Sunday, September 10, 2006

J&J Medical Device Chairman Sees Growth Improving

Health-care conglomerate Johnson & Johnson (JNJ) expects sales growth in its huge medical devices and diagnostics business to pick up in the second half of the year, said Michael Dormer, worldwide chairman for J&J's Medical Devices Group, on Wednesday.

Growth across the medical devices sector has slowed significantly this year, hurt by pricing concerns, product recalls and tough comparisons with year-earlier results for certain products.

J&J's Medical Devices and Diagnostic Group posted sales of $10.17 billion in the first six months of 2006. While up just 5.3% from the year-earlier period - a sharp drop from 17.8% growth in the first six months of 2005 - growth this year has still exceeded the 4% growth rate that analysts have pegged for the sector at large, Dormer said at a medical device presentation broadcast on the Internet. The presentation was part of a J&J research and development conference on medical diagnostics.

"We look forward to a stronger second-half performance to widen the gap," Dormer said.

J&J shares recently traded 30 cents lower at $64.01.

Officials from the company's medical device segments issued potential five-year worldwide industry growth levels for various products. Dormer didn't project J&J's growth for each area but said the company aspires to grow faster than the markets in which it competes.

"We want to be a share gainer," Dormer said.

J&J's medical device portfolio ranges from artificial joints to coronary stents and contact lenses - a company official said Wednesday that J&J is considering expanding from lenses into the contact lens solution market, too. The overall J&J Medical Devices and Diagnostics Group posted about $19.1 billion in 2005 sales, representing 38% of J&J's total sales for the year.

J&J had sought to significantly add to the business through the acquisition of Guidant Corp. - a maker of heart devices like stents, pacemakers and implantable defibrillators - but lost Guidant to Boston Scientific Corp. (BSX) in a bidding war earlier this year. In April, Boston Scientific bought Guidant's heart rhythm business, and Abbott Laboratories (ABT) bought Guidant's vascular intervention and endovascular business.

Dormer said Wednesday that J&J's medical-device growth strategy includes internal invention, aggressive licensing and strong cash generation to make "selective acquisitions."

"Looking forward, growth remains a major goal for us," he said.

While the medical-device sector likely won't grow as fast as it did early in this decade, when it was bolstered by hot new products like drug-coated stents, Dormer said the sector remains "a very large marketplace" with healthy growth prospects.

"Our expectation going forward is that the industry will move back toward its more traditional growth profile," he said.

Later, in response to an analyst question, Dormer said the medical technology industry could grow in the high single-digit range in the 2006 to 2010 timeframe.

Among officials in J&J's device segments, Bill McComb, group chairman for the DePuy franchise, which sells orthopedic and related products, described a slate of coming DePuy replacement hip products that will preserve bone and use minimally invasive techniques.

McComb said he sees the hip market moving toward younger patients, and said the market should grow at a 6% to 8% rate in the 2005 to 2010 timeframe. The replacement knee market, meanwhile, should grow at a 7% to 9% clip in that period, he said. McComb added that price and mix for joint reconstruction is seen in the low single digits in the coming years.

The orthopedic market, McComb said, represents a 10% growth opportunity in the 2005 to 2010 span, and should have $30 billion in total market revenue by 2010.

DePuy's aspiration is to eventually grow its spine business at an above-market rate, although that's not likely in 2007, McComb said, answering an analyst question. He said the spine business is looking at getting back to the market growth rate, and that it has recently "stabilized the core business."

Don Casey, group chairman for J&J's Vistakon vision care unit, said the company is considering building on its huge Acuvue contact lens business by expanding into the lens solution market, among other potential areas for expansion. Casey said J&J is evaluating the lens-solution space, and is "looking at several different entry strategies" that could include acquisitions and licensing.

Other players in the lens-solution market include Bausch & Lomb Inc. (BOL), Alcon Inc. (ACL) and Advanced Medical Optics Inc. (EYE). The lens-solution market was recently rocked by news that Bausch & Lomb's ReNu with MoistureLoc product was associated with outbreaks of a serious fungal eye infection in the U.S. and certain Asian countries.

Sheri S. McCoy, group chairman for J&J's Ethicon unit, which makes surgical and wound-management products, said the company sees the biosurgicals market growing to $2.2 billion by 2010.

Another J&J unit, Ethicon Endo-Surgery unit, makes minimally invasive surgical devices and specializes in products for surgical treatment of obesity and colorectal disease. Karen Licitra, Ethicon Endo-Surgery's group chairman, said the number of surgical procedures to treat obesity should double by 2010.

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