J&J Hedging Reliance on Drugs With Guidant Acquisition

This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.

The New York Sun

Johnson & Johnson’s chief executive, William Weldon, plans to use the $25 billion purchase of defibrillator maker Guidant Corporation to reduce his company’s reliance on pharmaceuticals as the main source of profit growth.


The proportion of profit generated by the drug business will fall to 50% in 2006 from 66% in 2001, the chief financial officer, Robert Darretta, said on a conference call Thursday. Medical devices and related products will account for 40% of sales in 2006, he said, compared with about 35% now.


Weldon, 56, is turning to pacemakers and defibrillators, a new business for Johnson & Johnson, as he seeks to maintain the company’s almost twodecade streak of annual profit growth of 10 percent or more. New Brunswick, N.J.-based Johnson & Johnson is confronting a decline in sales of its largest drug, the Procrit anemia treatment.


“They see drugs and devices as a nice diversification strategy,” said Steven Sean Hill, who manages about $3 billion, including 378,000 shares of Johnson & Johnson and 213,000 shares of Guidant, for New York-based First Investors Corp. “They can manage both sides of the business very well and they’ve found that one tends to be a nice hedge to the other.”


Sales of Procrit, sold as Eprex in Europe, slid 9.2% to $2.74 billion in the first nine months of this year. Rising sales of the Remicade arthritis treatment and anti-psychotic medication Risperdal compensated for the decline, although Johnson & Johnson may not have enough drugs in development to maintain revenue growth going forward, some investors said. The company also is bracing for generic competition to its Duragesic pain patch next year.


“Their pipeline for a company their size is crap,” First Investors’ Mr. Hill said. “If they want to be a player in pharmaceuticals, some early stage stuff has to show some promise fast or they have to go out and buy companies.”


In contrast, demand for pacemakers and implantable defibrillators may grow more than 24% this year to $4.7 billion, analysts estimate.


Interest in defibrillators, which correct irregular heartbeats using electric shocks, has soared in the past three years after studies funded by Indianapolis-based Guidant and no. 1 producer Medtronic showed that heart attack survivors and patients with heart failure had longer survival rates with one of the devices.


Of the 1.2 million patients a year in America who are eligible for pacemakers and defibrillators, only about 150,000 get the devices, Credit Suisse First Boston analyst Adam Galeon estimated yesterday.


Johnson & Johnson continues to seek other acquisitions, Mr. Darretta said. By funding 60% of the Guidant purchase with stock, Johnson & Johnson has flexibility to capitalize on other opportunities, he said. The company doesn’t plan to diversify away from any one area, Darretta said.


The New York Sun

© 2025 The New York Sun Company, LLC. All rights reserved.

Use of this site constitutes acceptance of our Terms of Use and Privacy Policy. The material on this site is protected by copyright law and may not be reproduced, distributed, transmitted, cached or otherwise used.

The New York Sun

Sign in or  Create a free account

or
By continuing you agree to our Privacy Policy and Terms of Use