Corrected: J&J sees fast-growing device market

In third to last paragraph, corrects that Schering-Plough, not J&J, hired Hassan in 2003

NEW BRUNSWICK, New Jersey - Johnson & Johnson sees itself competing in a faster-growing segment of the medical device market and plans about 80 significant regulatory submissions for its largest unit in the next two years.

J&J outlined its plans for the medical device business -- its top product category with annual sales of about $25 billion -- as it tries to overcome a manufacturing crisis at its consumer unit that makes Tylenol and other products.

Many analysts gathered at company headquarters in New Brunswick, New Jersey, on Thursday also hoped for an update about J&J's series of recalls of Children's Tylenol and dozens of other over-the-counter medications.

Management declined to discuss the recalls, which the U.S. Food and Drug Administration is investigating.

The company handled the recalls sloppily, said Andrew Busser, portfolio manager at Symphony Capital in New York.

Their execution and communication has not been crisp, but I don't think this will be meaningful long term, he said.

BDR analyst Matt Duffy said he was looking for signs that J&J is keeping its edge in devices and diagnostics against the likes of Abbott Laboratories Inc .

There are a lot of questions about devices and diagnostics, Duffy said. The stent business has been unbelievably competitive with (Abbott's) Xience taking over the world.

J&J said it has received more than a dozen regulatory approvals in 2010. Additional submissions will be rolled out across its seven franchises, including its DePuy orthopedics unit, Cordis cardiovascular business and Ethicon, which makes surgical instruments.

The maker of Band-Aids and Motrin told analysts it expects sales of the types of medical devices that it sells to grow by an average of 6 percent per year between 2009 and 2014. That would outpace growth of the wider medical device industry, which it forecast at 5 percent annually. J&J did not provide a forecast for its own medical device sales.

Total company sales were $61.9 billion in 2009.

Shares of J&J were down less than 1 percent to $59.71 in afternoon trading on the New York Stock Exchange.

DISINTEGRATING STENTS, NEW CONTACT LENSES

The company said it still expects to seek approval in the United States and Japan for its experimental biodegradable drug-coated heart stent, called Nevo, by 2012.

It is coated with a polymer that dissolves within months of after the stent is implanted in a diseased artery. It leaves behind a bare metal stent meant to pose less risk for blood clots. The product has been submitted for approval in Europe.

J&J also expects the number of users of its Acuvue contact lenses to grow by more than 30 percent by 2014.

Consumers are feeling more confident... We are expecting nice growth over the next five years in J&J's contact lens business, said Michael Sneed, group chairman of Vision Care.

An anti-allergy lens represents a great market expansion opportunity because many people who suffer from allergies are unable to tolerate contact lenses, Sneed said.

Another emerging theme is J&J's increasing reliance on emerging markets.

It looks like they are going after emerging markets in all areas, definitely diabetes and vision care, Busser said. Clearly in the emerging markets, they are launching simpler products, not as expensive or as sophisticated, so they can get market share.

As these economies grow, doctors will step up to more expensive and more sophisticated products, he added.

Still, the company faces questions about its recalls.

J&J's latest recall on April 30 involved more than 40 over-the-counter products for children and infants made by its McNeil healthcare unit, including Tylenol, antihistamines Benadryl and Zyrtec and painkiller Motrin.

Problems ranged from excessive amounts of active ingredients, inactive ingredients that did not meet testing requirements and tiny metallic particles left as a residue from manufacturing. J&J has shut the Pennsylvania plant that made the contaminated products.

J&J's consumer unit problems could spill over into its other, more profitable, businesses if the FDA begins to scrutinize those divisions as well, one industry expert said.

If regulators start to distrust management, then they start being strict with everything, and checking and inspecting everything, said former Schering-Plough Chief Executive Fred Hassan. Schering-Plough hired Hassan in 2003 to clean up a quality control disaster.

J&J's prescription drugs account for about $22 billion in sales, while consumer products, including Tylenol, approach $16 billion.

How well they can contain the political fall-out is a tough call. There's definitely a downside, BDR's Duffy said. J&J is so well diversified, you're not going to get too dependent on any one product. That mitigates the risk.

(Additional reporting by Debra Sherman; Editing by Michele Gershberg, Lisa Von Ahn, Dave Zimmerman and Robert MacMillan)