Medical Device & Diagnostic Industry Magazine
MDDI Article Index

An MD&DI October 1998 Column

EDITOR'S PAGE

To Market, to Market: Being First Doesn't Always Mean Staying First

The most dominant market position can collapse without updated technology and sensitive customer service.

A few days after Mark McGwire broke the single-season home run record, an unsettling scenario began to be discussed across the country. What if the imposing McGwire—who had led rival Sammy Sosa by big margins during the season and had arrived first at the record—finished the campaign not first after all, but second? Would his historic achievement suddenly seem a little like a failure?

I was reminded of this situation in the context of the medical device industry while reading a recent news account on the rise and fall of Johnson & Johnson's coronary stent business. J&J had essentially developed the stent market, producing its first device in 1994 and racking up, within three years, over $1 billion in sales. The company had pioneered a breakthrough technology that addressed a serious complication of angioplasty procedures, shepherded the product through the regulatory process, gained the confidence and commitment of the interventional cardiologists using the stent, and was in the process of convincing private insurers and Medicare officials to significantly increase stent reimbursement. As recently as the fall of 1997, J&J controlled more than 90% of the market for a product that was returning gross profit margins in excess of 80%.

Today, less than a year later, the company's portion of a now $1 billion annual market has atrophied to a point where J&J expects to end the year with about an 8% share. One competitor's stent, introduced last October, captured 70% of the market within 45 days of its debut, and stents from several other manufacturers have entered the fray. It's as if McGwire had attained his record and then fallen into some kind of trance.

In fact, if the press account is accurate, J&J seems to have overestimated the potency of that prized mantra of device development: "first to market." Too confident in the security of its position, the company allegedly lagged in preparing an improved second-generation product, neglected to listen carefully enough to the design requests of practitioners using the stents, and misjudged the word-of-mouth appeal of potential competing devices then available in Europe and awaiting FDA clearance.

J&J is also reported to have shown little flexibility in its pricing at a time when cardiologists and hospital catheterization laboratories were coming under intense cost pressures. Instead, it concentrated on raising insurer reimbursement levels, an accomplishment whose timing turned out to be a boon to rival companies. Even J&J's purchase of Cordis Corp.—a company with an established line of angioplasty equipment, whose acquisition should have stimulated new product development—had the effect of delaying innovation while differing corporate philosophies were hashed out.

At last check, McGwire seems to have gotten himself back on track. Perhaps J&J, which has several new products in the pipeline, can do the same, though it won't be easy. But the company's misadventures in the stent trade can serve as a cautionary illustration of the crucial importance of ongoing quality efforts and responsiveness to one's customers. News—good or bad— travels fast, and a dominant position in today's market can erode with startling rapidity. The race may be to the swift, but you need to stay swift, and eternally vigilant.

Jon Katz
jon.katz@cancom.com