(JNJ) Johnson & Johnson to Discontinue Cypher Stent

Cordis Corporation, a Johnson & Johnson (JNJ) company, recently announced that it will stop manufacturing Cypher and Cypher Select Plus sirolimus-eluting coronary stents by year end.

The company will also discontinue the development of Nevo sirolimus-eluting coronary stent. Cordis intends to focus on other cardiovascular therapies instead.

Cypher Sales Were Under Pressure

The decision to discontinue Cypher stent does not come as a surprise given the declining sales of the product. Changing dynamics in the drug-eluting stent (DES) market along with unlicensed competition from products infringing Cordis’ patents led to an erosion in Cypher stent’s pricing, sales and market share. Moreover, the launch of superior products by competitors also led to a loss of market share.

On the first quarter call, Johnson & Johnson reported a 41% decline in Cypher sales with worldwide share declining to 12%, down 6 points from the year-ago period. The dismal performance of Cypher stent had been dragging down Cordis’ performance.

We expect companies like Abbott Labs (ABT) and Boston Scientific Corporation (BSX) to benefit from Johnson & Johnson’s decision to exit the market.

Company to Shut Down Two Facilities

In addition to announcing the discontinuation of Cypher stent, Johnson & Johnson also announced its intention to close down two manufacturing facilities – the Cashel, Ireland facility where Nevo was to be manufactured, and the San German, Puerto Rico facility where Cypher stent was produced. Besides this, Johnson & Johnson intends to consolidate its R&D project teams in Fremont, California.

All these actions will result in the reduction of 900-1,000 positions. The company expects to incur an after-tax restructuring charge of $500-$600 million in the second quarter of 2011. Johnson & Johnson will discuss additional financial implications on its second quarter earnings call on July 19.

Cardiovascular Market Remains an Area of Focus for J&J

Meanwhile, Johnson & Johnson said that it will continue to focus on the cardiovascular market through its Biosense Webster and Cordis businesses. Biosense Webster, which provides advanced cardiac diagnostic, therapeutic, and mapping tools, will continue to focus on strengthening its global leadership position in the $2.5 billion electrophysiology (EP) market.

Cordis will work on expanding its portfolio of vascular solutions for the $12 billion endovascular and cardiology procedures market. Areas of focus include access, diagnostic and therapeutic products for cardiology procedures and products for the diagnosis, access and treatment of lower extremity disease.

New product offerings include the Exoseal vascular closure device, which recently gained US Food and Drug Administration (FDA) approval and the Incraft stent-graft system, which is being studied for treating abdominal aortic aneurysm (AAA).

Neutral on Johnson & Johnson

We currently have a Neutral recommendation on Johnson & Johnson. The company’s decision to exit the stent market will allow it to focus its resources on other areas in the cardiovascular disease market.

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