J&J Driven Out of Stent Business -- by Its Own Missteps, Not Low Market Share

Johnson & Johnson's (JNJ) announcement that it is getting out of the drug-eluting stent business -- those are the tiny drug-covered tubes inserted into arteries to prevent strokes -- was blamed by many on declining market share. Well, sure, but the real news on J&J's stent business came in January when a Texas jury found that J&J had appropriated someone else's patents to make its stents, and awarded the doctor who really owned them $593 million in damages and interest.

The Associated Press produced a fact box showing J&J running fourth in the category; Reuters noted that the Cypher stent once had sales of $2.6 billion, but made "only" $400 million this year; The New York Times ruminated on its dwindling market share.

J&J's own announcement was rather more upbeat. Aside from the 1,000 layoffs that the cut will require, its Cordis stent unit is part of a division that saw 2010 sales of $1.9 billion, "an operational growth rate" of 8 percent.

Managing decline is a noble, if unsexy, way of doing business. There are profits to be made even when you're on the far side of the hill. It seems a little odd that J&J would just give up on a business that generated $627 million globally in 2010, as the Times reported.

Which is why the legal aspect seems much more significant than the financial one. J&J noted in its Q1 2011 10-Q on May 10:

In October 2007, Bruce Saffran (Saffran) filed a patent infringement lawsuit against the Company and Cordis in the United States District Court for the Eastern District of Texas alleging infringement on U.S. Patent No. 5,653,760. In January 2011, a jury returned a verdict finding that Cordis's sales of its CYPHER® stent willfully infringed a patent issued to Saffran. The jury awarded Saffran $482 million. In March 2011, the Court denied all of Cordis's post-trial motions to overturn the verdict and entered judgment against Cordis in the amount of $593 million representing the jury verdict, plus $111 million in pre-judgment interest.

At that point, J&J appears to have realized that it was fighting a battle without any weapons. Denuded, it beat a hasty retreat.

While Boston Scientific and Abbott Labs (ABT) are no doubt rejoicing at J&J's misfortune, the category seems set for more drama in the near future. Bruce Saffran, the doctor who had the original idea for drug-covered stents in 1993, has also sued the other companies for stealing his ideas.

Related:

• J&J Defends Its CEO Pay -- Which, Oddly, Is Always Above Average
• Internal Emails: J&J Knew of Bribery "Black Hole" for Years