Wall Street Wants to Know Why Johnson & Johnson is Divorcing Medical Device
September 9, 2014
Medical devices are on the forefront of technology and Wall Street is rightfully concerned that Johnson & Johnson, at a time they should be investing in device, are divorcing from the device market. It proably doesn’t help Johnson & Johnson was forced to pay the DOJ $2.5 billion in federal fines for their DePuy Synthes hips (with another 6,000 federal cases pending) or have 30,000 federal cases pending for their Ethicon Gynecare Mesh.
Richard Saintvilus of The Street asks:
Why break up the company when Johnson & Johnson is delivering more revenue growth and higher margins? It makes no sense. By that standard alone, the shares, which are trading at just 16 times 2015 estimates, according to Yahoo! Finance, makes Johnson & Johnson is one of the best bargains in Big Pharma.
This site has often explained there is a very big difference between pharmaceuticals and device and sadly none more so than Johnson & Johnson could have benefitted from this information.
Outside of Johnson & Johnson not understanding the different sales models they don’t understand that the unethical and illegal behavior they’ve become famous for is caught more quickly on the device side. Take for example Johnson & Johnson’s Janssen Pharmaceutical’s Risperdal which was on the market from 1993 and didn’t pay the $2.2 billion fine for off label promotion and kickbacks until 2013. Risperdal was on the market for 20 years and despite the hefty fine the drug and recouped the costs of engineering, training and offset salaries for profits in the billions.
In comparison DePuy Synthes Pinnacle hips were on the market in 2005 and one of the first cases was in 2011 (a much shorter window than in pharmaceuticals) with problems already being reported on the DePuy Synthes ASR hips (on the market in 2003 and settled with the DOJ in 2013). Hip averaging less than 10 years when major lawsuits hit hurt the ROI (unlike Risperdal) hips cannot be done at the same rate that a drug can be prescribed which means they had much less of a chance to recoup the costs of engineering, training, salaries and therefore cut into their profits.
Something anyone whose been in the device industry for longer than two years could figure out; but, as has been shown here time and again Johnson & Johnson does not want to fix their problems they want to encourage, replicate and reward unethical and illegal behavior. We watched Alex Gorsky, Gary Pruden and Bridget Ross all at Johnson & Johnson’s Janssen Pharmacetuicals elude conviction and rewarded by the executives to again replicate that same illegal and unethical behavior at Johnson & Johnson’s Ethicon’s Gynecare where they were found to have destroyed documents for some of the upcoming 30,000 mesh trails.
Implant patients will be a lot safer if Johnson & Johnson completely divorces from the medical device world but as we’ve learned it’s just as easy to kill with a pill as it is a pistol. It’s not until Johnson & Johnson through #ForcedAccountability changes the way they do business and stop putting profits above patients will we see any real change in the industry or patient safety.