The Cardiovascular Devices Industry:

Competitive Analysis 2004

Larry Davidson and Madhav Namjoshi

Davidson is Professor of Business Economics and Public PolicyNamjoshi holds a PhD in Pharmacology and is pursuing an MBA Degree

Indiana University Kelley School of BusinessBloomington, Indiana

Prepared for the Indiana Department of Commerce with the support of the Center for International Business Education and Research at the Indiana University Kelley School of Business. Information Services via the World Trade Atlas, U.S. State Export Edition.

To receive free copies of the export report please contact the Indiana Department of Commerce’s Office of International Trade at 317.232.4949. Direct questions to the authors of the report to Larry Davidson at davidso@indiana.edu or 812.855.2773.

August 2004

I. Introduction

This article is the fourth in a series we have done pertaining to the global dimensions of the life

sciences industry (Davidson and Meng (2004, 2003a) and Davidson et al (2003)). This report

examines the cardiovascular devices sector, one that claims an important role in Indiana’s growing

life sciences sector. With Guidant headquartered here and with Cook, Boston Scientific, and other

companies with operations in Indiana, we believe this article provides important information to

key players such as policy makers, business leaders, and health administrators in the state of

Indiana as well as the senior management of the publicly and privately held companies. This work

provides a comparative overview of this competitive market and identifies opportunities for

growth.

The specific objectives of this paper are threefold:

1. Provide an overview of the cardiovascular device industry, and identify the key players in

this industry with regard to their global presence, their overall size, their level of foreign

investment, and their research and development activities in cardiovascular devices;

2. Review the key products in the industry; and

3. Examine Indiana’s contribution to the global cardiovascular device market and identify

new challenges and opportunities.

We come away from this analysis with several conclusions. The market for cardiac appliances is

large and will continue to be a growth industry. It is dominated by a few large firms, but it is

typified by intense competition. The market for cardiovascular stents exemplifies the topsy-turvy

nature of the rivalries and how product enhancements, approvals, and public acceptance can

radically change the structure of the industry. Twice now, Cordis (a Johnson & Johnson company)

had virtual 100-percent market shares in stents and then drug-coated stents only to see its market

share nearly vanish when a rival start selling a competitive product. In 2004 Boston Scientific’s

new Taxus stent took over 70 percent of the market from Cordis’ Cypher. But the competition

promises to heat up even more with larger and smaller rivals bringing forward new and better

products. Indiana companies are important players in this industry. Their relatively small size and

U.S. orientation gives them flexibility but disadvantages in terms of resources. They will need to

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find considerable resources for research and development if they are to continue to be competitive.

They will need to become more global to gain both economies of scale and a supply chain suitable

for an increasingly international marketplace.

This need for resources and global markets is underscored by the almost frenetic change in the

industry evidenced recently. Cordis got the head start with drug-coated stents and dominated sales

in 2003. They sold some 600,000 units, with about two-thirds of them sold in the United States.

They did this despite a rough start where they had to recall almost all of their early production.

Boston Scientific got clearance for their new drug-coated stent in spring of 2004 and took 73

percent of the market way from Cordis. Their stent was the new “kid on the block,” is easier to

insert surgically and is cheaper. They are hoping for sales of about $2.5 billion – at least they were

until they had to voluntarily recall 96,000 units because of problems in the surgical delivery

system. This early July announcement is expected to impact sales during the rest of the year.

Guidant and Medtronic are late starters – they still have not had full approval for their drug-coated

stents. Medtronic’s Endeavor III trail started in 2004 and they are hoping to be approved in Europe

by the end of 2004 and in the United States by the end of 2005. They have a new Cobalt alloy that

they think will be an advancement over current versions. They hope for sales of $1 billion in their

first year of production. Guidant has been slow to begin as well, hampered by manufacturing

concerns. They entered into an agreement with Cordis that created a sales alliance and more –

cooperation on new generations of stents and resolution of some outstanding legal issues. Guidant

is also taking advantage of its prowess in other cardiac products (implantable defibrillators and

pacemakers) as they wait for a stronger position in stents to develop. A small company, Conor

Medsystems, sent notice to the bigger companies in early 2004 – they have a new stent that looks

like swiss cheese – a new technology that uses cobalt, is very flexible, and gives more control of

the emission of drugs.

The organization of the report is as follows. We begin in section II with an introduction to the

cardiovascular products industry and how it fits into the overall medical devices industries. Section

III introduces the key players and section IV describes the main products. Sections V and VI

identify key trends that will impact the industry in the future and discuss global business

perspectives. The article finishes with a discussion of Indiana’s contribution to the industry.

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II. Medical Devices and Cardiovascular Products

The medical devices industry is comprised of companies that develop, manufacture, and market

medical apparatuses, instruments, equipment, devices and supplies. This sector covers several

thousand different types of products ranging from simple bandages to life sustaining implantable

devices. There are currently over 300 companies in the medical devices industry, some of which

are privately held, and others publicly owned (CMS 2002). The industry’s recent growth has been

fuelled by the rapidly aging population in the United States, product innovation, and significant

market potential outside the United States (CMS 2002). By one assessment, the global medical

device market was valued at over $100 billion, of which $43 billion was generated from the United

States,which remains the largest medical device market and leads the advancement of medical

device technologies (Frost 2003).

Frost 2003 describes the world market by country and regions, and finds the following: Western

Europe is the second largest market, and accounts for 25 percent of the global medical device

industry sales. Latin America and Asia are the fastest growing regions in medical devices.

Countries such as Mexico, Brazil, Argentina, and Chile have had a rapid growth in the medical

device industry over the past few years. Asian countries, such as China and India, have the greatest

growth potential due to their large populations and their rapidly developing health care systems.

The medical device industry currently includes a wide range of products for a variety of different

therapeutic areas and disease states. The important sub-sectors within this industry are devices for

cardiovascular, respiratory, orthopedic, visual and hearing disorders.

Although cardiovascular devices such as catheters, pacemakers, and defibrillators have been

produced in the United States since the 1950s, it was not until the 1980s that the cardiovascular

device industry gained prominence in the medical devices sector with the introduction of stents

(Managed Care 2003). Prior to 1980, coronary artery bypass graft (CABG) was the accepted

treatment option for patients with coronary artery disease (Managed Care 2003). In the 1980s,

percutaneous transluminal coronary angioplasty (PTCA), also called balloon angioplasty gained

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widespread use with approximately 850,000 procedures performed in the United States in 2002

(Managed Care 2003). However, a significant number of patients undergoing PTCA experienced

restenosis in the first year following the procedure. This led to the development of stenting

technology, which continues to undergo rapid evolution.

III. The Key Players in the Cardiovascular Device Industry

We begin by introducing the following six key players:

1) Boston Scientific

2) Guidant Corp.

3) Cordis Corp.

4) Medtronic Inc.

5) Cook Inc.

6) Abbott Vascular Devices

Boston Scientific, headquartered in Natick, Mass., was incorporated in 1979, and made its initial

public offering in 1992 (BS Jan 2004). Besides its offices in Massachusetts, the company has

operations in New York, New Jersey, Florida, Minnesota and California. In addition to its U.S.

affiliates, the company’s other North American affiliates include operations in Brazil, Argentina,

Uruguay, Mexico, Columbia, Venezuela, Chile and Canada. The company’s European

headquarters are in Paris, France, with additional operations in Ireland, Germany, Italy, Austria,

the Netherlands, Hungary, Spain, Portugal, the United Kingdom, Sweden and Switzerland.

Further, the company has its Asia-Pacific headquarters in Singapore, with additional operations in

Australia, New Zealand, India, China, Taiwan, Korea, Philippines, Thailand, Malaysia and Japan.

Finally, the company also has operations in Johannesburg, South Africa. Boston Scientific

develops medical devices for a wide range of therapeutic areas such as oncology, urology,

pulmonary, and gastrointestinal endoscopy, gynecology and cardiology. The company’s important

cardiovascular devices include those for the treatment of arrhythmias and for the treatment of

coronary artery disease. Their devices for the treatment of arrhythmias include the cardiac ablation

systems for atrial flutter; while their devices for the treatment of coronary artery disease include

the coronary stent systems, balloon catheters and guide catheters. The company’s shares are traded

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on the New York Stock Exchange under the symbol BSX. In February 2003, the company

announced the European launch of its TAXUS Paclitaxel-Eluting Stent System for reducing

coronary restenosis (BS Jan 2004). In September 2003, the company received approval to launch

the TAXUS system in Canada (BS Jan 2004), and in March 2004, the company received approval

from the U.S. Food and Drug Administration to market the TAXUS system in the United States

(BS Mar 2004).

Guidant was incorporated as recently as 1994, and has grown significantly in the

past 10 years to become one of the world’s leading manufacturers of cardiovascular devices

(Guidant Jan 2004). Headquartered in Indianapolis, Ind., the company also has major operations in

California, Texas, Minnesota, Washington and Puerto Rico. Besides these North American

affiliates, the company also has a presence in Ireland, Belgium, Germany, France, the Netherlands,

Italy, Spain, Australia, Japan, Hongkong, Canada and Brazil. Guidant has a wide range of

cardiovascular devices to treat arrhythmias, heart failure, and coronary artery disease. Their

devices to treat cardiac arrhythmias include a wide range of automatic implantable cardioverter

defibrillators (AICD’s) and cardiac pacemaker systems for acute tachycardia and bradycardia

respectively. Their key heart failure devices include the cardiac resynchronization therapy

defibrillators and their dual catheter systems, while their devices to treat coronary artery disease

include the wide range of dilatation catheters for balloon angioplasty, coronary guidewires, a wide

range of coronary stents that are used with balloon angioplasty to prevent restenosis, and

directional artherectomy devices that enable the removal of plaques from blocked arteries. The

company’s shares are traded on the New York Stock Exchange and the Pacific Stock Exchange

under the symbol GDT. In January 2004, the company announced an agreement to acquire a

Fremont, California based privately held company AFx Inc., which will add surgical cardiac

ablation technologies to Guidants’s broad cardiovascular portfolio (Guidant Jan 2004).

Cordis Corp. was established in Miami, Florida in 1959 as a medical device corporation (Cordis

Jan 2004). In 1987, the Johnson & Johnson Interventional Systems Company was established as an

innovative medical device company. By this time Cordis already had a full line of coronary

angioplasty guiding catheters that soon went on to become the industry standard. It was not until

1996 that Cordis Corp. merged with Johnson & Johnson Interventional Systems Company to form

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Cordis Corp., A Johnson & Johnson Company. The company has a strong presence worldwide

with affiliates in North America, Europe, the Middle East, and the Asia-Pacific region. In North

and South/Latin America, the company’s affiliates include operations in Brazil, Argentina,

Columbia, Chile, Costa Rica, Guatemala, Dominican Republic, El Salvador, Panama, Puerto Rico,

Venezuela, Uruguay, Mexico, and Canada. The company has its European headquarters in

Belgium, with additional affiliates in Albania, Austria, Denmark, Germany, Greece, Hungary,

Poland, the Netherlands, Spain and the United Kingdom. In addition to this strong European

presence, the company also has affiliates in Egypt, Israel, Turkey, Bahrain, India, China, Korea,

Hongkong, Philippines, Singapore, Taiwan, Russia, Australia and New Zealand. Cordis Corp.

develops medical devices for key therapeutic areas like cardiovascular diseases, neurovascular

diseases like stroke, and peripheral vascular diseases. The company’s key cardiovascular devices

include their coronary stent systems and balloon catheters. In April 2003, the company received

approval to market their CYPHER Sirolimus-eluting coronary stent for the restenosis of coronary

arteries (Cordis Jan 2004). This was the first U.S. FDA approved combination drug device for

coronary artery disease. The CYPHER Sirolimus-eluting stent was approved in Europe in 2002.

Medtronic was founded over 50 years ago, and since then has played a significant role in the

rapidly evolving cardiac pacemaker technology (Medtronic Jan 2004). Headquartered in

Minneapolis, Minnesota, the company also has operations in Massachusetts, Texas, California,

Michigan, Tennessee, Colorado, Utah, Connecticut, Florida, Arizona, and Washington. In addition

the company has a significant European presence with operations in Denmark, the Netherlands,

Germany, France, the United Kingdom, Austria, Italy, Ireland, Sweden, and Switzerland. Finally,

the company also has operations in Canada, Mexico, Japan, Hong Kong, India and Australia.

Medtronic currently develops medical devices for neurological disorders like Parkinson’s disease,

hepatic cancer, urology, heart valves and perfusion systems for cardiac surgery, and pacing and

defibrillator systems for cardiac rhythm management. The company’s key cardiovascular products

include their Kappa and Sigma generation pacemakers, and their Marquis and Gem families of

implantable cardioverter defibrillator systems. Medtronic’s shares are publicly traded on the New

York Stock Exchange under the symbol MDT. The company has had a couple of recent successes

in 2004. On Jan. 15, the company announced the market launch of two catheters that will facilitate

cardiac resynchronization therapy (Medtronic Jan 2004). One week later, the U.S. FDA approved

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their “brain pacemaker” or neurostimulator for the treatment of patients with Parkinson’s disease

(Medtronic Jan 2004). As of February 2004, Medtronic’s Endeavor III drug-eluting stent started

stage III testing with hopes it will be available in Europe by late 2005 and in the United States by

late 2006 (Medtronic Feb 12, 2004).

Cook Inc. originated in Bloomington, Ind., in 1963, and has grown to become one of the most

widely known and well-respected names in the medical device industry (Cook Jan 2004). The

company whose global headquarters are in Southern Indiana brings together product development,

medical device manufacturing, warehousing, and other administrative functions in its newly

designed facility. In addition to being one of the leaders in the manufacturing of cardiovascular

devices, the company also has affiliated groups that focus on other therapeutic areas such as

urology, obstetrics and gynecology and gastrointestinal endoscopy. Further, Cook Biotech, located

in West Lafayette, Ind., was created to focus on research and development in the biotechnology

arena. Finally, William Cook Europe, Cook Australia, and Cook Ireland, located in Denmark,

Australia, and Ireland, respectively underscore Cook Inc.’s position as a global player. The

company has experienced two recent successes in bringing important medical devices to the

market. In June 2003, the company received FDA approval to market the Zenith AAA

Endovascular Graft for the endovascular treatment of patients with abdominal aortic aneurysms

(AAA); and in January 2004, they also received approval to market the Zilver 518 Biliary Stent for

the treatment of patients with malignant neoplasms of the biliary system. Cook Inc.’s key

cardiovascular devices include arterial catheters and central venous catheter systems. The company

is privately held.

Abbott Vascular Devices is the medical device division of Abbott Laboratories. The company

headquartered in Redwood City, Calif., primarily develops stents for coronary artery disease and

other vessel closure devices (AVD Jan 2004). In March 2002, Abbott acquired the cardiovascular

stent business of U.K.-based Biocompatibles International. Later, in June 2003, the company

acquired Netherlands-based Jomed N.V.’s coronary and endovascular product lines. Finally, in

September 2003, the company acquired California-based Integrated Vascular Systems Inc. to

further increase its portfolio of medical devices.

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Global Presence and Size of Key Industry Players

Table 1 shows the global presence of the key players in the cardiovascular device industry. We

have defined global presence as the existence of manufacturing facilities, R&D centers, technology

centers, or sales offices at various locations around the world. All the major players in the

cardiovascular industry have facilities in North America and Europe (BS Jan 2004, Guidant Jan

2004, Cordis Jan 2004, Medtronic Jan 2004, AVD Jan 2004, Cook Jan 2004). The European

market has been the focus of these companies, and most have multiple affiliates across the

continent. Boston Scientific has 12 facilities in Europe, Cordis has 11, Medtronic has 10, and

Guidant has seven facilities (BS Jan 2004, Cordis Jan 2004, Medtronic Jan 2004, Guidant Jan

2004). Cook Inc. has only two facilities in Europe, located in Ireland and Denmark. Data on the

number of European facilities for Abbott Vascular Devices is not available.

It is interesting to note that only Boston Scientific, Guidant Corp., Medtronic Inc., and Cordis

Corp. have a presence in Latin America (BS Jan 2004, Guidant Jan 2004, Medtronic Jan 2004,

Cordis Jan 2004). Once again, the number of facilities across the region varies considerably by

company. While Cordis Corp. has as many as 13 facilities in Latin America, Boston Scientific has

seven, and Guidant and Medtronic have one each. Cook Inc. and Abbott Vascular Devices do not

currently have a presence in the region. Although all the key players besides Abbott Vascular

Devices have an Asian-Pacific presence, they yet again differ in the number of affiliates in the

region. Boston Scientific and Cordis Corp. have 10 and 13 affiliates respectively in the Asia-

Pacific region. On the other hand, Guidant has three affiliates, Medtronic Inc. has four, and Cook

Inc. has only one affiliate in the region. Boston Scientific is the only large player in this industry

with an affiliate on the African continent.

It is evident that although all the companies have invested in facilities outside the United States,

the geographic focus differs by company. Cordis Corp. has more than 10 facilities each in Europe,

Latin America and the Asia-Pacific. Similarly, Boston Scientific has 10 or more facilities in both

Europe and the Asia-Pacific. While Medtronic Inc. has 10 facilities in Europe, the company has far

fewer facilities in the other regions. The two Indiana-based companies Guidant Corp. and Cook

Inc. have comparatively fewer facilities outside the United States than their competitors. The

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absence of detailed information on the global facilities for Abbott Vascular Devices limits our

ability to make conclusions pertaining to its global presence.

Table 1. Global Presence of Key Industry Players

Key Player North America Europe Latin America Asia-Pacific Africa

Boston Scientific X X X X X

Guidant Corp. X X X X

Cordis Corp. X X X X

Medtronic Inc. X X X X

Cook Inc. X X X

Abbott Vascular Devices X X

Employee Base and Asset Size of Key Industry Players

While Table 1 provides an indication of the global reach of the key players in this industry, another

important aspect that needs to be carefully evaluated is the size of the key players in the industry.

Two determinants of size are the number of employees and the total assets. Table 2 provides a

comparative overview of employment levels. Once again, our employment comparisons are

impacted by data limitations. While Boston Scientific, incorporated almost 25 years ago, has

approximately 14,000 employees (BS Jan 2004), Guidant Corp. has grown to an employee base of

11,000 in 10 years (Guidant Jan 2004). Cordis Corp. has the benefit of the enormous Johnson &

Johnson infrastructure that has more than 110,000 employees worldwide and almost $40 billion in

total revenue (JNJ Jan 2004). Medtronic Inc. has grown to 30,000 employees over the 50 years

since it was incorporated (Medtronic Jan 2004). Abbott Vascular Devices, similar to Cordis Corp.,

benefits from the large established infrastructure of its parent company, Abbott Laboratories,

which has an employee base of approximately 70,000 (AVD Jan 2004). Johnson & Johnson and

Abbott Laboratories do not separate their employment numbers by division; therefore, their

numbers should not be directly compared with those from Boston Scientific, Guidant Corp. and

Medtronic Inc. Employment numbers for Cook Inc., a private company, are not available. While

we cannot directly compare the employment levels across these companies, it is clear that all the

players are large companies.

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Table 2. Number of Employees in Key Industry Players in 2003

Key Player Number of employees

Boston Scientific 14,000

Guidant Corp. 11,000

Johnson & Johnson* 110,000

Medtronic Inc. 30,000

Cook Inc. (not available)

Abbott Laboratories** 70,000

*Johnson & Johnson employment numbers are not broken down by segment. Thus, Cordis Corp. is

not individually accounted for.

**Abbott laboratories employment numbers are not broken down by segment. Thus, Abbott

Vascular Devices is not individually accounted for.

Table 3 provides an overview of the total assets of the key players in the industry over a period of

six years. We have defined total assets as the sum of current (cash, accounts receivables,

inventories and prepaid expenses) and fixed (property, plant and equipment) assets. The data on

total assets is very consistent with that on employment levels. We see dominance by the two

companies that do not disaggregate their numbers for cardiovascular devices. Johnson & Johnson

had total assets worth $48 billion in 2003, an increase of over 84 percent since 1998. Abbott

Laboratories doubled its total assets between 1998 and 2003 to be valued at $27 billion in 2003. It

is clear from these numbers that both companies are very large.

Boston Scientific’s total assets have grown consistently at a rate of about 15 percent since 2000

after a couple of years of negative growth in the late 1990s (BS Annual Report 1998, BS Annual

Report 1999, BS Annual Report 2000, BS Annual Report 2001, BS Annual Report 2002). Guidant,

on the other hand, tripled its total assets between 1998 and 2003 (Guidant Annual Report 1998,

Guidant Annual Report 2000, Guidant Annual Report 2001, Guidant Annual Report 2002), and in

2003 had total assets worth $4.6 billion. Consistent with the data on employment levels, Boston

Scientific, with approximately $5.7 billion in total assets in 2003, is slightly larger than Guidant

Corp. with approximately $4.6 billion in total assets in 2003.

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Medtronic Inc. increased its total assets by almost 55 percent between 2001 and 2002 (Medtronic

Annual Report 2002), and had total assets worth $12 billion in 2003. However, data on total assets

for Medtronic Inc. prior to 2001 are not available. Financial results specifying the total assets for

Cook Inc., a privately held organization, are also not available.

Table 3. Total Assets (in millions) of Key Industry Players from 1998-2003

Key Player 2003 2002 2001 2000 1999 1998

Boston

Scientific

5,699 4,450 3,974 3,427 3,572 3,892

Guidant

Corp.

4,640 3,716 2,916 2,521 2,250 1,570

Johnson &

Johnson*

48,263 40,556 38,488 31,321 29,163 26,211

Medtronic

Inc.

12,321 10,905 7,039 (na) (na) (na)

Cook Inc. (na) (na) (na) (na) (na) (na)

Abbott

Laboratories**

26,715 24,259 23,296 15,283 14,471 13,259

*Johnson & Johnson total assets are not broken down by segment. Thus, Cordis Corp. is not

individually accounted for.

**Abbott Laboratories total assets are not broken down by segment. Thus, Abbott Vascular

Devices is not individually accounted for.

“na” means not available

2003 Sales and Net Income of Key Industry Players

Table 4 shows sales and net income figures for the key industry players. The companies in this

table are listed in order of their performance based on increases in both sales and net income.

Companies with the highest sales increase are listed first, and in the event that two companies had

the same sales increase, the company with the higher net income increase is listed first. In 2003, all

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the companies had excellent sales results, with sales increases ranging from 17 percent for Guidant

Corp. to 45 percent for Abbott Vascular Devices.

Although Abbott Vascular Devices had the highest sales increase, the company had sales of only

$185 million in 2003; therefore, the numbers should be carefully interpreted (AVD Jan 2004).

Both Boston Scientific and Medtronic Inc. had a strong financial year with sales increasing 19

percent in each case. While net income for Medtronic Inc. increased 63 percent to $1.6 billion

(Medtronic Annual Report 2003), net income for Boston Scientific increased 26 percent to $521

million (BS Feb 2004).

Johnson & Johnson’s medical devices and diagnostics division also had a strong financial year

with an 18 percent increase in sales to almost $15 billion (JNJ Jan 2004). It is important to note

that the medical devices and diagnostics division at J&J includes Cordis, DePuy’s orthopedic

products, and Ethicon Endo-Surgery’s surgical products; therefore, J&J’s financial numbers should

be carefully interpreted. Guidant Corp., on the other hand had a year with mixed financial results.

While sales in 2003 increased 17 percent to $3.7 billion, net income decreased 36% to $426

million (Star Jan 2004). This decline was primarily driven by the expenses related to the damages

Guidant was required to pay Cordis Corp. for infringement on its stent patents (Star Jan 2004).

Financial results on sales and net income for Cook Inc., a privately held company, are not

available.

Table 4. Financial Performance of Key Industry Players in 2003

Key Player 2003 Sales % change vs. 2002 2003 Net Income % change vs. 2002

Abbott Vascular

Devices

$185 million + 45% (not available) (not available)

Medtronic Inc. $7.66 billion + 19% $1,600 million + 63%

Boston Scientific $3.48 billion + 19% $521 million + 26%

JNJ Medical Devices &

Diagnostics*

$14.9 billion* + 18% (not available) (not available)

Guidant Corp. $3.70 billion + 17% $426 million - 36%

Cook Inc. (not available) (not available) (not available) (not available)

* includes Cordis, DePuy, and Ethicon Endo-Surgery

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2003 Research & Development of Key Industry Players

In order to stay on the cutting edge of research and innovation in this competitive industry, all the

key players made significant investments in research and development (R&D). Table 5 provides an

overview of the research and development expenses for each of these players in 2003. Johnson &

Johnson spent more than $4.5 billion (JNJ Annual Report 2003) and Abbott Laboratories spent

more than $1.7 billion (Abbott Annual Report 2003) on R&D in 2003. However, it is important to

note here that these R&D investments were distributed across multiple business segments such as

pharmaceuticals, consumer products, hospital products, and medical devices. These numbers

should therefore be interpreted with caution.

Both Medtronic Inc. and Guidant Corp. spent over half a billion each in R&D in 2003. As a

percentage of sales, Guidant Corp. spent the most in the category, with 14 percent of its sales in

2003 being invested in R&D. Although Boston Scientific spent the least on R&D in 2003, its R&D

spending as a percentage of sales was second only to Guidant Corp.. Numbers on R&D expenses

for Cook Inc., a privately owned company, are not available.

Table 5: R&D Expenses of Key Industry Players in 2003

Key Player R&D expenses % of sales

Johnson & Johnson* $4,684 million 11.2%

Abbott Laboratories** $1,733 million 8.80%

Medtronic Inc. $749 million 9.78%

Guidant Corp. $518 million 14.0%

Boston Scientific $452 million 12.98%

Cook Inc. (not available) (not available)

*Johnson & Johnson R&D expenses are not broken down by segment. Thus, Cordis Corp. is not

individually accounted for.

** Abbott Laboratories R&D expenses are not broken down by segment. Thus, Abbott Vascular

Devices is not individually accounted for.

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IV. Key Cardiovascular Products

The previous sections have provided an overview of the key players in the cardiovascular device

industry. In addition to understanding the key companies in this industry, it is also important to

know both the important products, and which of the key players manufactures and markets these

products. The most important products in the cardiovascular devices industry include coronary

stents, cardiac rhythm management devices and heart valves. Below provide an overview of these

products, specifically with the intent of identifying the role these products play in the portfolios of

the key industry players. The information is summarized in Table 6.

Coronary Stents

Patients who undergo percutaneous transluminal coronary angioplasty (PTCA) to remove

blockages in coronary arteries experience a 30 to –40 percent restenosis rate in the first six months

following the procedure (Managed Care 2003). About 10 years ago, the first coronary stent was

introduced to reduce the restenosis rate. Stents are miniature wire meshes that are inserted into

blood vessels to reduce blockages and allow blood to flow freely through the heart. Coronary

stents must have two very important and in some ways opposing attributes. First, stents must be

flexible to navigate their way through blood vessels. Second, the stent must be strong enough to

hold the artery open. These opposing attributes present several challenges to manufacturers that

strive to ensure that the stenting technology is successful. The initial stents that were developed

were termed “bare metal stents.” In 1994, Cordis Corp. pioneered the first coronary artery stent.

Although these bare metal stents were able to reduce restenosis to some extent, they caused

specific reactions inside the blood vessels that resulted in conditions that were very difficult to

treat. This problem was solved with the introduction of a novel technology called “drug-eluting

stents” or “drug-coated stents.” Last year, Cordis Corp. introduced the first drug-coated stent in the

U.S. market. Their product, the Cypher Stent, uses the drug Sirolimus (rapamycin) that is released

into the blood vessel. The Cypher Stent was launched in Europe in 2002. In February this year,

Guidant Corp. entered into a strategic agreement with Cordis Corp. to co-promote their Cypher

Coronary Stent System. This agreement enables Guidant Corp. to enter into the drug-eluting

coronary stent market earlier than expected, since their own Champion Everolimus-Eluting Stent

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System is not expected to be marketed before 2005 in Europe and 2006 in the United States. In

March this year, Boston Scientific became the second cardiovascular device manufacturer to gain

approval from the U.S. FDA for a drug-eluting stent, and have launched their TAXUS stent system

that uses the drug paclitaxel.

The introduction of the Cypher Stent in 2003 resulted in a phenomenal 65 percent sales growth for

Cordis Corp. that enabled it to become the most notable contributor to J&J’s Medical Devices and

Diagnostics segment. The stent business segment at Guidant Corp. ranked third in the company

after their defibrillator and pacemaker segments, and accounted for only 11 percent of the

company’s sales in 2003. However, with the recent co-promotion agreement with Cordis Corp.,

this segment is expected to have significant growth in 2004.

Cardiac Rhythm Management Devices

The heart’s natural pacemaker, called the sinuatrial node, creates electrical impulses which are

transmitted from the upper chambers of the heart to the lower chambers. These electrical impulses

enable the heart to beat at a specific rate. Often, either defects in the sinuatrial node or blockages

of the electrical pathways cause a disruption in the heart’s rhythm. An artificial pacemaker is a

small battery-operated device that regulates the heart rhythm. The guidelines for implantation of

cardiac pacemakers are provided by the American College of Cardiology Foundation (ACC Mar

2004).

Ventricular fibrillation, also termed ventricular tachycardia, is an irregular and chaotic heart

rhythm that originates in the heart’s lower chambers. Implantable cardioverter defibrillators deliver

electrical shocks to the heart to eliminate these irregular rhythms.

The market for pacemakers and implantable defibrillators is dominated by Guidant Corp.

Medtronic Inc. cardiac rhythm management products accounted for 58 percent of Guidant Corp.’s

sales and 47 percent of Medtronic Inc.’s sales in 2003.

Heart Valves

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Heart valves connect the chambers of the heart to ensure the unidirectional flow of blood. A

defective heart valve fails to open or close properly, and results in either insufficient blood being

pumped through the heart, or excessive blood flow leading to regurgitation. The two inlet valves

that connect the auricles to their respective ventricles are called the tricuspid valve and the mitral

valve. The two outlet valves that open into the pulmonary arteries and the aorta are called the

pulmonary valve and the aortic valve, respectively (AHA Mar 2004).

Table 6. Key Products Manufactured by Key Industry Players

Key Players Bare Metal

Stents

Drug-Eluting

Stents

Cardiac

Pacemakers

Defibrillators Heart Valves

Boston

Scientific

X X X

Guidant

Corp.

X X X X

Cordis Corp. X X

Medtronic

Inc.

X X X X

Cook Inc. X

Abbott

Vascular

Devices

X

V. Key Trends Shaping the Future of the Industry

Similar to most industries in the healthcare sector, the cardiovascular devices industry is

influenced by several important factors. Below we introduce six trends that promise to impact

these key companies in the foreseeable future.

1. Age Structure of Population:

In the United States, the aging of the baby-boomers, defined as those individuals born between

1946 and 1964, will significantly influence the growth of this industry. The rapid expansion of the

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elderly in the United States is expected to increase the medical needs of the population over the

next 20 years. The United States is not the only part of the world facing a graying future – Europe

and Japan have similar demographics.

2. Regulation:

The cardiovascular device industry is highly regulated around the world, making it very difficult

for manufacturers to introduce new products into the market. The stringent guidelines imposed by

the U.S. Food and Drug Administration have induced manufacturers to launch products in other

markets prior to the United States’.. For example, Boston Scientific launched its TAXUS stent

system in Europe and Canada prior to gaining U.S. approval. This could potentially impact the

price of the devices launched since prices for healthcare products in Europe are highly regulated by

federal governments. As a result of reference pricing, manufacturers are often under pressure to

price their products in the United States at similar prices to those in Europe and Canada thereby

limiting profitability.

3. Health Care Expenditures:

Since the early 1990s, there have been concerted efforts globally to control rapidly increasing

health care expenditures. The establishment of managed care in the United States has partially

controlled these expenditures by placing limitations on reimbursement levels for specific products

and services. As the medical needs of the world population increases over the next 20 years, the

medical reimbursement system will need to trade-off the provision of appropriate medical services

to our seniors with increases in health care spending. This single trend puts great pressure on firms

to find ways to reduce the price of stents and other devices.

4. Business Taxes:

The tax rates on manufacturing plants and processes influence a company’s decision to

manufacture devices in specific geographic locations. For example, within the European Union,

Ireland has the lowest corporate tax rates. Not surprisingly, Boston Scientific, Guidant Corp.,

Medtronic Inc. and Cook Inc. all have affiliates in Ireland. Attempts to harmonize taxes in the

European Union and to reduce trade distortions through the World Trade Organization have not

yet succeeded but companies should be mindful of future changes.

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5. Intellectual Property Rights:

Protection of intellectual property rights and enforcement enables manufacturers to gain exclusive

rights to specific technologies through patents. These patents are critical to companies as they seek

to recoup the significant investments in research and development. With overall patent lives

shortening due to delays in product approval, manufacturers face a difficult situation in order to

remain profitable.

6. Technology:

With the rapid improvements in technology for specific devices like coronary stents,

manufacturers struggle to stay ahead of the curve on innovation. With Boston Scientific setting the

standard for stenting by introducing the first drug-coated stent, the other key players have focused

on introducing similar products into the market to blunt Boston Scientific’s first-mover advantage.

Drug-coated stents exemplify the marriage of pharmacology, biotechnology and medical hardware.

When coupled with advances in miniaturization of machines the importance of science, research

and development, and interdisciplinary knowledge provide for a very interesting and competitive

landscape for technology.

VI. International Business Perspectives

Although the cardiovascular devices industry is very interesting with over 100 companies, the key

players that dominate this industry are in the United States. These players, however, have made

significant investments in affiliates overseas and often rely heavily on sales generated outside the

United States to boost their profits. From the standpoint of having a global presence, defined as the

presence of sales, marketing, R&D, or manufacturing affiliates around the world, Boston Scientific

leads the pack with a presence on all the five major continents. However, Cordis Corp. is the only

one in the category to have more than 10 facilities on 3 continents outside North America. In

addition to the number of affiliates or facilities outside the U.S., another indicator of international

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business is the proportion of sales that are derived from outside the United States. Table 7 provides

an overview of the breakdown in 2003 sales figures for the key players.

Table 7. U.S. Versus Non-U.S. Sales of Key Industry Players in 2003

Key Player U.S. sales Proportion of

Total

Non U.S. sales Proportion of

total

J&J Medical

Devices &

Diagnostics*

$8,000 million 54% $6,880 million 46%

Medtronic Inc. $5,360 million 70% $2,300 million 30%

Boston Scientific $1,900 million 56% $1,500 million 44%

Guidant Corp. $2,200 million 70% $930 million 30%

Abbott Vascular

Devices**

(not available) (not available) (not available) (not available)

Cook Inc. (not available) (not available) (not available) (not available)

* Includes Cordis Corp., DePuy, and Ethicon Endo-Surgery.

** Abbott Vascular Devices does not break down its sales figures.

With $8 billion in 2003 sales, Johnson & Johnson’s Medical Devices and Diagnostics group had

the highest sales both inside and outside the United States. However, it is important to note that

this business unit of J&J includes Cordis Corp., DePuy, and the Ethicon Endo-Surgery division;

therefore, its sales figures should be interpreted with caution. Medtronic Inc. had $2.3 billion in

non-U.S. sales, and these accounted for 30 percent of the company’s total revenues in 2003. While

Boston Scientific’s non-U.S. sales were lower than those of Medtronic Inc.’s, they accounted for

44 percent of the company’s total 2003 revenues. Finally, Guidant Corp., with less than $1 billion

in non-U.S. sales, had 30 percent of its revenues generated outside the United States. Abbott

Vascular Devices does not break down its sales figures by geography, and sales data for Cook Inc.,

a private company, are not available.

It is clear from Table 7 that both Guidant Corp. and Medtronic Inc. have a greater reliance on

domestic sales compared to either J&J’s Medical Devices and Diagnostic group or Boston

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Scientific that have 54 percent and 56 percent of their revenues generated in the United States,

respectively. It is interesting to note that the data on the breakdown of sales figures is consistent

with that on the global presence of the key players, since J&J’s Cordis Corp. and Boston Scientific

have the highest number of non-U.S. affiliates.

VII. Indiana’s Contribution and Future Growth

Indiana has contributed to this competitive industry primarily through its key players –

Indianapolis-based Guidant Corp. and Bloomington-based Cook Inc. Guidant Corp. has

experienced phenomenal growth in a very short span of 10 years since it was instituted as a

separate company. With over $3.5 billion in sales, over $4.5 billion in total assets, and over 10,000

employees, Guidant has established itself as one of the largest and most profitable companies in

the state of Indiana. Further, with its recent agreement with Cordis Corp. to co-promote the Cypher

stent system, Guidant has now entered the most rapidly growing segment within the cardiovascular

device industry. However, there are a few things Guidant must do over the next few years in order

to compete successfully with the remaining key players. Currently, the stent business comprises

only 11 percent of Guidant’s sales, and this is the segment that the company needs to focus on

growing over the next couple of years. In addition to co-promoting the Cypher stent system,

Guidant needs to expedite the development of its own Champion Everolimus-Eluting Stent. By

doing this, Guidant will expand its cardiovascular device portfolio, and decrease its reliance on the

cardiac rhythm management devices. Guidant also needs to increase its presence in non-U.S.

markets. Currently, Guidant has seven facilities in Europe, three in the Asia-Pacific region, and

only one in Latin America. These numbers do not compare favorably with the global presence of

either Boston Scientific or Cordis Corp.. Further, with only 30 percent of sales being generated

outside the United States, Guidant is heavily reliant on success in the U.S. market.

Cook Inc. faces a similar situation. With only two facilities in Europe and one in the Asia-Pacific

region, Cook needs to expand its global operations. Since key financial numbers for Cook are not

available, it is difficult to draw conclusions at this point. However, it is clear that in the next few

years, Indiana’s contribution to this industry will be driven by Guidant Corp. and Cook Inc..

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Cardiovascular products are a double-edged sword for Indiana. This is a very risky business. As

the drug-coated stent competition shows, market share is very sensitive to price, quality and safety.

A lot of money must be invested to stay up with the leaders. But buyers jump at the newest

products almost as easily as households seem to adopt a new favorite restaurant. Our mid-size

Indiana companies are being threatened from both ends. The larger companies can afford swings in

sales in income on one or more of their product lines. They have the luxury of resources and time.

These larger companies also have wider global presence that allows some cushion against regional

or national changes in sales. But smaller companies also provide a degree of competition. While it

may take a lot of resources to keep a pipeline of new and better products coming – newer start-up

companies with a couple of good new ideas can garner market share. Our mid-size Indiana

companies must also broaden their knowledge horizons across industry sectors. The combination

of machine miniaturization and use of pharmacy and biotech innovations means that firms must

have wider proficiencies.

From a public standpoint, Indiana is lucky to have companies that are leaders in this industry of

tomorrow. These companies can produce what the world will need in the future. These are also

high value-added manufacturing companies that are very knowledge intensive. They pay well and

contribute their share to taxes. Meeting the public and social needs of these kinds of companies

could draw others to the state. Indiana is sometimes thought of as state without churn – without the

ability to research and bring new products to the market. These companies defy that reputation and

form the core of the future manufacturing base.

Yet having companies like these is risky. All states and countries will be trying to attract such

companies. They face intense competition and they will need to change rapidly. They are

producing the right products and they are doing it well but the situation can change rapidly. Policy

makers will have to be acutely aware of these competitive forces and be ready to meet the needs of

such companies. Good infrastructure including a highly conducive climate for science is very

important for their success. Of course, fostering a climate of entrepreneurship and capital attraction

must be at the heart of public policy.

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(ACC Mar 2004)http://www.acc.org/clinical/guidelines/april98/jac5507fla3.htm March 18, 2004

(AHA Mar 2004)http://www.americanheart.org/presenter.jhtml?identifier=4598 March 30, 2004

(AVD Jan 2004)http://www.abbottvasculardevices.com January 18, 2004

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(BS Feb 2004)‘Boston Scientific Announces Results for Fourth Quarter and Year Ended December 31, 2003’ Press Release, February 2, 2004

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Davidson and Meng (2003a)Indiana is Hip: Indiana, U.S. and World Trade in Orthopedic ProductsCommerce Websitehttp://www.in.gov/doc/publications/NewQuarterlyExportReport/2003/3rdQtr/index.htm (December 2003)

Davidson et al (2003)International Dimensions of Indiana’s Life Sciences Industries, Indiana Department of Commerce Website http://www.state.in.us/doc/publications/NewQuarterlyExportReport/2003/1stQtr/indexLifeSci.htm (June 2003)

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(Guidant Annual Report 2001)http://www.guidant.com/investors/annualreport/2001/Guidant_AR2001.pdf February 20, 2004

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(Hoovers Jan 2004)http://premium.hoovers.com January 18, 2004

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(MR 2003)http://www.marketresearch.com ‘Cardiac Rhythm Management Device World Markets: Defibrillators, Pacemakers, and Leads’, March 1, 2003

(Star Jan 2004)‘Strong fourth quarter eases Guidant’s pain’ The Indianapolis Star, January 30, 2004

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