In Stents, How the Mighty are Falling--Fast
Executive Summary
It's no surprise that Johnson & Johnson no longer owns the stent market. What's surprising is how fast it lost it.
Johnson & Johnson recently reported double-digit earnings growth in its pharmaceutical business. The news couldn't have come at a better time. For the past two years, one of the primary drivers of J&J's soaring stock price has been its US stent business; J&J, in effect, created the market, building a nearly $500 million- business with 95% market share and near-pharmaceutical margins.
But with the advent of competition from the likes of Arterial Vascular Engineering Inc. (AVE), Guidant Corp. , Boston Scientific Corp. , Cook Group Inc. , and Medtronic Inc. , J&J no longer owns the stent market. That's no surprise to industry watchers. What is surprising is how quickly J&J is losing market share.
As recently as March 1997, Montgomery Securities' had pegged J&J's 1997 and 1998 stent market shares at 92% and 81%, respectively. But more recent reports, from UBS Securities and Hambrecht & Quist most notably, say J&J's share is now 15% or 21% (1st quarter 1998), respectively.
"The catalyst for radical change in Wall Street's view of how bad it would be for J&J came at this past September's TCT (Transcatheter Cardiovascular Therapeutics) meeting," says UBS' Sam Navarro. At this leading interventional cardiology meeting, he says, physicians and analysts were able to view live cases showing the success of the new generation of stents, particularly those from Guidant, AVE and Boston Scientific. Navarro adds that this was when analysts also realized how J&J was being "decimated" in the European stent market and that cath labs were adopting these new stents more aggressively than expected.
The question is, what does J&J do next? The market has recently been punishing cardiovascular companies that embark on ambitious strategies and stumble; witness St. Jude Medical Inc. J&J did a hostile takeover of Cordis Corp. in 1995 to build its cardiovascular business, [See Deal]; another aquisition in cardiac rhythm management would give J&J a new business area to supplement its struggling stent operation.
As the US market more closely resembles the European market—more competition, lower prices and margins—J&J will face a tough choice: does it redouble its efforts in cardiovascular, seeking to quickly ramp up growth again, even if it means aggressive deal-making? Or does it hunker down and live with a much less profitable stent business