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Cordis

How Johnson & Johnson won our hearts, at least for now.

The Case: Cardiovascular surgeons have hailed drug-coated stents as a cure for patients with blocked arteries. In a startling reversal of standard procedure, Medicare agreed to reimburse its patients for Cordisís new stent before the U.S. Food and Drug Administration approved it in April. Cordisís new regulatory strategy seems to be paying off. But will it manage to stay ahead of the pack?

For years, medical device giants Boston Scientific, Guidant, Medtronic, and the Johnson & Johnson subsidiary Cordis have been battling to dominate the cardiovascular market, to the great interest of the financial community. Since the mid-í80s, the focus has been on balloon angioplasty, a noninvasive procedure whereby a tiny balloon is used to open a coronary patientís blocked artery. Although it is a major improvement over bypass surgery, the procedure had, for years, three major side effects: recoil (the vessel contracting after the procedure); vascular remodeling (proximal cells being stimulated to grow, nooselike, around the vessel); and injury response (local inflammation and swelling triggered after the balloon is withdrawn). This triad of problems, termed restenosis, affected 30% to 40% of patients, who would typically need to return to the hospital for more interventions, sometimes more than once.

In August 1994, J&Jís Interventional Systems introduced the first coronary stent, an expandable metal tube placed inside the vessel to prevent recoil and remodeling. Hailed as revolutionary, the FDA-approved device dropped the restenosis rate to less than 20%. J&jís market share grew as a result, but was limited initially by the federal governmentís plodding Medicare reimbursement approval process, then administered by the Health Care Financing Administration (HCFA, later renamed the Centers for Medicare & Medicaid Services, or CMS).

Getting Medicare reimbursement is a critical step toward profitability—once HCFA approves a device, other insurers follow, and increased reimbursements mean increased market share. But HCFA approvals characteristically lagged those of the FDA by up to three years. While waiting for HCFA to rule, J&J caused a furor among health care providers by introducing an aggressive marketing campaign that created such patient and surgeon demand that hospitals were compelled to buy the product, even though it wasnít reimbursable yet. Furthermore, hospitals were furious with J&Jís high price of $1,600 per stent, and the company refused to offer volume discounts to the biggest providers. As a result, many hospitals were left swimming in red ink.

Stented growth
In 1996, Cordis, then a manufacturer of catheters, merged with J&J, and the association with a powerful drug company filled Cordisís pipeline with new products. But Cordisís fortunes faded the following year. Thatís when Guidant, a pacemaker manufacturer, introduced an improved stent that could be delivered more easily to the affected vessel. This was at a time when stents were evaluated by “deliverability,” that is, the ease with which a surgeon could navigate the tortuous anatomy of small blood vessels and deliver a device quickly, with minimal injury to a patient. Thus, stents were judged on their ease of use in an operating room, rather than on their performance.

Because cardiovascular surgeons adopt new technologies quickly, in contrast to most physicians, who warm slowly to new drugs and therapies, Guidant took 80% of the stent-market share within a year—the largest transfer of market wealth in the history of medical devices. A short time later, Medtronic, Minnesotaís device giant, joined the fray and overtook Guidant in much the same way. The stent market in the late í90s turned into a multibillion-dollar free-for-all dominated by Medtronic and Guidant. (The fight was good for patients and hospitals alike: by 2001, the price of a stent dropped to $900.)

But at an August 2000 meeting of cardiovascular research scientists, hosted in Amsterdam, the Netherlands, by the European Society of Cardiology, Cordis unveiled the results of a small, noncontrolled clinical trial conducted on fewer than 50 patients in Brazil and the Netherlands. The new Cordis stent was coated with Rapamune (Wyeth Pharmaceuticals, sirolimus), an immunosuppressive drug judged to be a good candidate for treating the recalcitrant inflammation response associated with restenosis. Initial results were interesting—so interesting that the FDA uncharacteristically allowed Cordis to jump to a large-scale trial without further early-phase studies. Cordis did just that and, in 2001, announced the startling results of a European clinical trial: in the treated group of 125 patients, measurements associated solely with the inflammatory response dropped to nearly zero, and restenosis itself fell from 26% to zero.

Hoping to prevent a reimbursement fiasco like the one seven years earlier, Cordis executives petitioned Mark McClellan, M.D., Ph.D., then the Bush administrationís top economic advisor, to write a letter to the CMS urging it to approve reimbursement for the new stent before the FDA had finished evaluating the next set of trials. CMS approval came quickly, bypassing the normal review by the agencyís technical assessment committee. Cordis accomplished something that no other device company had managed: its drive for quick approvals turned the federal process on its head. In April 2003, to much fanfare, Dr. McClellan, as new commissioner of the FDA, approved Cordisís Cypher, the industryís first drug-eluting stent. J&J was back in the driverís seat.

Hand-to-hand combat
The annual worldwide market for coronary stents will approach $2.3 billion in 2003 and is projected to grow to $5.1 billion by 2005 with the introduction of drug-eluting stents. With such billions at stake for Cordis and its competitors, they are feuding once more. Cordis is taking advantage again of its first-to-market position, pricing each Cypher at $3,195—three times that of a bare metal stent. Hospitals are again crying foul, despite the early approval, saying that even if the new product reduces multiple interventions, the costs are borne by providers, not payers. And hospitals stand to lose the slim profits they would have made on repeat procedures.

The approvals go only so far, says Alan Yeung, M.D., a cardiovascular surgeon at Stanford University Medical Center: “Many donít realize that the new stentís reimbursement is for in-patients only. Patients who need the surgery but arenít hospitalized are not eligible for coverage. As a result, the hospitals must cover the cost for these individuals.”

And a closer look at Cordisís trial causes some to question Cypherís effectiveness. Cynthia Yock, a health outcomes researcher at Stanford, says, “The Cordis stent trials, by design, required clinicians to compare Cordisís new drug-eluting stent to their own bare metal device, which had comparatively high restenosis rates and repeat interventions compared to industry standards. Whatís needed,” she concludes, “is a head-to-head comparison across companies” that pits the best existing products against this new product. As a result, many insurers are taking a wait-and-see approach before joining the Medicare bandwagon.

Cordis boasts that within the next year, thanks to its new product it will own nearly half of the stent market, bringing its bottom line to more than $2 billion. Most insiders admit that Cordis has done an admirable job. Even competitors are complimentary. The senior vice president of Medtronicís vascular business, William Hawkins, says that Cordisís claim has merit. “Will they convert 50% of market? Iím sure they will. Sometimes research and development bears fruit early, and they will take advantage of that.” Mr. Hawkins also says that Cordis has done the industry right by its approach to regulation. “Our industryís biggest problem is with the time it takes for CMS approval. And the CMS and the FDA donít communicate well. Cordisís example helps all of us.”

Successfully combining drugs with devices and getting them approved in quick fashion are the medical device industryís next big goal. With such a fast start, Cordis should have early success. But if history is any judge, Boston Scientific, with its new FDA approval for a drug-coated stent, and Medtronic and Guidant, with their own ambitious plans, will give Cordis a run for its market share.
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Case Studies

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Allergan

Monsanto

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Allergan

Japanís pharmaceutical market is extremely attractive—for companies with the fortitude to navigate it.

The Case: The Japanese medical market is huge, the third-largest in the world. Yet historically, the country has been relatively difficult for foreign firms to penetrate, whether itís to sell rice, cars, or drugs. Recent changes in Japanís regulatory environment are now beginning to make drug approval easier. But some companies, like Allergan, are still doing it the old-fashioned way, and managing to move only slowly through what are still murky waters. Companies looking toward Japan should continue to proceed with caution.

Allergan makes botox, a drug far better known these days as a remedy for the furrows of age than for its longtime medical uses. After being used “off-label” cosmetically since the early í90s, it was approved for wrinkle reduction in the United States in April 2002, and global sales that year brought in $439.7 million, up 43% from the year before.

Botox also has been approved for cosmetic use in Australia, Singapore, Switzerland, France, and Poland; more European countries are expected to follow suit this year. The drug is approved for three separate clinical uses in Japan, but approval there for cosmetic use is not forecast to occur until 2006 or 2007. This delay is attributable partially to the companyís choice to bring it to market in Europe first, but itís also because drug approval simply takes much longer in Japan.

 

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Case Studies

Cordis

» Allergan

Monsanto

Monsanto

The hazards of misreading the public.

The Case: In the late í90s, a chemical company had intended its new agricultural biotech products to feed the world—and make a huge profit. But executives underestimated the alarm of critics, who mobilized public opinion much more effectively than did the company.

The controversy about foods derived from genetically modified organisms is dividing Europe and America once again, despite all efforts to resolve the matter. At issue is whether the rewards of such foods outweigh their perceived risks. In mid-July, the European Union signaled it would lift a moratorium on GM foods, but imposed an onerous list of new testing and labeling requirements (see “Show and Tell,” page 13 of Acumen, Issue 3). Thereís no telling when this will end, but the GMO debate began by focusing on one clear target: Monsanto.

In 1995, when Robert Shapiro became CEO, the Midwestern chemical company had little business in the life sciences. But the Harvard-educated lawyer who had turned a fledgling artificial sweetener called NutraSweet into a billion-dollar hit had a plan to radically transform the company, as well as the whole agbio industry. Fusing the firmís chemical expertise with its pharmaceutical know-how, he planned to use GMOs to fight world hunger, cure disease, and transform Monsanto into a different kind of company—one that was innovative, socially progressive, and beloved by investors.

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Case Studies

Cordis

Allergan

» Monsanto

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