics business, which booked $1.88 billion in sales in 2013. The business—now owned by global alternative assett manager The Carlyle Group—sells blood screening equipment and laboratory blood tests focused on various diseases.

Courtroom Drama

JNJ is no stranger to the judicial system. As the world’s largest and most diversified healthcare firm, it spends a considerable amount of time in the courtroom fending off legal challenges from rivals, defending its integrity and protecting its proprietary technology. A summary of the more notable cases in 2014 follows:

• • Baxter International lodged a patent infringement complaint against JNJ in January 2014, accusing its rival of violating six patents protecting Baxter’s biosurgery products, including Floseal, used to control bleeding during surgery. The suit contends JNJ’s hemostasis delivery devices, including its SurgiFlo product line, directly compete with Baxter’s biosurgery products. Floseal and SurgiFlo are indicated for use in surgical procedures as an adjunct to hemostasis when control of bleeding by ligature or other conventional methods is ineffective or impractical, according to the suit.

• • Cordis Corp. left the coronary stent market two years ago, but has been embroiled in a patent infringement battle with Israeli medical device company Medinol Ltd. over the Cypher and Cypher Select stents it no longer makes. Medinol, which won a $750 million decision over erstwhile partner Boston Scientific Corp. in 2005, accused Cordis in March 2013 of violating four patents with the Cypher stents, according to court documents and regulatory filings. The lawsuit, filed in U.S. District Court for Southern New York, sought a jury trial, judgments of infringement and willful infringement, damages and triple damages for willful infringement, legal fees and pre- and post-judgment interest, according to the documents. The patents cited covered articulated stent technology. For its part, Johnson & Johnson argued that it never sold any of the Cypher products. After a trial in January 2014, a federal judge dismissed the case, ruling that Medinol registered its complaint too late. The judge also denied a motion by Medinol to vacate the judgment and grant a new trial. Medinol is appealing the September decision.

• • Covidien plc (now part of Medtronic plc) added another chapter to its patent war history with JNJ, securing a new victory against its subsidiary, Ethicon Endo-Surgery Inc. Covidien sued Ethicon over the summer, claiming the Harmonic ACE+7 infringed upon three of its patents. A U.S. District Court judge agreed, granting Covidien a preliminary injunction in mid-October that prevents Ethicon from manufacturing, marketing and selling an ultrasonic surgical device. Naturally, Ethicon appealed and won an interim stay of the injunction from a federal appeals court.

• • In addition to its ongoing brouhaha with Covidien, Ethicon also was forced to defend itself against a slew of liability lawsuit over vaginal mesh products. In February 2014, the company scored a small victory after a federal district judge in Charleston, W.V., ruled the company’s pelvic mesh device did not cause injury. But in September, a federal jury in West Virginia—after a two-week trial—ordered JNJ to pay $3.27 million to a woman who claimed the device caused undue pain and serious side effects. The case was the second to go to trial among thousands that have been consolidated before U.S. Federal Judge Joseph Goodwin.

$28.49 Billion ($71.3 B total)
No. of Employees: 128,100 (total)

“If everyone is moving forward together, then success takes care of itself.” — Henry Ford

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, beating out pharmaceuticals by a couple of hundred million dollars 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. Johnson & Johnson last highlighted its device business in 2010.

“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.

New Products
What would a review of FY13 be without a look at new product introductions? As usual, JNJ had quite a few. Here are some notable additions to the company’s deep stable of technologies:

• The U.S. Food and Drug Administration (FDA) granted Ethicon Endo-Surgery Inc. 510(k) clearance for its Harmonic Focus+ shears with adaptive tissue technology, a next-generation ultrasonic surgical device that responds “intelligently” to varying tissue conditions by regulating energy delivery. The new Harmonic Focus+ leverages the company’s adaptive tissue technology first introduced in Harmonic Ace+, also introduced in 2013. The technology enables the system to actively sense and adapt to changing tissue conditions and intelligently deliver energy resulting in improved performance with superior precision. A slimmer profile is designed to increase speed and visibility, as well as improved dissection.
• The FDA granted 510(k) clearance to JNJ’s Ethicon Endo-Surgery division for the Enseal G2 Articulating Tissue Sealer, which the company claims is the first articulating advanced energy device designed to allow surgeons to take a perpendicular approach to seal vessels up to 7 millimeters in diameter and lymphatics through a 5-millimeter port. Vessels sealed perpendicularly are stronger than those sealed at oblique angles, surgeons say. Stronger sealing helps reduce the likelihood of internal bleeding and post-surgery complications. One of the big challenges surgeons face when performing colorectal, gynecological and general surgeries is operating in challenging anatomy. The new tool will help surgeons maneuver around corners and behind structures in the body, and provide better access to tissue in deep or tight spaces for greater control of the angle of approach to vessels.
• Without a doubt, one of the most noteworthy products to come from JNJ in FY13 was in the orthopedic sector from DePuy Synthes—the Attune total knee replacement system. Tim Czartoski, director of marketing at DePuy Orthopaedics, told MPO 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. “Given that studies show 10 to 20 percent of knee replacement patients aren’t completely satisfied with their knee replacement, we dedicated a significant amount of resources to designing a knee that would help to address these concerns. The Attune knee is the result of our largest research and development project ever,” said Hannah McEwen, worldwide director for Knee Product Development, DePuy Synthes Joint Reconstruction. Additional updates have been launched since the product originally was introduced in March last year.

Making Good Progress
By the close of FY13 (ended Dec. 29, 2013), 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.
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.

Sales for the Surgical Care business were $6.3 billion in 2013, a decrease of 3.3 percent from 2012. The decline primarily was due to lower sales of mechanical surgery, breast care and pelvic floor products. Outside the United States, increased sales of sutures and endoscopy products were offset by the negative impact from currency.

The Vision Care franchise achieved sales of $2.9 billion in 2013, a decrease of 2 percent from the prior year. The decline primarily was due to sales in Japan, which were impacted by the devaluation of the yen. The decline was partially offset by growth of Acuvue TruEye contact lenses and 1-Day Acuvue Moist for astigmatism.

The Specialty Surgery franchise achieved sales of $2.6 billion in 2013, a 2.6 percent increase compared to 2012. Contributors to the growth were strong sales from biosurgical products, sales of energy products outside the United States and Acclarent ear, nose and throat products in the United States.

The Diabetes Care franchise sales were $2.3 billion, a decrease of 11.7 percent compared to 2012. Sales slumped due to the impact of lower prices primarily related to competitive bidding in the United States as well as pricing pressures in international markets.

Revenues for JNJ’s Cardiovascular Care franchise sales were $2.1 billion, a 4.6 percent increase from the prior year. The bump was driven by strong growth in Biosense Webster’s electrophysiology business primarily due to the success of a number of catheter launches.

Diagnostics franchise sales were $1.9 billion, a decline of 8.9 percent compared to the prior year. The decline was primarily due to the divestiture of the Therakos business and a sales decline in clinical laboratories. In January 2013, the company announced it was exploring strategic alternatives for the Ortho-Clinical Diagnostics business, including a possible sale. In January 2014 JNJ found a buyer—an offer from the Carlyle Group to acquire the Ortho-Clinical Diagnostics business for $4.15 billion.

Pre-tax profit for the 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 2012 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.

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.

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, in 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. Among its first projects, the office has established a research alliance with The Icahn School of Medicine at Mount Sinai to research next-generation therapies for inflammatory bowel disease; invested in Rodin Therapeutics, a biotechnology company focused on applying insights of epigenetics to advance novel therapeutics for neurological disorders such as Alzheimer’s disease; invested in Vedanta Biosciences in order to advance a new class of therapies that modulate pathways of interaction between the human microbiome and the host immune system; and expanded Janssen Labs to Cambridge, Mass., which marks the first East Coast expansion for the JNJ pharmaceutical lab headquartered in San Diego, Calif.

But there’s always innovation through acquisition.

JNJ’s Cordis division purchased Flexible Stenting Solutions Inc., a developer of flexible peripheral arterial, venous and biliary stents. Terms of the deal were not disclosed.

Currently, Cordis markets the S.M.A.R.T. vascular stent worldwide. The addition of Flexible Stenting Solutions’ FlexStent self-expanding stent provides Cordis with the opportunity to evolve the S.M.A.R.T. platform to address unmet needs in the treatment of peripheral artery disease (PAD), officials said. It also extends the company’s potential to expand therapeutic applications into below-the-knee and venous interventions. An estimated 27 million people in Europe and North America alone suffer from PAD.
Cordis received superficial femoral artery (SFA) and proximal popliteal artery (PPA) indications for the S.M.A.R.T. stent, the only stent approved in the United States for iliac, SFA and PPA vascular indications.  SFA and PPA are in the upper leg.

The FlexStent system received European CE mark for the treatment of vascular disease (iliac, SFA and popliteal) in January 2009. In the U.S., the device received FDA 510(k) clearance for the palliative treatment of biliary strictures associated with malignant tumors in September 2009. FlexStent also is being evaluated in an investigational device exemption study to evaluate its safety and efficacy in the treatment of patients with atherosclerosis (hardening and narrowing of the arteries) in the SFA. Data from the trial is expected to support a premarket approval application requesting an expanded indication to treat SFA disease in the United States.

Legal Matters
In November 2013, JNJ announced it would pay $2.5 billion to settle the thousands of lawsuits brought by hip replacement patients who accuse 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. It 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, citing three sources familiar with the deal.

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 are still 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, 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.

Hips weren’t the only legal headache for the company.

In February last year, Johnson & Johnson also faced a verdict on a lawsuit brought against it over a vaginal mesh implant. The company was ordered to pay a South Dakota woman $3.35 million for inadequate warning on its brochures. The implant is made by JNJ’s subsidiary, Ethicon Endo-Surgery Inc., which makes suture and wound closure devices. The company is based in Somerville, N.J.

This verdict is the first in approximately 1,800 vaginal mesh cases pending in New Jersey against JNJ and Ethicon.

The lawsuit, in state Superior Court in Atlantic City, N.J., was brought by Linda Gross, 47, of Watertown, S.D., in November 2008. It alleged the Gyncare Prolift vaginal mesh was not safe and that JNJ and Ethicon were liable, among other things, for “their defective design, manufacture, warnings and instructions.”

The device was designed to treat pelvic organ collapse, which can occur when the tissue that holds the pelvic organs together is weakened or stretched and bulges into the vagina. This can happen after menopause, childbirth or a hysterectomy. Surgeons also used the device to treat stress incontinence, a severe form of urinary incontinence.

The FDA told JNJ, C.R. Bard Inc. and 31 other manufacturers in January 2012 to study rates of organ damage and complications linked to vaginal mesh implants. Physicians implanted more than 70,000 such devices in U.S. women in 2010.

This April, Johnson & Johnson was ordered by a Texas jury to pay $1.2 million to a woman who alleged one of the company’s lines of vaginal-mesh implants was defectively designed.

People News
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 William J. 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 health care,” said Gorsky. “Mark shares our aspiration to help people live longer, healthier and happier lives and personally is committed to improving healthcare 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.

$27.4 Billion ($67.2B total)
NO. OF EMPLOYEES: 127,600 (total)

Healthcare powerhouse Johnson & Johnson (JNJ) again takes the top spot on Medical Product Outsourcing’s annual list of leading medical device OEMs. The company, with product lines across all areas of the clinical spectrum, has brand recognition on Main Street like no other healthcare firm—most likely because of its widely known consumer products such as Tylenol, Q-Tips and baby shampoo—but it also has Wall Street’s attention with an even broader array of market-leading pharmaceutical and medical device products.

It’s safe to say that for JNJ’s Medical Devices and Diagnostics division, which is responsible for approximately 41 percent of the company’s sales, the big news in fiscal 2012 (ended Dec. 31) was the completion of the long-awaited purchase of Switzerland’s Synthes Inc., a boon for the company’s DePuy orthopedic division. The deal was announced in April 2011 and was closed in June last year.

By the time all the antitrust requirements were settled on both sides of the Atlantic, the final price for the company was $19.7 billion in cash and stock—the largest in JNJ’s history. European Union authorities had worried that the deal would make JNJ untouchable in the already concentrated $5.5 billion trauma device market. To make regulators happy, JNJ sold DePuy’s trauma holdings. In April 2012, Biomet stepped up as the buyer—to the tune of $280 million.

Even after divesting it’s trauma business to Biomet, JNJ’s blockbuster Synthes deal, which created the DePuy Synthes Companies of Johnson & Johnson, will have the majority share of the trauma market. Before the buyout, Synthes already had cornered 50 percent of the market for screws, plates, bone grafts and other products to treat skeletal injuries. Analysts claimed that JNJ’s primary interest in Synthes was the company’s spinal technology. Like many other large companies, Johnson & Johnson has been looking for key acquisitions to bolster sales and expand in new markets. Since the start of 2010, JNJ has had more than 50 drug and devices recalls. The recalls have cost the company around $900 million in annual sales, which resulted in pressure to find new revenue drivers and earnings growth.

“The completion of the Synthes acquisition creates the world’s most innovative and comprehensive orthopedics business and reflects our long-standing strategy of leadership within attractive health care markets,” said Alex Gorsky, JNJ’s CEO, only in his job a few months at the time. “The combination of these two leaders—Synthes and DePuy—will enable us to better serve clinicians and patients worldwide, bring new innovations to the marketplace in orthopedics and neurologics, and strengthen our ability to compete in developing markets.”

Gorsky was named JNJ’s CEO in February 2012—a difficult month for the company. First came the Feb. 13 poor showing in Harris Interactive’s annual consumer poll of corporate images, where the company ranked seventh (falling from one of the top two spots for the first time 13 years). Then there was the Feb. 17 recall of more than 500,000 bottles of infants’ Tylenol due to complaints with the dosing system. And in the midst of all the tumult was the constant barrage of lawsuits over faulty replacement hips and potentially dangerous vaginal mesh products.

With such troubles plaguing the New Brunswick, N.J.-based healthcare conglomerate, few analysts were surprised to learn that the company appointed a new chief executive and reduced William C. Weldon’s role to chairman. Gorsky, a former army captain and endurance athlete, has spent two decades at JNJ, most recently leading the Medical Devices and Diagnostics Group.

“Gorsky is a conservative choice and the strongest internal candidate,” Erik Gordon, a business professor at the University of Michigan in Ann Arbor, told Bloomberg. “That’s a big deal at a company that always taps an insider as its next CEO—even if what they need is someone from outside the team that led the company into so much trouble.”

Weldon had been blamed for much of JNJ’s troubles. He became CEO in 2002 after spending his entire career at the company. Critics accused Weldon of allowing JNJ’s once-staunch attention to quality erode through the years, resulting in the manufacture of drugs with foul odors, adulterated ingredients and/or bad labeling as well as metal hips that wore out and failed long before they should have.

At the time of his departure, JNJ’s DePuy unit faced more than 4,500 lawsuits over the ASR XL Acetabular System, a hip socket used in traditional replacement surgery, and the ASR Hip Resurfacing System, a partial hip replacement that involves placing a metal cap on the ball of the femur to preserve more bone. Both products were recalled in August 2010. As of early 2012, JNJ had recalled 93,000 hips worldwide, including 37,000 in the United States, warning that more than 12 percent failed within five years.
In the wake of those recalls and others, JNJ initiated a public relations campaign aimed at restoring consumer confidence and revised its quality control mandates to create a single framework for the company’s drug, medical device and consumer healthcare divisions. That response included a comprehensive plan to improve conditions and quality standards at the manufacturing plant that produced many of the adulterated products.

After taking the reins of the venerable firm, Gorsky became only the ninth CEO in JNJ’s 126-year history, according to Bloomberg. He joined the firm’s Janssen Pharmaceuticals unit in 1988 as a sales representative and then worked in various positions in sales, marketing and management during the next 15 years. In 2001, Gorsky became president of Janssen and was promoted two years later to company group chairman of JNJ’s pharmaceuticals business in Europe, the Middle East and Africa. Gorsky left JNJ in 2004 to become head of North American pharmaceuticals for Basel, Switzerland-based Novartis AG. He returned four years later, however, as company group chairman and worldwide franchise chairman for Ethicon in the medical devices business. In 2009, Gorsky was appointed worldwide chairman of the surgical care group and to JNJ’s executive committee.

Some critics feel JNJ should have looked outside for its leadership. Michael A. Kelly, a San Francisco, Calif.-based attorney suing the company, said he was shocked by JNJ’s change in leadership.

“It’s clear that the medical device division was not being well supervised, managed or run, certainly from 2006 through 2010, when the entire ASR debate was going forward,” Kelly, of Walkup, Melodia, Kelly & Shoenberger, noted to Bloomberg reporters. “I would think somebody would say at what cost are we making the profits and what message does it send that we promote the person who was in charge of this division to an even higher job, given the way that the entire ASR issue was handled.”

Gorsky holds a Bachelor of Science degree from the U.S. Military Academy at West Point, N.Y., and spent six years in the U.S. Army. In 1996, he earned a Master of Business Administration from the Wharton School of the University of Pennsylvania. Gorsky was named company chairman in November 2012.

With a company as large as JNJ, there of course were a number of notable new product rollouts throughout 2012 across its medical device business. Some of the key launches included:

• U.S. Food and Drug Administration (FDA) approval of Ethicon Biosurgery’s Evarrest fibrin sealant patch that, according to the company, “rapidly and reliably” helps to stop problematic bleeding during surgery. Unexpected and uncontrollable bleeding during surgery poses a significant challenge to surgeons, and in some surgical procedures can raise a patient’s mortality rate to 20 percent. FDA approved the technology for use with manual compression as an adjunct to hemostasis for soft tissue bleeding during open retroperitoneal, intra-abdominal, pelvic and non-cardiac thoracic surgery, when control of bleeding by standard surgical methods of hemostasis (e.g., suture, ligature, cautery) is ineffective or impractical.
• In November, JNJ’s Cordis cardiovascular division received FDA approval for the SMART Control vascular stent systems for use in the superficial femoral artery (SFA) and/or the proximal popliteal artery. The SMART stent, which has been approved for peripheral indication in international markets since 1999, was the first stent in the United States with both Iliac and SFA indications, according to the company. One of the most common vascular diseases, Peripheral Arterial Disease (PAD), occurs when leg arteries become narrowed or blocked by plaque. The blockages can result in severe pain, limited physical mobility and non-healing leg ulcers. According to the American Heart Association, approximately 10 million people in the United States suffer from PAD.
• Ethicon Endo-Surgery division received FDA 510(k) clearance for the Harmonic Ace + Shears with Adaptive Tissue Technology, adding to the Harmonic portfolio of ultrasonic surgical devices that can handle multiple surgical jobs, including dissection, sealing, transection, and ostomy creation. The system’s Adaptive Tissue Technology responds to varying tissue conditions by regulating energy delivery and providing surgeons with enhanced audible feedback. It is designed for use in numerous specialties and procedures, including general surgery, bariatric, colorectal, gynecology and urology. The Harmonic line was launched in 1992.
• In May, JNJ’s Biosense Webster division, a maker of devices for the diagnosis and treatment of cardiac arrhythmias, had the U.S. launch of its ThermoCool SF NAV irrigated ablation catheter with Curve Visualization. The device combines Biosense Webster’s porous tip technology with the visualization of the Carto3 3-D mapping and ablation system. It is designed to reduce fluoroscopy exposure to physicians, lab staff and patients, enhance visualization of the ablation catheter’s orientation and improve procedural efficiency. The ThemoCool SF catheter system was introduced in January 2012. The ThermoCool SF NAV catheter is approved in the United States for treatment of drug refractory recurrent symptomatic paroxysmal atrial fibrillation when used with Carto Systems and Type 1 atrial flutter for patients 18 years and older. Atrial fibrillation (AF) is the most prevalent arrhythmia and a leading cause of stroke among people 65 years and older. Worldwide, it is estimated that 20 million people have AF, yet only approximately 130,000 are treated with ablation every year. Many patients with AF take anti-arrhythmic drugs, though about half of them do not respond to the drugs.
• DePuy Orthopaedics Inc., prior to the Synthes merger, received FDA premarket approval its TruMatch Personalized Solutions with DePuy’s Sigma RP knee system. TruMatch for use with DePuy’s Sigma Fixed Bearing knee previously was cleared in August 2011. TruMatch is a surgical instrumentation and computer software system that is designed to aid knee implant positioning and procedure efficiency. It uses computed tomography (CT) scans and computer software to guide the development and production of femoral and tibial cutting blocks that are individually prepared to match the actual bone surfaces of each patient. CT scans, rather than MRIs, are used for improved bone imaging, less scanning time and lower costs.

First Location in China
Last year also was notable, because JNJ purchased its first Chinese medical device maker, Guangzhou Bioseal Biotech. The deal was finalized in May after it received the appropriate Chinese government approvals, but terms of the deal were not disclosed.

“This transaction reinforces our commitment to China and delivering innovative medical device solutions to the Chinese market,” said Xie Wen Jian, president of JNJ China Medical. “We are very pleased to add the Bioseal brand to our growing portfolio of hemostasis products in China and we look forward to working with our new Bioseal colleagues to bring their innovative products to more physicians and patients.”

JNJ has been doing business in China for more than 25 years, and just last year launched a medical device and diagnostics innovation center there.

Bioseal manufactures a porcine-derived fibrin sealant named Bioseal, currently the only porcine plasma-derived fibrin sealant approved for use in China. Fibrin sealants are used by surgeons alongside hemostasis for use in patients undergoing surgery, when control of bleeding by standard surgical techniques is ineffective or impractical.

JNJ company Ethicon, which produces a line of hemostats, will work closely with Bioseal, company officials said.

“By adding Bioseal to the existing line of Ethicon hemostasis products sold in China, we aspire to shape the broader biosurgery market in Asia by providing physicians and their patients with an even greater variety of innovative and clinical-based solutions to address bleeding, sealing and leaking challenges,” said Michael del Prado, company group chairman of JNJ Medical Asia Pacific.
Johnson & Johnson (China) Investment Ltd., the branch of JNJ that announced and handled the acquisition, is a foreign investment entity established in China by JNJ in 1998.

Ethicon, based in Somerville, N.J., produces surgical care products in the wound closure; general surgery; wound management; biosurgicals; women’s health and urology; aesthetic medicine; and ear, nose and throat sectors.

The Bottom Line
JNJ’s worldwide medical device and diagnostics sales were $27.4 billion for 2012—an increase of 6.4 percent compared with 2011, factoring an operational increase of 8.7 percent and a decrease from currency of 2.3 percent. Domestic sales increased 8.7 percent; international sales increased 4.5 percent, which reflected an operational increase of 8.6 percent and a negative currency effect of 4.1 percent. Sales, of course, included the impact of the recently completed acquisition of Synthes, which contributed 7.9 percent to worldwide operational sales growth, including the divestiture of the DePuy trauma business. The orthopedics franchise achieved sales of $7.8 billion in 2012, a 34.3 percent increase from 2011. Growth primarily was due to sales of newly acquired products from Synthes, and sales of joint reconstruction and Mitek sports medicine products. Sales were impacted by the divestitures of the surgical instruments business of Codman & Shurtleff Inc. in the fiscal fourth quarter of 2011, and the divestiture of the trauma business. The positive impact on the orthopedics franchise total sales growth and operational growth due to newly acquired products from Synthes, including the trauma business sale, was 34.7 percent. Surgical care franchise sales were $6.5 billion in 2012, a decrease of 2.3 percent from the prior year. Lower sales of mechanical, breast care and pelvic floor products were partially offset by increased sales of sutures and endoscopy products with the success of the Echelon Flex-powered Endopath stapler. The company’s vision care franchise achieved sales of $3 billion, a 2.7 percent increase, driven by Acuvue TruEye, 1-Day Acuvue Moist for Astigmatism and 1-Day Acuvue Moist. Sales from the diabetes care franchise decreased 1.4 percent to $2.6 billion. Sales growth in Asia and Latin America was offset by the negative impact of currency. The specialty surgery devices drove sales of $2.5 billion in 2012, a 4.9 percent increase. Sales of biosurgery products and international sales of energy products were the major contributors to the growth, company officials noted. The cardiovascular care franchise sales were $2 billion, a decline of 13.2 percent. Sales were impacted by the company’s decision to exit the drug-eluting stent market in the second quarter of 2011, and lower sales of endovascular products, impacted by competitive launches and a disruption in supply that was resolved late in the third quarter. The decline in sales was partially offset by strong growth in Biosense Webster’s electrophysiology business primarily due to the success of the ThermoCool catheter launches. The infection prevention business achieved sales of $1 billion, a 5.1 percent increase primarily due to growth in the advanced sterilization business.

Diagnostics franchise sales were $2.1 billion, a decline of 4.4 percent, primarily due to lower sales in donor screening due to competitive pressures. In January 2013, the company announced it is exploring strategic alternatives for the Ortho-Clinical Diagnostics business, including a possible sale.

Pre-tax profits for the medical device businesses were roughly $7.2 billion, an increase of 37 percent—once again, the Synthes deal helped to substantially grow that number.

For the company overall, sales were $67.2 billion, up from $65 billion in 2011. Net earnings were $10.5 billion, up from $9.7 billion the year before. U.S. and international sales increased.

1. Johnson & Johnson
$25.8 Billion ($65B total)

KEY EXECUTIVES:
Alex Gorsky, CEO & Chairman, Executive Committee
Dominic J. Caruso, VP, Finance & CFO
Karen A. Licitra, Chairman, Global Medical Solutions Group
Gary J. Pruden, Chairman, Global Surgery Group
Jesse J. Wu, Chairman, Consumer Group
Joaquin Duato and Paul Stoffels, M.D., Chairmen, Pharmaceuticals Group
Douglas K. Chia, Corporate Secretary & Assistant General Counsel
Stephen J. Cosgrove, Corporate Controller & Chief Accounting Officer
John A. Papa, Treasurer
Michael H. Ullmann, VP, General Counsel, Executive Committee
Andrew Ekdahl, President, DePuy Orthopaedics

NO. OF EMPLOYEES: 117,900 (total)
GLOBAL HEADQUARTERS: New Brunswick, N.J.

No profession has mastered the art of the comeback quite like the business world. Some of the most inspirational entrepreneurial rebirths have been hatched by the likes of Frederick W. Smith, the founder, president, chairman and CEO of FedEx, who bounced back from a failed 1984 attempt at electronic mail distribution to grow his core delivery business into a $40 billion empire, and Donald Trump, the outspoken, big-thinking real estate mogul who climbed out of a $4.4 billion bankruptcy hole in the early 1990s to reclaim his spot among the planet’s richest inhabitants (Forbes recently estimated his worth to be nearly $3 billion). Of course, these and other corporate comeback tales pale in comparison to perhaps the greatest reincarnation in business history: that of Steve Jobs, the cold, often controlling Apple Computer visionary who was fired from his own struggling company in 1985 only to resurrect it more than a decade later through creative thinking, savvy business moves (that $150 million investment from rival Microsoft was pure genius) and cornering the market on all gadgets named “i.”

Though it has none of the fairy tale-like attributes of Jobs’ return to glory, the comeback fable penned last year by healthcare conglomerate Johnson & Johnson is nonetheless impressive, particularly in light of the company’s recent series of costly missteps.

Worldwide sales at the New Brunswick, N.J.-based firm reached $65 million last year, a 5.6 percent increase compared with the $61.5 billion J&J generated in 2010. Adjusted earnings rose 4.4 percent to $13.9 billion, while adjusted earnings per share climbed 5 percent to $5, according to the company’s 2011 annual report.

“Several years ago, we set out to build on our strong foundation and sustain our track record of growth, even as we prepared to address a daunting challenge: the patent expirations for two of our major drugs, Risperdal (risperidone) and Topamax (topiramate). We also prepared ourselves for other market issues to which we had a good line of sight,” former Board Chairman/CEO William C. Weldon told shareholders in a farewell letter published within the company’s 2011 annual report. The 63-year-old retired in April 2012 after spending a decade as chief executive; he was succeeded by Alex Gorsky, a former army captain and endurance athlete who had led the firm’s Medical Devices & Diagnostics (MD&D) business unit since 2009.

“Additional developments could not be as easily foreseen: the severe economic decline; the tightening of consumer spending and healthcare budgets; over-the-counter (OTC) product quality issues at McNeil Consumer Healthcare and the recall of the DePuy ASR Hip System,” Weldon’s letter continued. “Our company was severely tested. As 2011 came to a close, we moved through a turning point. The headwinds from patent expirations, tough portfolio choices, litigation matters and OTC product quality issues had been, or were being addressed…We have turned the corner on a particularly difficult period.”

J&J may indeed have turned a corner on a difficult past, but its future is far from trouble-free. The 2010 ASR recall promises to haunt the company for quite some time, thanks to thousands of civil lawsuits that eventually could cost the firm billions of dollars in legal settlements. Lawsuits also are piling up over the Pinnacle Acetabular Cup System, an ASR model predecessor that was approved by the U.S. Food and Drug Administration (FDA) in 2000. The Pinnacle was designed to have more flexibility and range of motion than previous hip implants, but studies have shown it to be prone to early failure. In fact, studies have proven that all-metal implants such as the Pinnacle, the ASR XL Acetabular and the ASR Hip Resurfacing systems can cause severe pain and lead to implant dislocation, which ultimately necessitates revision surgery.

J&J’s DePuy Orthopaedics Inc. franchise has acknowledged a 13 percent failure rate with its ASR implants, more than quadruple the average 0.5-3 percent failure rate found in most implants currently on the market. Such high failure rates, as well as the ASR recall and those of other defective metal implants, prompted the FDA to conduct a two-day expert advisory panel meeting in June 2012 to evaluate the overall safety of metal-on-metal devices.

Despite two 12-hour sessions, the advisory panel reached no formulative conclusions. “Metal-on-metal, ceramic-on-ceramic and metal-on-ceramic are unforgiving couples,” Michael B. Mayor, M.D., of Dartmouth Medical School’s Thayer School of Engineering, told his fellow panel members. “They all show evidence of impact loads delivered by the edge of the acetabular component onto the surface of the head in the form of edge stops and gouges. Those are fairly severe alterations of articular surface.”

Still, all the brouhaha over the ASR recall (93,000 worldwide, including 37,000 in the United States) and controversy over the efficacy of all-metal implants affected DePuy’s 2011 revenue. J&J reported a 4 percent rise in DePuy franchise sales last year but acknowledged the unit was buoyed by sales from its Mitek sports medicine and trauma product lines as well as newly-acquired merchandise from its $480 million acquisition of Micrus Endovascular Corporation in 2010. DePuy folded Micrus Endovascular into its Codman & Shertleff Inc. business to compliment its existing line of neuro devices, which includes bare platinum coils, vascular reconstruction devices and access devices. Micrus Endovascular added enhanced bioactive coils and new technologies to improve the treatment of ischemic stroke and aneurysms to the Codman & Shertleff portfolio.

DePuy introduced several new products to the market last year in an attempt to offset its ASR recall woes, sagging hip and knee sales, pricing pressures and shrinking reimbursement rates. In February, the franchise received FDA approval for its Reclaim Revision Femoral Hip System and Gription TF titanium foam implants.

The Reclaim system features various sizing options and a modular design that can help restore function. The product, according to DePuy, combines advances in strength, fixation and instrumentation to optimize both the surgical and clinical experience during moderate to complex hip revision surgery.

The company’s highly porous Gription implants are made from commercially pure titanium, a strong, corrosion-resistant metal with high surface roughness and a similar elasticity to bone. The Gription TF Acetabular Augment System fills gaps between the acetabulum (hip bone) and cup in patients with severe bone defects, while the Universal Gription Cones are used in knee replacement surgery to enhance missing bone in the tibial or femoral areas.

Over the summer, DePuy unveiled the Trumatch Personalized Solutions instruments and computer software system for its Sigma Fixed-Bearing Knee system. The company’s Trumatch technology uses the software and computed tomography scans to create customized femoral and tibial cutting blocks that better match patients’ bone surfaces. The Trumatch system also reduces the amount of time it takes to conduct knee replacement procedures, company executives claim.

Despite its litany of challenges last year, DePuy was the top revenue-generating franchise in Johnson & Johnson’s MD&D unit, one of three operated by the multinational firm. With $25.8 billion in sales, the MD&D unit is the world’s largest medical device business, permeating dozens of sectors within the comprehensive market. Sales for the year ended Dec. 31 grew 4.8 percent, though operational sales growth came in at 1.7 percent and operating profit fell 36.4 percent to $5.2 billion, according to the company. Executives attributed the sharp dropoff in profit to the ASR recall, restructuring expenses, increased investment spending and costs associated with the historic $19.7 billion buyout of Synthes Inc., a move that is likely to reinvigorate J&J’s struggling orthopedics business and is consistent with the company’s strategy of acquiring businesses with leading positions in promising markets.

The deal, first announced in April 2011, is J&J’s largest acquisition to date, easily surpassing the $16.6 billion merger with the consumer health arm of Pfizer Inc. in 2006.

West Chester, Pa.-based Synthes, which manufactures spine and bone-replacement products, is expected to help J&J significantly expand its presence in the $5.5 billion global orthopedic reconstruction industry as well as in emerging markets, an area the firm particularly is targeting for growth. Last year, Synthes reported $424.4 million in sales in the Asia Pacific region, up 19 percent compared with 2010.

To receive regulatory approval of the deal in Europe, J&J agreed to sell DePuy’s trauma segment to Warsaw, Ind.-based Biomet Inc. for $280 million.

J&J completed the acquisition in mid-June and shortly thereafter integrated Synthes into its corporate structure, creating the DePuy Synthes Cos. of Johnson & Johnson. A pop-up message on Synthes’ website enlightens visitors to the new entity: “Introducing the new DePuy Synthes Companies,” the electronic note reads. “Inspired by listening carefully to what patients and healthcare professionals have to say. United for greater ingenuity. Committed to superior quality. Driven to make a sizable impact on orthopedic and neurological care. We are the new DePuy Synthes Companies and we are ready to advance patient care by delivering total solutions that go beyond the products themselves to help improve people’s lives.”

J&J bigwigs expect the Synthes merger to slightly boost company profit this year and significantly improve 2013 earnings by 10 cents to 15 cents per share (excluding special items). The company estimates the deal to cost $1.1 billion in after-tax charges for the remainder of 2012, including restructuring and integration expenses.

The Synthes purchase was one of several strategic portfolio decisions undertaken by J&J last year to increase profit. One choice that caught many industry pundits by surprise was the company’s decision to end the manufacturing of its Cypher and Cypher Select Plus drug-coated heart stents, used to prop open clogged arteries. It was a bittersweet move for J&J—leaving its stent business forced the company to close two factories (in Cashel, Ireland, and San German, Puerto Rico), cut hundreds of jobs and incur $500 million to $600 million in restructuring charges, but it was a necessary one nonetheless, according to analysts. Over the last few years, J&J has lost ground to Abbott Laboratories and Boston Scientific Inc. in the $4 billion global stent market. The company’s Cordis Corporation subsidiary sold $627 million in drug-coated stents in 2010, a 31.7 percent decrease compared with the $919 million in stent sales it generated in 2009 and a staggering 76 percent tumble from 2006, when the firm sold $2.62 billion in stents, according to data compiled by Bloomberg.

“Cordis has been a leader in establishing many markets, including diagnostic and guiding catheters, bare metal and drug-eluting stents, carotid stenting, and treatment of peripheral vascular disease and arrhythmias,” Cordis Group Chairman/Worldwide Chairman Seth Fischer said when the decision was announced last spring. “[But] due to evolving market dynamics in the drug-eluting stent business, we see greater opportunities to benefit patients and grow our business in other areas of the cardiovascular device market.”

Late last winter, Cordis launched the Sleek OTW Catheter, a new transluminal angioplasty balloon device designed to help prevent lower-limb amputation in patients with end-stage peripheral arterial disease, also known as critical limb ischemia. The Sleek OTW catheter features a small crossing profile that helps doctors reach small arteries between the knee and foot; its various sizes (diameters of 1.25 millimeters to 5 millimeters and lengths up to 220 millimeters) allow physicians to treat the disease with fewer inflations.

Cordis followed up the Sleek catheter launch with FDA approval of its Exoseal Vascular Closure device, a product that has been available in Europe, Asia and Latin America since June 2010. The device features a bioabsorbable plug that closes the femoral artery puncture site with minimal or no inflammation and is fully reabsorbed by the body within 60-90 days.

Such innovative vascular technologies, however, could not reverse a 10.3 percent sales slide in the MD&D unit’s Cardiovascular Care franchise. Revenue totaled 2.2 billion, with drug-eluting stent sales comprising 11 percent, or less than half of its 2010 total of 25 percent.

J&J’s Vision Care franchise sustained the most robust growth of MD&D’s seven divisions, rising 8.8 percent to 2.91 billion in 2011. Executives attributed the growth to higher sales of its 1-Day ACUVUE and astigmatism lenses in both Asia Pacific and Europe.

Revenue was similarly healthy in the Ethicon franchise, where sales jumped 8.2 percent to $4.8 billion. Higher suture sales in emerging markets, hearty demand for its Physiomesh and Securestrap products (introduced to the market in the fall of 2010) and growth in the biosurgical, Women’s Health and Urology and Acclarent product lines contributed to the increase in that division, according to the company.

Ethicon’s Securestrap provides surgeons with several advantages when performing hernia repair procedures, including two fixation points to straddle mesh pores and fibers; excellent holding strength when deployed at different angles, and secure mesh fixation during tissue integration. The Securestrap device also minimizes patients’ exposure to bacteria and other foreign material on internal organs.

The Physiomesh product is a lightweight and partially-absorbable polypropylene mesh that stretches to closely match the abdominal wall. The large pore construction allows for excellent parietal tissue integration, while the poliglecaprone 25 transparent film serves as a tissue separation barrier to minimize visceral attachments.

Diabetes care devices continued to perform well for J&J in 2011, generating $2.6 billion in sales, a 7.4 percent increase compared with its 2010 tally. J&J executives credited the growth to the company’s OneTouch product line.

Though its 6.8 percent growth rate was among the lowest of Johnson & Johnson’s seven franchises, the Ethicon Endo-Surgery division ranked second in total revenue last year, posting $5.08 billion in revenue. Robust sales of advanced sterilization and Harmonic ultrasonic products contributed to the increase, but total growth was negatively impacted by the divestiture of the unit’s breast care business in the third quarter of 2010.

There’s a good chance that divestiture will have little effect on 2012 sales figures. Last fall, the franchise acquired privately held SterilMed Inc., a Maple Grove, Minn.-based firm that reprocesses and repairs medical devices, including various probes, patient monitors, forceps, diagnostic catheters, laparoscopic instruments and cannula sets. Its customers include the Cleveland Clinic, Duke University in Durham, N.C., and Tenet Healthcare, a large, investor-owned healthcare delivery system. Four years ago, SterilMed merged with The Scope Exchange, an endoscope sales and service company based in Greensboro, N.C.

After flying under the radar practically since its 1997 founding, SterilMed received some recognition last year in a New York Times article on the growing dilemma of excessive medical waste generated by healthcare facilities—a problem that can be solved in part by increased device reprocessing. Along with Phoenix, Ariz.-based Ascent Healthcare Solutions, the two companies perform roughly 95 percent of device reprocessing in the United States, the Times reported.

SterilMed has become part of J&J’s Ethicon Endo-Surgery franchise and is managed as such but it operates as a standalone company under its own name.

Besides the SterilMed purchase, Ethicon Endo-Surgery’s 2012 revenue also is likely to benefit from the FDA clearance of its Enseal G2 Curved and Straight Tissue Sealers products, a line of devices designed to help surgeons achieve strong vessel seals while remaining gentle on tissue in both open and minimally invasive procedures. The portfolio of eight tissue sealer devices includes four shaft lengths and options for both curved and straight jaws. The entire Enseal G2 Tissue Sealer line, according to J&J, helps surgeons achieve uniform compression, better control temperature and minimize thermal spread.

Lower sales of donor screening products cut into MD&D’s Ortho-Clinical Diagnostic revenue last year, but the franchise nevertheless managed to increase sales by 5.4 percent to $2.1 billion. Growth primarily stemmed from strong demand for the company’s Vitros 5600 and 3600 analyzers.

“Over the past few years, we have navigated steadily through a series of significant challenges, keeping a long-term perspective, maintaining a disciplined approach to managing our investments for growth and our portfolio of broadly based businesses, and staying true to our operating model and values,” Weldon said in his annual shareholder letter. “Though we continue to face difficult and uncertain macroeconomic conditions, our ongoing investments have us well positioned to grow and increase our market leadership…”

$24.6 Billion ($61.6B total)
NO. OF EMPLOYEES: 114,000 (total)

It’s no shock that the company atop this year’s report, yet again, is Johnson & Johnson. Despite the company’s volume and breadth of product offerings, however, the 2010 fiscal year was a mixed bag for the healthcare giant. Sluggish sales and a number of high-profile recalls made it a tough year. Though J&J as a whole reported a slight overall sales drop, the firm’s Medical Device and Diagnostics (MD&D) segment—the largest of its three business sectors—continued to deliver gains—despite headline-making recalls for its orthopedic subsidiary.

Worldwide sales for the fiscal year (ended Dec. 31) were $61.6 billion, a decrease of 0.5 percent versus 2009. Operational sales declined 1.3 percent and the positive impact of currency was 0.8 percent. Domestic sales slid nearly 5 percent, while international sales increased 3.6 percent, reflecting operational growth of 1.9 percent and a positive currency impact of 1.7 percent. Net earnings and diluted earnings per share for the full-year 2010 were $13.3 billion and $4.78, respectively. Net earnings included an after-tax gain of $55 million representing the net impact of litigation settlements, product liability expense and costs associated with the DePuy ASR hip recall.

“Although 2010 was a challenging year, the business continued to deliver earnings growth, while investing in the future and emerging a stronger organization,” Bill Weldon, chairman and CEO wrote to shareholders. “While we will continue to see near-term pressures on the business for 2011, we remain committed to investing in innovative products, a robust pipeline and talented people who will sustain our growth and increase our market leadership in one of the most important and rewarding industries in the world.”

For fiscal 2010, medical device and diagnostics sales were $24.6 billion, an increase of 4.4 percent compared with the prior year with an operational increase of 3.4 percent and a positive impact from currency of 1 percent. Domestic sales increased 3.6 percent and international sales rose 5 percent, which reflected an operational increase of 3 percent and a positive currency impact of 2 percent. Primary contributors to sales growth included Ethicon’s surgical care products ($4.5 billion in sales, a 9.2 percent gain compared with fiscal 2009); Ethicon Endo-Surgery’s minimally invasive and advanced sterilization products ($4.8 billion in 2010, 5.9 percent growth); DePuy’s orthopedic joint reconstruction and sports medicine businesses ($5.6 billion, up 4 percent); and Ortho-Clinical Diagnostics products ($2.1 billion, up 4.6 percent). Overall growth was offset by lower sales in the Cordis stent franchise, reflecting continued market and competitive pressures in the drug-eluting stent market (sales dropped nearly 5 percent for the year; more on Cordis follows).

As noted above, the recall of DePuy’s ASR hip system came during a time when the company had more than its share of recalls across all of its product categories. A cover story in Businessweek magazine in April of this year asked if “the family company,” as the firm touts itself, could still be trusted after 15 months of 50-plus product recalls (including contact lenses; popular over-the-counter drug brands such as Tylenol, Motrin, Benadryl and Rolaids; surgical sutures due to compromised sterile packaging; cracks in prefilled syringes; and more). The recalls even drew scrutiny from Capitol Hill, where two hearings were held, calling J&J executives and members of the U.S. Food and Drug Administration (FDA) to testify about manufacturing and quality issues. Following a hearing in October, Weldon told lawmakers that the company plans to invest $100 million across the company to improve facilities, equipment and operations around the world.

DePuy Orthopaedics voluntarily recalled the ASR XL Acetabular System and DePuy ASR Hip Resurfacing System. Data from the National Joint Registry of England and Wales showed a five-year revision rate of approximately 12 percent for the ASR Hip Resurfacing System and approximately 13 percent for the ASR XL Acetabular System. Later studies from the United Kingdom showed even higher rates of revision. As of the beginning of this year, J&J faced more than 600 lawsuits in state and federal courts by patients who had the hip implants.

The ASR resurfacing System was introduced in 2003 and is only approved for use outside the United States.The ASR acetabular device was launched in 2004 and has been available worldwide. DePuy officials claim the decision had been made in2009 to discontinue the ASR System as a result of declining demand and the intention to focus on the development of next generation hip replacement and resurfacing technologies.

There has been ongoing controversy about metal-on-metal orthopedic implants. Earlier this year, the FDA launched a webpage detailing some of the issues surrounding metal-on-metal implants, and agency officials said they are taking a close look at all-metal hips, which have faced sales pressure amid concerns about metal particles wearing off and causing medical problems. As a consequence of the sliding action of joint replacement devices, wear particles form in the joint space. Implant, design and materials selection can limit the concentration and size of the particles that develop during the expected life cycle of the implant, but essentially it is unavoidable. It is the presence of the wear particles, at certain concentrations and specific size ranges, that largely contributes to osteolysis (bone cell death) through various cell responses in the body. The formation of wear debris has created considerable concern about the long-term longevity of implants. People react to metal particles differently, and it’s not currently possible to predict who will have a reaction, what it will entail or when it could happen, according to the FDA. The problem with more frequent revisionary surgery is that every procedure has risks, and every additional surgery involving the hip joint exponentially increases the chances of serious complications like blood clots, bone loss, nerve damage or infection.

In part due to the fallout from the recall, David Floyd, president of DePuy Orthopaedics, announced his resignation in March 2011, a post he held since 2007.

The year wasn’t all bad news, of course. The company made a number of notable acquisitions and divestitures.

J&J’s Ethicon division kicked off fiscal 2010 by completing its $785 million purchase of Acclarent, a privately held medical technology company that develops devices for the ear, nose and throat market. Ethicon’s product lines include wound closure, general surgery, wound management, women’s health and urology and aesthetic medicine devices. In March, private equity-backed Devicor Medical Products Inc. purchased J&J’s Ethicon Endo-Surgery breast care business, which sells products designed to help doctors diagnose breast cancer at early stages. Terms were not disclosed.

“As we continually prioritize strategic investments that are aligned with our future growth platforms, we determined that the breast care products are outside of this scope, and decided to explore the potential sale of the business,” said Karen Licitra, chairman of Ethicon Endo-Surgery, which develops medical devices for minimally invasive and open surgical procedures.

In September J&J completed the purchase of Micrus Endovascular Corporation, a manufacturer of minimally invasive devices to address hemorrhagic and ischemic stroke. The value of the deal was approximately $480 million. The deal was announced in July. After the buyout, Micrus Endovascular became part of Codman & Shurtleff Inc., the neurovascular device business of the DePuy family of companies within Johnson & Johnson. The Codman neurovascular portfolio includes bare platinum coils, vascular reconstruction devices and access devices.

According to the National Stroke Association, stroke is the third most common cause of death and the leading cause of serious, long-term adult disability in the United States. Each year, approximately 795,000 people in the United States experience a stroke. The majority of victims (87 percent) have an ischemic stroke, which occurs when arteries are blocked by blood clots or other deposits or narrowed due to atherosclerosis. Others experience a hemorrhagic stroke, which occurs when a brain aneurysm bursts.

The cost of stroke is estimated at $73 billion annually in the United States.

Fiscal 2010 also saw the end of protracted patent disputes, the largest of which was J&J’s Cordis division settlement of two ongoing legal battles with Boston Scientific Corp. Under the terms of the agreement, Cordis received $1.7 billion from Boston Scientific. The disputes involved several coronary stent products including Cordis’s Cypher stent and Boston Scientific’s Liberte, Taxus Liberte and Taxus Express stents. The company’s Ethicon Endo-Surgery Inc., also reached an agreement with Suros Surgical Systems Inc., a division of Hologic Inc. The disputes involved patents relating to the Ethicon Endo-Surgery Mammotome Breast Biopsy System, and the Hologic ATEC and EVIVA biopsy devices. An agreement called for Hologic to pay Ethicon Endo-Surgery $12.5 million. In addition, Ethicon Endo-Surgery and Hologic entered a cross-licensing agreement, whereby Hologic will pay ongoing royalties on the sales of ATEC and EVIVA hand pieces, and Ethicon Endo-Surgery will pay ongoing royalties on the sales of the Mammotome. The Mammatome product line was sold, along with Ethicon’s breast care division, to Devicor.

At an investor meeting in June, Alex Gorsky, worldwide chairman of Johnson & Johnson’s Medical Devices & Diagnostics segment, projected solid long-term growth prospects for the company’s device-based product lines.

“Our MD&D businesses compete in a number of large, well-established and under-penetrated markets like joint replacement, contact lenses and sutures—markets where we can grow through the introduction of more advanced products and continued geographic expansion,” he said. “At the same time, we are expanding into other high-growth markets such as biosurgicals, energy, electrophysiology and other surgical specialties. We are using our own pipeline, as well as licensing agreements and select acquisitions, to bring us new capabilities.”

Johnson & Johnson’s MD&D received more than a dozen regulatory approvals for medical devices and, according to Gorsky, plans to make approximately 80 significant submissions across its seven franchises through 2012. The company’s device units also expanded their global manufacturing and training footprint to support emerging market growth. DePuy continued to increase capacity at its manufacturing facility in Suzhou, China. Early in 2010, J&J also opened a medical training center in Sao Paulo, Brazil, and expects to train 4,000 doctors and nurses in the region each year.

Though J&J’s Cordis division also had a busy 2010, corporate brass decided to close up its stent-making shop this year to focus on other cardiovascular devices, a move that will result in a $500 million to $600 million second-quarter 2011 restructuring charge.

“Due to evolving market dynamics in the drug-eluting stent business, we see greater opportunities to benefit patients and grow our business in other areas of the cardiovascular device market,” said Seth Fischer, company group chair and worldwide chairman of Cordis. The company will end its development of the Nevo sirolimus-eluting coronary stent and will stop the manufacture of Cypher and Cypher Select Plus sirolimus-eluting coronary stents by the year end. Cordis also will stop developing a new stent model, called Nevo, that J&J picked up with the $1.3 billion acquisition of Conor Medsystems LLC in 2007.

Cordis will close its Cashel, Ireland, and San German, Puerto Rico, manufacturing facilities and consolidate its research and development teams in Fremont, Calif., resulting in the elimination of 900 to 1,000 positions.

The Biosense Webster business will continue to focus on the electrophysiology market while Cordis expands its productportfolio for endovascular and cardiology procedures. These businesses generated 2010 sales of $1.9 billion.

Analysts have noted that Boston Scientific would be the rival to reap the most benefit from the move to discontinue the stent business. Some estimates say Boston Scientific could gain $175 million in sales in 2012 and 2013. Boston Scientific has battled J&J—along with other stent competitors Abbott Laboratories and Medtronic Inc.—since the 1990s when the wire-mesh tubes were the popular treatment option for patients with clogged arteries. However, medical consensus has changed as studies indicated many patients would do just as well by taking medicines to prevent heart attack or stroke and skipping the expensive, although minimally invasive, procedure to insert a stent.

$23.6 Billion ($61.9B total)
NO. OF EMPLOYEES: 114,000 (total)

When caught in stormy waters in the middle of the ocean, a tanker will be jostled much less than a smaller, less-sturdy craft. The larger vessel, though not completely immune to the rolling seas, will have an easier time navigating through the rough weather.

Much like the tanker, New Brunswick, N.J.-based Johnson & Johnson (J&J) has been able to weather the economic tsunami of 2009. There certainly wasn’t double-digit growth—in fact, there was a 3 percent decrease in revenue compared to 2008—but as the company’s CEO, William Weldon, noted, it was a year of “tremendous challenge,” given the worldwide economic downturn. Weldon’s tone during a conference call with investors and journalists at the end of the fiscal year, was that things could have been a lot worse.

“We maintained our long-term focus while delivering solid results,” Weldon said. “We made important investments in acquisitions, strategic partnerships and launches of recently approved innovative products while preserving our financial flexibility to continue to invest in innovation.”

Worldwide sales for 2009 were $61.9 billion across the company’s multiple business units, a decrease of 2.9 percent. Overall domestic sales declined 4.4 percent, while international sales declined 1.4 percent, reflecting operational growth of 3.9 percent and a negative currency impact of 5.3 percent. Net earnings and diluted earnings per share for full-year 2009 were $12.3 billion and $4.40, respectively, down from fiscal 2008’s level of $12.9 billion. Full-year earnings results included an after-tax restructuring charge of $852 million and an after-tax gain of $212 million due to settled litigation matters. Excluding these special items, net earnings for full-year 2009 were $12.9 billion, flat compared with last year.

Sales for the company’s Medical Devices and Diagnostics unit, however, experienced modest growth. Revenues were $23.6 billion for 2009, a gain of 1.9 percent. Domestic sales increased 4.5 percent, while international sales decreased 0.2 percent, including an operational increase of 4 percent and a negative currency impact of 4.2 percent. The company has spent $3.6 billion on research and development during the last two years and closed $2.7 billion worth of acquisitions. The medical device division accounted for 38 percent of J&J’s total sales last year and 43 percent of total operating profit (excluding special items).

Primary contributors to the year’s gains included increased sales of surgical care and aesthetics products by the company’s Ethicon division. Orthopedics also played a strong role in keeping the device unit in the black—DePuy’s orthopedic joint reconstruction, spine and sports medicine businesses. In addition, Ethicon Endo-Surgery’s minimally invasive products and Ortho-Clinical Diagnostics’ professional products added to sales gains. Growth was partially offset by lower sales in the Cordis franchise, reflecting continued competition in the drug-eluting stent market.

Part of the company’s growth strategy to keep it competitive in a tough market has been through aggressive new product development—organically and, more often, through acquisition.

During the last quarter of the year, J&J announced a $785 million deal to buy Acclarent, Inc., a privately held medical technology company dedicated to designing, developing and commercializing devices that address conditions affecting the ear, nose and throat. The purchase was completed in January. The focus of Menlo Park, Calif.-based Acclarent’s technology is treating sinus conditions with novel, minimally invasive endoscopic devices. The company’s Balloon Sinuplasty technology provides an alternative to traditional medical therapy and conventional surgical approaches for those with sleep apnea and other obstructive sinus conditions.

The company also completed the acquisitions of Finsbury Orthopaedics Limited, a privately held, UK-based manufacturer and global distributor of orthopedic implants, and Gloster Europe, a privately held developer of innovative disinfection processes and technologies to prevent healthcare-acquired infections. Finsbury manufactures one of the only large-diameter, one-piece ceramic-on-ceramic hip bearing.

At the beginning of the year, the company concluded its $1 billion purchase of Mentor Corporation, a supplier of medical products for the global aesthetic market.

In the new product category, the company received U.S. Food and Drug Administration (FDA) clearance for its Carto 3 System 3-D imaging system for use by electrophysiologists in treating irregular heart rhythms. In August, an FDA panel recommended approval of the DePuy’s Pinnacle CoMplete Acetabular Hip System, the first ceramic-on-metal hip bearing to be considered for approval in the United States. The company is still waiting for a final OK from the FDA. The device remains an investigational device in the Unites States. Since 2007, the ceramic-on-metal bearing has been marketed in 40 countries. In addition, in 2009, DePuy launched the Silent Hip, a minimally invasive hip stem available outside the United States only. The Silent stem, which is inserted into the femur, is more bone-preserving than traditional stems, according to J&J.

In the ultra-competitive stent market, J&J’s Cordis division received FDA approval for a smaller version of the Cypher Sirolimus-eluting coronary stent. The new 2.25 mm stent is indicated for treatment of coronary blockages in small vessels, an often difficult-to-treat situation. The previous version has been used to treat more than 4 million patients worldwide, according to J&J estimates. This move provides clinicians with an improved option for smaller vessels, which clinically can be more complex to treat.Small coronary vessels have been associated with an increased risk of re-blockage after stent implantation, which requires another procedure to re-open the vessel. The smaller the artery, the more the regrowth of cells within a stent, and stent recoil narrows the lumen.

Other companies also received FDA approval for similar devices in 2009, notably Boston Scientific’s Taxus Liberté Atom and the Taxus Express Atom. Stents are available in numerous diameters, with sizes up to 4 mm.

New product rollouts clearly are part of the company’s take on the competition. This summer, J&J’s leadership told analysts that the company will roll out 80 new products from its medical devices and diagnostics unit through 2012 and plans to expand in markets including biosurgicals and electrophysiology. The division has received more than a dozen regulatory approvals so far in 2010. Overall, Johnson & Johnson claims to account for roughly 62 percent of the $350 billion worldwide medical device and diagnostics market. J&J expects medical device sales to grow an average of 6 percent each year through 2014.

Despite device sector gains, the company was not able to avoid restructuring in the face of increased economic pressures. In 2009, officials said it hoped to save up to $1.7 billion by 2011 (approximately $900 million in 2010). The primary cost savings would come from layoffs. The firm estimated it would reduce its global workforce by 6-7 percent. Leadership also hopes to simplify business structures and processes for additional savings.

$21.7 Billion ($61.1B total)
NO. OF EMPLOYEES: 119,200

When it comes to medical devices, there’s no ignoring the 800-pound gorilla in the room. The powers that be at New Brunswick, NJ-based Johnson & Johnson claim their device and diagnostics businesses make up the world’s largest medical technology business. Certainly, with 2007 revenues in excess of $21 billion (35% of the company’s total sales), there’s no arguing with that boast.

In 2007, J&J’s device businesses achieved total growth of 7.2% compared with 2006 (domestic sales increased 3.2% and international sales increased 11.1%—4.6% from operations and 6.5% from currency). That’s impressive expansion in light of a significant decline in the market for drug-eluting stents (DES), which took a toll on sales of the Cypher sirolimus-eluting coronary stent manufactured by the company’s Cordis division.

For example, in the second quarter of the 2007 fiscal year, Cordis sales declined 21% overall due to lower Cypher sales, and US sales were down 26%.

Despite the declining numbers, J&J is optimistic that the market is poised to turn around. During the first quarter of 2007—on Feb. 1—J&J completed the $1.4 billion acquisition of Menlo Park, CA-based Conor Medsystems, Inc., a cardiovascular device company developing controlled drug-delivery technology focused on DES to treat coronary artery disease.

The company recently announced that it plans to file with the FDA in 2010 for US approval of Cypher Elite, an improved version of J&J’s Cypher stent already on the market. Company officials also plan to seek European and US approvals for the Nevo sirolimus-eluting heart stent in 2009 and 2011, respectively.

“We have begun clinical trials on Nevo,” said Dominic J. Caruso, vice president of Finance and chief financial officer, noting that the company is using sirolimus, which is the drug used on its existing Cypher stent on the stent platform it acquired when it bought Conor Medsystems. “It’s also a redesign of the stent itself,” he added. Using Conor’s reservoir stent technology, the company can use more than one drug on a stent, including antiplatelet agents to mitigate the risk of developing blood clots, which has been a concern with the technology.

Overall, the company’s stent sales slid 34% in 2007. J&J is predicting only 1% compound annual growth for all DES worldwide between 2007 and 2012 and noted the total market for these devices would be $4 billion by 2012.

According to J&J, excluding the impact of the DES market decline, the company recorded total growth of nearly 13% across its device and diagnostics businesses. Expansion was attributed to its Vistakon unit’s disposable contact lenses; LifeScan’s blood glucose monitoring and insulin delivery products for diabetes care; Ethicon Endo-Surgery’s minimally invasive products; DePuy’s orthopedic joint reconstruction and sports medicine businesses; Ortho-Clinical Diagnostics’ professional products; and Ethicon’s wound care and women’s health products.

“We enjoy strong competitive positions across our diverse franchises, with more than 80% of [medical device and diagnostic] sales coming from businesses in the No. 1 or No. 2 market positions,” William C. Weldon, chairman and CEO, wrote in a letter to shareholders. “Our vision care business surpassed the $2 billion mark for the first time in its history.”

Part of the year’s success at J&J was due to a series of important product launches and regulatory approvals, including US approval of the Realize adjustable gastric band, a device for treatment of morbid obesity; the Animas 2020 insulin pump, which the company said is the smallest full-featured insulin pump on the market; and Genesearch breast lymph node assay, a novel molecular diagnostic tool for detecting the spread of breast cancer to lymph nodes while the patient is undergoing surgery. This assay helps breast cancer patients and their doctors avoid the challenges of a second surgery to remove cancerous lymph node tissue following results of a biopsy. It was cited by TIME magazine as the second leading medical breakthrough of 2007.

“We are well-positioned in 2008 with a robust pipeline and strategic development programs in orthopedics, biosurgicals, bariatric surgery, vision care and other major categories,” Weldon wrote.

During a June 2008 meeting with members of the investment community, various company officials outlined their growth expectations from J&J’s medical device units during the next several years, with orthopedic and surgical care products leading other sectors.

The company expects an average of 6% annual growth in revenue from its surgical care unit during the next four years, reaching $40 billion in 2012. Orthopedic products will get a 9% annual boost to $48 billion, according to J&J’s projections.

Sheri McCoy, group chairman of J&J’s Ethicon surgical business, said the company is focusing on developing less-invasive surgical products and looking to emerging markets to help fuel growth. More than half of surgical sales now come from outside the United States, according to McCoy. The focus on international sales has prompted the opening of a surgical training center in Russia this year, with plans to open one in Brazil next year. Meanwhile, the company already has a manufacturing plant in China. The push to tap emerging markets is a common theme throughout each of the company’s divisions.

Michael Mahoney, the group chairman of J&J’s DePuy orthopedic division, said the unit gets more than 40% of its revenue from outside the United States and claims the No. 2 spot in the global market, while retaining the top spot in the domestic market. Brazil, Russia, India and China had record growth last year, and the company is making investments to build on that momentum.

“We recognize the potential of the marketplace and see the opportunity to gain share,” Mahoney told analysts. The company has been introducing a range of new product platforms that include more durable materials and instruments for minimally invasive surgery. Those are both necessary to stay on top, he said, as patients in several segments are increasingly younger, including hip replacement patients, who are demanding better implants and less-invasive techniques. The DePuy unit was the largest revenue contributor within the medical device division, accounting for $4.59 billion in sales in 2007.

Overall, medical device sales are J&J’s second-largest revenue driver—behind pharmaceutical sales.

For the first quarter of 2008, the company continued to report device and diagnostics growth—however, as seen in 2007, it was limited by continued slow stent sales. The company recorded $5.7 billion in revenue for the first quarter, a 7.2% increase compared with the first quarter of 2007, with operational growth of 1.4% and a positive impact from currency of 5.8%. Domestic sales increased 0.2%, while international sales increased 13.8% (2.6% from operations and 11.2% from currency). Sales, excluding the impact of lower sales of DES, grew nearly 5% operationally, the company said.

Cordis sales were down 15% operationally, with similar results domestically and internationally. Cypher sales were approximately $400 million, down 27% on an operational basis versus the prior year. Sales in the United States of approximately $170 million were down 28%. A reduction in percutaneous coronary intervention (angioplasty or stent placement) procedures, a lower penetration rate of DES and lower prices resulted in an estimated market decline in the United States of approximately 25% versus the first quarter of 2007, according to Louise Mehrotra, vice president of Investor Relations.

But not all Cordis news was bad. Growth drivers within the Cordis franchise include the Biosense Webster electro-physiology business (cardiac navigation and therapeutic and diagnostic catheters), which achieved double-digit operational growth in the quarter, with ultrasound products continuing to be strong contributors. The neurovascular business also achieved strong growth in the quarter due to the re-launch of the Trufill DCS Orbit Coil system and the Cordis Enterprise stent in 2007.

According to Mehrotra, the DePuy franchise had operational growth of 4% when compared with the same period in 2007, with US growth at 2% and international business growing by 6% operationally. Hip growth on a worldwide basis was 9%, led by the strong results in the United States. On an operational basis, worldwide knee growth was 2%, while spine was flat, she reported. Sales for the company’s Mitech sports medicine business grew 11%.

Ethicon Endo-Surgery achieved operational growth of 6% in the first quarter of 2008, with US sales growing 3% and sales internationally growing on an operational basis by 9%. Strong results were achieved in the energy business due to the success with the harmonic scalpel. In addition, the Endocutter, a key product in performing bariatric procedures and advanced sterilization products, also contributed to growth in the quarter, company officials said during a conference call with reporters and analysts. Ethicon worldwide sales grew operationally by 1%, with US sales down 1% and sales outside the Unites States growing operationally by 3%. Sales of sutures and women’s health products were flat, while meshes and hemostasis devices achieved solid growth. The diabetes franchise grew operationally by 6% in the first quarter of 2008. The US business grew by 4%, while international grew 8% on an operational basis. Growth in the United States was driven by the strong double-digit growth of the Animas pump business. The success of the LifeScan One-Touch Ultra diabetes testing line has been the major driver of growth in international markets. J&J’s Vision Care franchise achieved double-digit operational sales growth of 12%, with sales in the United States increasing 16% and international sales rising 9%.

“$20.3 Billion ($53.3B Total)

Key Executives:
William Weldon, Chairman and CEO
Dominic J. Caruso, VP, Finance and CFO
Brian Perkins, VP, Corporate Affairs
Nicholas Valeriani, Worldwide Chairman, Medical Devices & Diagnostics Group
Ajit Shetty, VP, Worldwide Operations

No. of Employees: 122,200

World Headquarters: New Brunswick, NJ

Johnson & Johnson (J&J) may have lost the bidding battle for Guidant in 2006 to rival Boston Scientific, but it certainly didn’t lose the war. As Boston Scientific struggles to turn around the flailing manufacturer of implantable cardioverter defibrillators, J&J has gone about other acquisitions in an attempt to infuse its product line with new cutting-edge technology in growth markets.

Some have even speculated that Boston Scientific could, in turn, be a takeover target for J&J. Only time will tell, but New Brunswick, NJ-based J&J—which has 250 companies under its corporate umbrella—certainly has the financial muscle to do it, with nearly $11 billion in earnings sitting in company coffers.

The company’s medical device and diagnostics comprised 38% of company revenue, which totaled $20.3 billion in 2006, a 6.2% increase. For the year, roughly 40% of the company’s device and diagnostics sales came from products introduced in the past five years.

While J&J claims much of its growth has been organic, since the beginning of 2006, the company has acquired six medical device companies.

Hand Innovations, LLC, a provider of plating technology for wrist and hand fractures, adds to DePuy Orthopaedics’ fast-growing trauma business. Future Medical Systems, SA, a company that develops arthroscopic systems, also is expected to add to DePuy’s sports medicine business with an emphasis on minimally invasive procedures.

Johnson & Johnson hopes the acquisition of West Chester, PA-based Animas Corporation, a provider of insulin delivery system, will allow its LifeScan division to enter the diabetes treatment market. J&J bought the company for $518 million. Even more important, this acquisition is an initial step in LifeScan’s plan to develop integrated solutions for total management of a patient’s disease, the company said. The acquisition of Vascular Control Systems by J&J’s Ethicon “adds momentum” to the group’s women’s health portfolio with the addition of less invasive treatment options for uterine fibroids and related symptoms, the company said.

Two acquisitions, in particular, were intended to bolster the company’s cardiovascular businesses. Ensure Medical adds complementary post-catheterization closure technology for the femoral artery but adds to Cordis Corporation’s R&D talent pool with a premier advanced R&D facility for interventional cardiology near San Francisco, CA, according to J&J. Conor Medsystems, based in Menlo Park, CA, which J&J purchased for  $1.4 billion, has a unique controlled drug-elution delivery technology the company said it plans to use across a range of therapeutic categories.

On the distribution front, Cordis signed an agreement with Brivant Ltd. for three interventional guidewire products that will be marketed under an umbrella brand known as Regatta. Cordis also signed an agreement with ClearStream Technologies Group, PLC for distribution rights to the Crescendo PTCA (percutaneous transluminal coronary angioplasty) balloon dilation catheter in all countries except the United State, Japan and Canada. In addition, BioSense Webster, part of the Cordis franchise, secured exclusive worldwide rights to distribute Siemens Medical Solutions’ cardiac catheters.

Looking at the bottom line, overall US sales for J&J were $10.1 billion, an increase of 6.5%. International sales were $10.2 billion, an increase of 5.9%, with 6.2% from operations and a negative currency impact of 0.3%.

The DePuy franchise achieved $4.1 billion in sales in 2006, which was a 6.7% increase over prior year. This growth primarily was due to DePuy’s orthopedic joint reconstruction products, Mitek sports medicine products and the trauma business.

The Cordis franchise achieved sales of $4.1 billion in 2006, an increase of 2.6% compared to 2005. Sales of the Cypher Sirolimus-eluting stent, the largest product in the Cordis franchise, were relatively flat. The modest growth was caused by lower average selling prices, negative media and a regulatory focus concerning drug-eluting stents and the corresponding lack of market growth, the company said.

There were strong performances by the Biosense Webster and endovascular businesses in 2006. During the fiscal third quarter of 2006, the company received FDA approval to market the Precise Nitinol Stent and the Angioguard Emboli capture guidewire to treat carotid artery disease. In addition, Cordis received CE Mark approval in Europe for the Cypher Select Sirolimus-eluting stent for use in the treatment of severe arterial disease in the leg.

The Ethicon Endo-Surgery franchise achieved sales of $3.4 billion in 2006, an 8.7% increase compared to 2005. A major contributor of growth continues to be endocutter sales, which include products used in performing bariatric procedures for the treatment of obesity, an important focus area for the franchise. Strong results also were achieved with the success of the Harmonic scalpel, an ultrasonic cutting and coagulating surgical device, which received approval in January 2006 for expanded indications to include plastic surgery, according to J&J. There was also strong growth in advanced sterilization products.

The LifeScan franchise achieved $2.1 billion in sales in 2006, an increase of 8.6%.

Sales in the Vision Care franchise reached $1.9 billion in 2006, a growth rate of 10.9%, with growth led by the Acuvue Oasys contact lenses. The Ortho-Clinical Diagnostics franchise achieved $1.5 billion in sales in 2006, a 5.7% increase. Growth was achieved in clinical laboratory and immunohematology sales in both the United States and international markets, 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. Primary contributors to the growth, according to J&J, were Vistakon’s disposable contact lenses; Ethicon Endo-Surgery’s minimally invasive products; Ethicon’s wound care and women’s health products, and DePuy’s orthopedic joint reconstruction, sports medicine and trauma businesses. Growth was partially offset by challenges faced by the drug-eluting stent market.”

$17.7 Billion ($51B Total)
No. of Employees: 115,600

For next few years, many will be asking “What if?” or “Why did it happen?” The talk is about Johnson & Johnson’s failure to purchase Indianapolis, IN-based Guidant. The New Brunswick, NJ-based medical device giant courted Guidant for more than a year, only to have Natick, MA-based Boston Scientific swoop in and grab Guidant for $27.2 million.

The company had originally made what was considered an attractive offer to Guidant, putting $25 billion on the table. Then, after Guidant’s lengthy list of problems surfaced (see Guidant’s report on page 78), J&J lowered its offer. However, it eventually had upped the sum to buy Guidant for $24.5 billion once Boston Scientific approached Guidant with its own lucrative offer. For two months, both companies battled back and forth for Guidant before the $80-per-share offer from Boston Scientific was just too enticing for Guidant.

“Unfortunately, a combination of adverse developments in Guidant’s business and competition for the asset forced the price to a ping where we concluded it was no longer in the best interest of our shareholders to pursue this business opportunity,” said J&J CEO William C. Weldon. “Nonetheless, we remain committed to strengthening our business in this important [cardiovascular] therapeutic category.”

Only time will tell what effect—positive or negative—the turn of events will have on both Boston Scientific and J&J. Even months after the ink was dried on the contract to buy Guidant, the cardiovascular product manufacturer is still being plagued with problems with its implantable defibrillators and pacemakers.

In some respect, the move by Boston Scientific might have been a blessing in disguise for J&J, as the company will most likely continue its reign as the largest medical device company in the world and not have to worry about being burdened by Guidant’s past.

If the deal had gone through, it would have placed the medical device sector on equal terms with the pharmaceutical division as the multi-faceted corporation continues to stress the more profitable medical device side.

Not only did J&J battle Boston Scientific in the boardroom, the two companies also faced off in the courtroom regarding several decisions on patent disputes involving J&J’s balloon expandable stents and the Natick, MA-based manufacturer’s Taxus and Liberte stents.

In the most recent move, J&J’s Cordis Corp. unit filed an appeal last month (June) of a federal decision that upheld a previous ruling that its stent product infringed on a Boston Scientific patent. In 2005, the device segment outgrew the multi-faceted corporation with a double-digit rise in revenues at 13%, while the entire corporation as a whole grew a steady 7%.

Johnson and Johnson medical device franchise sales include the following divisions: Vision Care, Cordis, DePuy, Ethinco, Ethicon Endo-Surgery and LifeScan. Most of the divisions realized double-digit sales increases. Cordis led the pack with a robust 24% jump in revenues helped by its circulatory disease management products, driven by the Cypher Sirolimus-eluting Coronary Stent. Cypher is the worldwide leader of drug-eluting stents, which have been used to treat more than two million patients with coronary artery disease. The stent had excellent growth domestically as well as internationally, with the best increases coming from Japan.

Also contributing to the strong performance of the segment were the results from DePuy’s orthopedic joint reconstruction and spinal products, LifeScan’s blood glucose monitoring products, Vistakon’s disposable contact lenses and Ortho-Clinical Diagnostics’ professional diagnostic products.

While the mega-corporation did not capture Guidant, it did complete several other smaller—but significant—acquisitions.

Before the rejection of Guidant, J&J’s unit Cordis purchased Redwood City, CA-based LuMend, a privately held company that makes chronic total occlusion (CTO) devices to treat peripheral vascular disease, in September 2005.

Right after Boston Scientific secured the deal for Guidant, J&J bought three more companies over the next few months. In January 2006, the company announced the acquisition of Hand Innovations of Miami, FL, a privately held manufacturer of implants used for the repair of wrist fractures. In February, J&J acquired West Chester, PA-based Animas Corporation, a leading manufacturer of insulin infusion pumps and related products. And in May, Ethicon, a unit of Johnson & Johnson, purchased privately held, San Juan Capistrano, CA-based Vascular Control Systems, which manufactures devices to control bleeding during obstetric and gynecologic procedures. Ethicon manufactures instruments for general surgery and other surgical procedures.

“This represents a strong strategic fit with our gynecologic business,” said Sheri McCoy, a J&J executive responsible for the Ethicon business, about the purchase of Vascular Control Systems. “The technology and knowledge we’ll gain will enable us to expand our ability to create new therapies for women.”

One area that J&J is expected to make a splash in during the next few years is the artificial spine market. The company received a big boost from Medicare this May after it agreed to pay for artificial spinal disks implanted in beneficiaries under the age of 60.

In addition, J&J is expected to launch the Synthes disc in the United States in the second half of 2006.

DePuy, the company’s segment for joint reconstruction and other important orthopedic areas, is focusing on less invasive and more durable, motion-saving solutions.

As part of its Cordis franchise, Biosense Webster saw double-digit growth in 2005 and is expected to gain more in 2006 as it received FDA approval for the use of Celsius RMT diagnostic abalation steerable tip catheter.

While the revenues have grown for Cordis, the segment continues to work with the FDA (since April 2004) on warning letters regarding cGMP regulations and Good Clinical Practice regulations. J&J was hoping to get clearance this year after follow-up inspections in the first half of 2006.

After the Cordis segment showed the largest growth in 2005, DePuy and Lifescan reported 13% and 12% jumps in sales, respectively. Vision Care and Ethicon demonstrated 11% and 9% revenue increases, respectively, in fiscal 2005. Ethicon Endo-Surgery had  a 9% rise in sales for 2005.

For LifeScan, the Onetouch Ultra product line boosted its sales to $1.9 billion. The continued success of the Acuvue Advance Brand contact lenses also helped boost the Vision Care franchise to $1.7 billion in revenue.

In the first quarter of 2006, medical devices and diagnostics sales rose 5% to $5 billion, with Cordis circulatory disease management products being a key contributor to the segment (the prime driver was the Cypher Sirolimus-eluting coronary stent). Also contributing to the sector were DePuy’s orthopedic joint reconstruction, sports medicine and trauma businesses, along with Ethicon Endo-Surgery’s minimally invasive products.