Building Billion-Dollar Businesses: An Interview with Robert Croce

Building a billion-dollar business in medical devices is rare enough; doing it twice is unheard of. In the course of a four-decade career, Bob Croce helped turn J&J into a giant in medical devices.

By David Cassak

Very few medical device executives can claim credit for building a billion-dollar business; imagine how small the fraternity of those who've built two billion-dollar businesses. Robert W. Croce, most recently group chairman, Cordis Corp. at Johnson & Johnson , began his career at the healthcare giant in its pharmaceutical business, starting as a sales rep and moving up in the organization through a variety of management posts. Nearly 20 years ago, when a position opened at J&J's flagship device company, Ethicon Inc. , Croce switched to the device side. Pharma's loss was J&J's gain. Croce soon turned Ethicon's nascent franchise in minimally invasive surgery from a flagging competitor to market leader. Indeed, few industry analysts at the time gave J&J any chance of beating United States Surgical (now part of Tyco International Ltd. 's Tyco Healthcare Group ) in the exploding minimally invasive surgery market; within a few year's of Croce's arrival, Ethicon Endo-Surgery Inc. had not only done that, it has never looked back.

Just as impressively, Croce left Ethicon Endo-Surgery soon after to take over J&J's fledgling cardiovascular business and, thanks largely to the advent of the Palmaz-Schatz coronary stent, Croce soon had built another billion-dollar business for J&J. And his retirement this year came soon after J&J announced its mega-merger with Guidant Corp. It hasn't always been easy—Croce faced a vexing integration challenge when J&J bought Cordis to shore up its cardiovascular business, and the billion-dollar bare metal stent business it built all but disappeared when more nimble competitors came to market—but Croce's record of accomplishment remains virtually unparalleled. With a quiet, unassuming grace and a fierce intelligence, Croce has been a key figure in some of the largest developments, not just in Johnson & Johnson's device business, but in the entire device industry over the past decade and a half. In recognition of his accomplishments, Croce was awarded the Lifetime Achievement Award at this year's Phoenix Medical Device CEO Conference, sponsored by PricewaterhouseCoopers, Versant Ventures, Wilson, Sonsini, Goodrich & Rosati, and Windhover Information Inc.

In the following interview, adapted from a discussion at this year's Phoenix meeting, Croce talks about a career at J&J that spanned nearly four decades, about competing with the likes of US Surgical and Boston Scientific Corp. , and about what it was like to build a billion-dollar stent business, lose it, and re-build it again.

I know you've spent your entire career in healthcare with J&J. What did you do before that and how did you get to J&J?

Bob Croce: When I graduated from college, a lot of companies didn't want to interview me because they knew that I would get drafted [for the Vietnam War] very soon, so I went to work for Western Electric, which was the manufacturing arm for AT&T. From there, I was drafted and spent a couple of years in Europe. When I got back to the US, I knew I wanted to get into sales. I wound up running into a woman who did a lot of recruiting for Johnson & Johnson in the Midwest. Over the years, she placed over 1,000 people with J&J, and she had me interview with two companies--Ortho Pharmaceuticals and Ortho Diagnostic. In the end I chose Ortho Pharmaceuticals.

You eventually held a number of different positions at Ortho and McNeil, including in sales, business development, and international. At what point did you realize you didn't want to stay in sales?

I realized it very early. I liked sales a lot, but that wasn't where I wanted to spend my life. I remember very clearly sitting down and thinking I wanted to be among the top two or three people within Ortho. Of course, I didn't understand corporate structure well at that point, particularly J&J's structure, which is very difficult to understand even when you're in the company.

So many people know you from the device businesses of J&J--Ethicon, Ethicon Endo-Surgery and Cordis. But you actually spent 18 years in the pharmaceutical business at J&J. What was your career in pharma like? And how did it influence your career in devices?

Actually, my career at J&J ran 36 years, 18 on the pharmaceutical side and 18 on the device side. On the pharma side, I had a pretty typical career in sales and marketing at Ortho. I started as a sales rep and then moved up the ranks as a division manager, regional manager, field sales manager, national sales manager. I also ran marketing and then became vice president of sales and marketing. From Ortho I moved to McNeil Pharmaceutical, which was separate from Ortho at the time, where I spent two-and-a-half years running international and also had responsibility for some of the lobbying efforts and new business development.

The experience was very valuable to me when I got to devices because it was in the pharmaceutical business that I learned the importance of product pipelines and of making sure that you have a global strategy for the future. In pharmaceuticals, you're always thinking ten or 15 years down the road. A lot of the products that I in-licensed didn't get to market until ten years later. It's a totally different perspective than most device executives have and I think that helped me tremendously when I got to the device side because I always tried to plan ten years out and then fill in how we were going to get there.

Was there the opposite risk, though: that you'd have too long a perspective? Everything in the device industry is about short product life cycles and quick innovation. Was there a risk that you could look too far into the future?

No, I don't think you can ever have too long a perspective because real breakthroughs take time. Certainly, a lot of success in devices comes from pure execution and the ability to move quickly in executing. But I think you have to get the ideas on the table in the first place and, therefore, you have to have a vision about what kinds of products you want to have and where you want to take the company. That long-term vision shapes your actions in between; for me, it wasn't a detriment. It's a balance: I always felt a company needs to have long-term projects and also those projects would keep the business viable over the next several years. But the home runs don't come from products that you develop in one or two years; they come from the long-term projects.

In November of 1987, a job opened up at [wound closure and surgical specialty company] Ethicon Inc. How did you get that job?

In a sense, it was opportunistic. The job opened and I was in the right place at the right time. But I also fit what Ethicon needed at the time. They had some high potential people in sales and marketing. The idea was that I would come to Ethicon to help develop those executives and prepare them for additional responsibilities like running a company for us. At the same time, Ethicon didn't have a new business development person and I knew how to establish the process and function. So I joined Ethicon as a group vice president. The carrot for me was that I would become general manger of the newly acquired stapling business which evolved into Ethicon Endo-Surgery.

We tend to think about J&J's device businesses today in terms of Cordis and DePuy. It's easy to forget that in 1987, Ethicon was by far J&J's biggest device business among a group of what were otherwise high-volume commodity lines. What did you actually do for Ethicon?

Originally, I had about half of the board at Ethicon: sales, marketing, new business development, some other functions, and then I had a general manager's role on the stapling business, in which everything reported to me. We had purchased the stapling business, which was in Cincinnati, just the year before I arrived. After two years I was named president.

You're right about the composition of our device businesses; we had all of these device businesses, but they were commodities. One of our strategies was to move from commodity businesses into other, physician-preferred lines such as orthopedics, where we had a very small business, and cardiology, where we had no products at all. The idea was to develop more profitable device businesses. In fact, at the time, Ethicon actually accounted for 120% of the profits for J&J's device businesses because everything else was losing money. That's what made it such a great company to be with: Ethicon was a cash cow that was not only funding all of the other businesses at the time, it also fueled all of the investments J&J made to get into the businesses we're in today.

You were also responsible for developing and running the stapling business, which you acquired to compete with US Surgical's stapling business. That began one of the great rivalries in the medical device industry, one that would have ramifications later for the minimally invasive surgery business. Talk a little bit about what it was like to compete with US Surgical because in those days, they were by far the stapler leader.

When I first got to Ethicon, I was dismayed to find that our market share in stapling was only about 20%. This was primarily the 20% of the hospitals who bought on price. So we weren't even getting the same prices as US Surgical. We also didn't have a full line of products. I remember asking to see our strategic plan and when they sent it up, it said that the plan was to be number-one by the end of the year. My first reaction was, how are we ever going to be number-one by the end of the year? So I asked to see the previous year's plan and it, too, said that we wanted to be number-one by the end of the year. I asked everyone how they could have a plan to be number-one, and the response was, "We have to think big." I said, "I agree, but we have to actually do something to be number-one." I spent a lot of time in Cincinnati trying to get the business integrated into J&J. And then, because we didn't have a very good pipeline, I had to get things going on the product development side, adding engineers and talking to customers to find out what they want. I even made a trip to Russia because the biggest issue we faced was where to get new technology if we didn't develop it internally, and all of the original stapling patents were held by Russians at that time.

Including US Surgical's.

Right and that became an issue for us because when I got to Russia I found out that they hated Americans apparently because of the deal US Surgical had cut with them. US Surgical had bought patents to a lot of technology but never developed it and so they never paid the Russians anything. As a result, by the time we got there, the reception we got wasn't particularly friendly. For one thing, Russia was still part of the Soviet Union, so relationships with the US were strained. But second, they tended to believe that American companies would take their technology and make a lot of money from it without giving them their fair share. And when we finally got a look at what they had, they were behind where we were.

You clearly decided that the stapling/wound closure fight would be about technology development. But US Surgical at that time was known not just for its technology development, but also for its aggressive sales tactics—some of which, in fairness, they've denied. Nonetheless, given that the competition was fierce, did you ever make any attempt to match or counter their aggressive sales tactics? Or was it always about new product development for you?

Our rivalry with US Surgical was a classic and since I know that there are some people in the room who worked at US Surgical at that time, I'll be kind. I don't think it was ever part of our strategy to respond in-kind to what they were doing. They had their way of doing business and, quite frankly, I never thought they would win in the long term doing things the way that they did. I think they were the leader early on because there was no competition. Once customers had a choice, US Surgical no longer was as dominant as it was. That's why the key for us was always to make our products better. We had to really work at it because they had excellent technology, but once our products were equal to or better than their products, I felt very comfortable that we'd be able to compete with them because, frankly, customers didn't like the way they were treated by US Surgical.

The late 1980's were a critical time for both Ethicon and US Surgical because it was the beginning of the minimally invasive surgery revolution. In 1990, you became president of Ethicon, and in '92, Ethicon Endo was split off to create a minimally invasive surgery business. I know that the decision to spin Endo off was controversial within J&J. Why was that so? And why did you think it was necessary?

That decision caused a big rift within J&J; there was probably more turmoil inside J&J at the time than there was outside. Ralph Larsen was J&J's chairman then and he had read all of these analyst reports about laparoscopic surgery and how US Surgical was going to dominate once again, and so he called a meeting. It was me, Bob Campbell, who was vice chairman at the time, and one other executive, and he wanted to know our thoughts about this whole field of laparoscopic surgery. He wasn't happy at all about what was going on, and as we were leaving the meeting, he said to me, "Bob, I want you to go away and come back to me with a plan to beat US Surgical. I don't want a safe plan where we have a nice share of the market. I want a plan that is going to make us the winner." And he told me not to worry about how much it would cost. I didn't know if he was serious, but I came back with a very aggressive plan and we spent $500 million before we turned a profit and Ralph never blinked. The only question he asked was, "Do you need more?"

What did the plan call for?

One of the most ambitious parts was to set up training centers to teach surgeons how to do minimally invasive surgery. To be number-one we had to be the leader in training surgeons. I also argued that we needed a product development center. So we built this huge facility in Cincinnati. I think, at the time, US Surgical may have had 10 operating rooms in which they trained surgeons and so when anyone asked me how many operating rooms we needed, I said 20. I didn't know if that was the right number, but it sounded right to me: I liked it because it was twice the size of their training facility. But as you said, the most controversial part of the plan was the notion that we should split up Ethicon into Ethicon and Ethicon Endo-Surgery.

J&J has always operated their overseas businesses with umbrella companies which run all the device businesses in a country, and I was advocating that we split apart the six largest ones from the umbrella companies and give Ethicon Endo-Surgery its own management team. Well, of course, that caused a big rift because we were going to take something away from somebody. Even though this was a real growth opportunity, people opposed it within J&J because we'd never done anything like that before. I remember going back to our board at Ethicon—the operating companies all have their own boards—and proposing this split in the US, and I'm sure that if we had actually taken a vote, it would have been nine against the idea to my one in favor. Fortunately, we didn't take a vote—we didn't really operate like a traditional board with different members and their different interests or agendas. The board was made up of the functional heads of the various parts of the business. But there wasn't much support for the idea because everyone felt as if they were going to lose something. And they all felt a combined Ethicon could be successful in the minimally invasive surgery market structured the way we were. I disagreed and said, "I think we can do it better as a separate focused operating company and we need to do it that way." But it was a very turbulent time within Ethicon.

We'll never know how J&J would have done if Endo had stayed inside Ethicon, but as a separate company, you certainly were successful. In the early 1990s, I don't think anyone gave J&J much of a chance at overtaking US Surgical in minimally invasive surgery. But you kept taking share and in the spring of 1994, your market shares crossed and Ethicon Endo never looked back. Given all of the skepticism, at what point did you know that your plan was going to work?

It actually started working fairly quickly. As I said, we had already decided that we needed to have new products and train surgeons on how to do minimally invasive surgery. But beyond that, we had very specific goals in terms of market share. We said we wanted to be the market leader in laparoscopic instruments by 1997, and in mechanical staplers by the year 2000. And we were willing to wait a year on each to be profitable. But we beat all of those goals, some by two or three years. And these were all carefully noted—every time I met with employees, I kept a close scorecard on market share and I'd share it with them. We needed to gain 8 market share points a year and the first year, we got 12 or 13. And so I said to everyone, "OK, we made it, let's focus on the next 8%." And after a while, everyone started believing we could do it. But we never addressed employees, no matter what the function, without showing them where we were in our goal to be the market leader. It was almost like one of those thermometers that fund-raisers use. It became something everyone was focused on. And even though J&J is a large company, Ethicon Endo-Surgery had the focus of a start-up. It really was an effort by everybody. We also set objectives for the number of new products we wanted to develop. People don't believe me, but we used to release two new products a week. And these weren't just line extensions; we hired 125 engineers who were charged with making sure we had a full product line and could do everything the surgeon wanted to do. That's when we started to pass US Surgical.

You said you felt it was important to split Endo off from Ethicon. But how important was it to you to have the Ethicon name attached to the company, particularly given how entrenched Ethicon's suture business was in the hospital at that time.

It helped with some customers but frankly, not as much as you'd think. We were clearly a distant second in stapling and so the Ethicon name didn't help there very much. And even though both companies called on surgeons, stapling physicians were a different breed. Having Ethicon in our name helped a bit, but in my opinion, it wasn't the thing that tipped the scales.

After your success at Ethicon Endo, your next venture was, obviously, to build a cardiovascular device business at J&J. I don't know how many people remember that there was a cardiovascular business called Johnson & Johnson Interventional Systems before you acquired Cordis. What was the original vision for Johnson & Johnson's cardiovascular business at that time, and what led you to the Cordis acquisition?

Well, I think when you have a product that proves ultimately as successful as the Palmaz-Schatz stent would prove to be and it's clear it's a procedure-critical product, you want to leverage that as much as you can. But in the early days of the stent's development, we didn't really have the capabilities to produce a full line of cardiovascular devices. And so when we considered our various options, the best one was to acquire a full-line company and gain leverage that way.

And you have to remember that was part of a larger thinking we had at J&J at that time. There were two major device areas, orthopedics and cardiology, and we didn't have a great presence in either one. It was clear that Cordis gave us a chance to quickly make a major impact on cardiology, and later, we'd do the same thing in orthopedics, when we bought DePuy. But our objective from a global standpoint has always been to make sure we're the largest device company in the world and that was going to be difficult to achieve without a major presence in cardiology and orthopedics.

So you have this great opportunity to build a major cardiology business and you turned it down four or five times before finally accepting. Why did you turn it down in the first place, and what made you change your mind?

The first couple of times I turned it down it was because I wasn't really sure what J&J had in store for the cardiology business. We'd have these lunches and my boss would say to me, "You've been on the surgery side for a long time and you might be interested in a change like cardiology." And I'd reply, "Yes, it's kind of been my baby. I really like it." In the beginning, no one came out and said they were thinking of acquiring a company to make it all work.

It didn't become real to me until we had lunch and they told me they were going to make an offer for Cordis and they really wanted me to manage the integration and build the business. At that point, as much as I really liked Ethicon Endo-Surgery and felt a large part of it, I liked the idea of a new challenge more. The Cordis deal would be the biggest merger we'd ever done at this point, and I thought I really ought to try to lead the effort. Even then, I didn't tell them yes right away—instead I told them I was going to go home for the weekend and walk along the beach and I'd tell them when I got back. And it was literally while I was at the Jersey Shore that I decided to take the job.

Was the Cordis deal already in the works? Or was J&J's willingness to do it contingent on your taking the job?

I think J&J's senior managers were pretty sure I was going to take it. I think they were going to do the deal either way—that train had already left the station. But they always had confidence that they could convince me to do it. And even if I said no at that point, I think I eventually would have gone over to Cordis at some point.

Talk about the Cordis merger because it was a very important deal for J&J. Cordis wasn't just an add-on to an existing business—it would become J&J's cardiovascular business. Yet within a short time of your buying the company, virtually everyone at the top-most levels of management left the company. Was that intentional on your part because you wanted to replace Cordis' culture with J&J's culture? Or was it unintentional—did everyone at Cordis suddenly get upset and just decide to go somewhere else?

As with most situations, it was probably a bit of both. There were some people we should have moved out even faster than we did. And if I had it all to do over again, I would have changed things faster. We were trying to be really tolerant and give some of the Cordis people some leeway, but frankly, this was a hostile takeover especially for the senior management. They didn't particularly want us to buy them and many of the executives didn't want to be there. One thing I learned from that is, when someone doesn't want to be somewhere, that's a miserable situation. That's why I say that it probably would have been better for everyone if some people had simply left sooner.

The other thing is that both Cordis and J&J Interventional Systems were relatively small and the company [because of the boom in coronary stents] suddenly experienced the kind of very rapid growth that might have outstripped the skills of some of the people who had been there before. Suddenly, we were doing almost a billion dollars in sales and were trying to build to become a couple of billion dollars in sales, and we had to recognize that we might not have the right people in place, and so we had to make some decisions based on how we needed to go forward. But for the most part it was a matter of some folks just didn't want to be part of a big company.

Where did you find the people to replace them? Was it within Johnson & Johnson? Did you recruit heavily from other cardiovascular companies?

The easy ones to replace from within J&J were those in finance and HR and areas like that. Operations, too, to a certain degree. But I also had to go out and recruit people, and I brought in a lot of individuals from the cardiovascular industry who weren't at J&J. I brought them in at leadership positions: general manager and president. At that level, I recruited more from outside J&J than I did internally.

As everyone knows, Cordis' great success wound up being the coronary stent. Before we get to that, what similarities or differences did you see in your experiences first at Ethicon Endo-Surgery and then at Cordis?

As I said, Ethicon Endo was like a start-up in a way, only on a big scale because we had to hire a lot of engineers and develop the products so quickly. Plus, we wound up getting into a street fight with US Surgical. With Cordis, the challenges had more to do with the integration, trying to get these two groups together to make it work.

There were some similarities—we did some of the same things at both companies because I really believe you have to spend time with your customers and find out what they want. At Cordis, I probably spent 50 to 100 days a year in cath labs, even toward the end of my time there, and there wasn't a month that went by when I didn't talk to at least 200 customers. I also went to all of the major medical meetings; I was always at the booth and constantly going where the reps wanted me to, wherever that was in the world. In fact, at both Ethicon Endo-Surgery and Cordis, I only spent about 50 days a year in the office because I wanted to be close to the customers. The doctors were strong decision-makers. These were not products that went before hospital purchasing committees. We also needed to be close to the customer because the technology changed so much and so often. We had to understand what they were doing, why they were doing it, what they liked about your products, what they didn't like, and what they liked and disliked about our competitors.

That said, I think there were more differences, and the challenges were certainly different. Ethicon Endo-Surgery was staffed through J&J people, while Cordis had a lot of outside people recruited, plus all of Cordis was new. This made for more integration issues. Ethicon Endo-Surgery had one real competitor and they were far behind in market share. And everyone was striving to be number one. The Cordis business started out as the dominant company in their field which had multiple competitors. The receptiveness to change was significantly different in the companies because of their relative positions in the marketplace. The situations called for different management approaches. Overall, being there, they did not feel the same.

I'm not sure how many people know this, but the Palmaz-Schatz stent actually came into J&J through Ethicon while you were there. Was there any connection? Did J&J pursue the stent opportunity because you had become convinced of its potential while at Ethicon?

No. I had no direct management responsibilities for the stent until I got to Cordis. You know the old saying, "Success has many fathers while failure is an orphan." Over the years, I've heard so many people say they were the ones who licensed the stent—I don't actually know who did, though I think it was Alan Levy [now CEO of Northstar Neurosciences]. But the reason it came in through Ethicon was, as I mentioned earlier, we were making so much money, anytime we wanted to make an investment on the device side, the money came from Ethicon.

And at Ethicon, the Palmaz-Schatz stent was treated as a kind of skunkworks project. They were on-site for a while and then moved off, and they would report quarterly at our board meetings, but it didn't have any impact on the day-to-day business so I didn't have a huge connection to the project when it was at Ethicon.

At what point then, did you know that stents would be the blockbuster they turned out to be? Especially since, in the early 1990s, there were a lot of cardiologists who insisted that they would never put metal into the vasculature—in fact, the New England Journal of Medicine wrote an editorial saying stents were a terrible idea, and doctors should avoid them at all costs.

That was an interesting story. If you talk to physicians today, they'll all tell you that they always loved the idea of a stent. But in the 1990s a study came out that was really negative about stents. The clinical results were, in fact, worse than angioplasty because several patients died as a result of sub-acute thrombosis. Now, the stent in that study wasn't our stent, it was an early version of a self-expanding stent, and we always thought we had a better mousetrap. But the study raised serious issues and the FDA saw those results and insisted we do extensive clinical studies. And so we did the largest device studies ever done at the time, the BENESTENT and STRESS trials--one was conducted outside the US and one in the US. Results of those trials, which showed a significant improvement in clinical results with stents, were published in August of 1994, and we got FDA approval a month later. We really needed to match the science with the clinical results and prove to the FDA that stents were safe and effective. Once we did that, it was clear stents would be a very important advance. Those studies were watershed events for stents and cardiology and really changed things.

I know that there were other companies working on stents, but for the first couple of years, except for Cook, Cordis was the only company on the market with a coronary stent. It's pretty rare in devices that a blockbuster product comes along and only one company has it. How did it happen that you basically owned the stent market for the first three years?

Remember, there was a tremendous amount of skepticism in the market from physicians and companies about stents and their value. No one else was really working in this area until Palmaz's work started to get published and we did the clinicals. We also had a strong and broad patent which has eventually held up in repeated court cases. All of these factors contributed to the others staying out for a while and being behind.

We also had the best mousetrap at that time. The Palmaz-Schatz stent was far better than the Cook stent, and history shows that having a superior product was the key to success in stents. In the last quarter of 1997, Guidant and AVE came out with their stents and our market share quickly dropped. And the reason was clear: we didn't focus enough on having a second-generation stent. We can make all the excuses we want, but the bottom line was we didn't have a next-generation stent that was competitive with the ones Guidant and AVE developed. I talked to folks inside Cordis to find out why we didn't, and while I don't think this excuses us, I think you can understand why we didn't. One of the things people forget is the FDA took seven years to approve our stent. I mean, you talk about a long approval cycle. The message we got from them was clear: they didn't want to see major changes to the stent they had already approved. So our engineers focused on making minor changes to the Palmaz-Schatz design. I don't think our competitors took the same approach; they weren't working under the same assumptions. And that was a mistake on our part: we should have broken new ground and we didn't, but that's why we didn't have a competitive second-generation product. The other thing was, while our competitors were working hard on their stents, we were understaffed in terms of the number of engineers we had. Before I got to the cardiology business, JJIS had 12 engineers. When I walked around and asked people what they were working on, I found out that they had plenty of ideas, but not a lot of people to work on them. My next question was, "How many people do we need to actually work on them?" And we wound up hiring over 100 engineers within my first year.

You've often taken the blame for not having a next-generation stent. But I wonder if you're being harder on yourselves than you deserve. Jay Yadav of the Cleveland Clinic once noted that it wasn't that J&J didn't have a next-generation stent. They did, the Crown stent. But to his mind, the problem was that instead of talking to run-of-the-mill interventionalists, J&J talked with thought leaders, physicians who had only done a handful of cases but were already very competent at implanting stents. For the thought leaders, the design issues to be improved on concerned things like strut thickness and strength. But the run-of-the-mill interventionalists wanted more flexible stents because they were less competent or confident—and it was their rapid adoption of stents that led to J&J's share loss because they liked the Guidant and AVE stents better. True, you didn't have the right next-generation stent, but how much do you think that was a matter of getting the wrong messages from the marketplace?

I'd like to have that excuse, but I don't accept it. The truth is, we talked to a lot of physicians and we heard them loud and clear about what they wanted. Plus, our competitors' products were on the market in Europe and they were beating us there. We knew what they needed and wanted; we just didn't do a good job of delivering a second generation product. I appreciate what Jay is saying but we did listen to physicians. Many doctors felt because we didn't deliver the product, we didn't listen to them. We did listen, but the truth is we did not execute.

Once FDA approval came, the market grew very rapidly. One issue that you faced early on concerned the whole area of price and reimbursement. Hospitals at that time had very mixed feelings about J&J: clinicians and cardiologists loved you for the great new technology, but administrators and financial types developed a deep resentment as a result of what they saw as a budget-busting technology. How much was that resentment a problem for J&J?

It was somewhat of an issue. The irony was all of the work we had done to get Medicare reimbursement finally hit in October of 1997, just as our competitors' products came out. I always felt it was really a reimbursement issue, not a pricing issue and actually, we were more flexible on price than a lot of people gave us credit for. I remember reading in the paper a quote from officials from one hospital complaining we never discounted—and that hospital got the biggest discount in the country. But it was a perception and perception becomes fact with some customers. Among physicians, there eventually was a lot of animosity, though not at first. What happened was the administrators started beating on them over the cost, and they got tired of getting beat up. So they turned on us, hoping they could force the price down. Our first response was, price isn't the issue—in fact, stents ultimately represent a cost savings—basically hospitals weren't adequately getting reimbursed. So we went to HHS and met with [then HHS secretary] Donna Shalala, and finally got reimbursement. And, by the way, we were smarter when it came to drug-eluting stents. There, we were able to get reimbursement before the product was approved, which was a big coup for everyone. But the real lesson is, health economics are going to be huge in the future. It's already an important field, and if you can't incorporate health economics into your clinical studies, you're going to face a long, hard road.

And of course, the irony is that you took so much heat in 1996 and 1997 for the price of your stent and when Guidant and AVE came to market and began to take market share, their stents were actually priced higher.

Right, about $200 more. And everybody pretended they were being very flexible with their pricing. But of course, they could justify higher prices because they had reimbursement and second-generation products. It wasn't clinically better, but it was easier for the physician to use. That's why they won the battle so easily.

As you hinted at, J&J built the coronary stent market into a billion-dollar-plus market and had nearly all of it, only to lose 90% of your business very rapidly when Guidant and AVE came to market. As that business declined, what was the reaction among the senior ranks of J&J, both to the lost market and the lost revenues?

When I came over to run the cardiology business, within the first week I told Ralph Larsen that we were going to take a fall. I had been to Europe and had seen what happened there in terms of other competitors coming to market and I said, "This isn't going to last. We're going to lose market share here in the US. How fast we'll lose it, I don't know. But it could be a big loss if we don't get our Crown stent out quickly." For that reason, the loss of share wasn't really a big surprise, at least to Ralph. He was prepared for it, but not the speed of the drop. But certainly, among some other executives, there were those who just didn't believe we could lose so much market share so quickly. They believed that because we were the market leader, the loss would be much smaller. But any way you look at it, when you have a big drop in share like we did, you always underestimate how fast it's going to fall. We may have underestimated it a bit, but we always knew it was going to happen and it would be big.

The reason I ask is that even as you were losing share quickly in bare metal stents, you were deep in development with your drug-eluting stent. Cypher has been a big success for J&J and turned around your stent business. But did anyone at the time at J&J say, "Let's drop this drug-eluting stent stuff. We're getting killed in bare metal stents and we'll just be pouring good money after bad if we continue"?

Yes, there were people who felt that way, particularly since the stent business was no longer generating money, it was consuming money in the development of the drug-eluting stent. But again, the credit goes to Ralph Larsen. He asked me what it would take to build a significant cardiology business and I answered, "It's going to take some significant investments because we have to have breakthrough products." And when I told him what we needed, he was the one who said, "OK. We'll do it." There were doubters at Cordis, just as there were at Ethicon Endo-Surgery. But the philosophy at J&J has always been to think long-term, and so we always had support at the top for what we wanted to do.

And you needed that long-term perspective for the drug-eluting stents because they seem to have been an order of magnitude more difficult in terms of development issues. I know you had to screen 800 compounds to find sirolimus. Talk a little bit about the development of that project. What were the key milestones you had to hit?

The first was finding the compound. We made a decision that we were going to go forward with three compounds and take them into preclinicals before deciding which one was the best. The one we ended up choosing was sirolimus. I think it was helpful that I wasn't intimidated by the drug development cycle. I also brought over Pat O'Neil, whom I had worked with at McNeil Pharmaceutical and later at Ethicon, to be head of R&D at Cordis because he knew both devices and pharmaceuticals.

I had so much trust in Pat that once we decided on sirolimus, we didn't do a dose-ranging study. Some people were critical of this approach. But Pat and I were sitting in his office one day and he said, "I think this dose is going to work great." And based on all that we could see, we knew it wouldn't do any harm—the worst that could happen is that it wouldn't be strong enough and the impact would be no greater than a bare metal stent. But with that decision made, we went to Brazil and did our first 15 patients, and the results were so good, we never felt we had to go back and do a dose-ranging study. In fact, we knew from the very beginning that we could put six times the amount of sirolimus on the stent and it wouldn't be toxic; what we didn't know was whether the dose we had selected would have a sustained impact on restenosis. And we didn't find that out until we did our clinical trials.

In the early days of bare metal stents, there were a lot doctors who resisted putting metal into their patients' arteries. As you moved to drug-eluting stents, was there any resistance on the part of physicians to putting drugs into the vasculature? Or because of the success of bare metal stents, were they salivating at thought of a drug-eluting stent?

The only issue that threatened to slow up adoption was pricing. You have to keep in mind we had a year's experience with drug-eluting stents outside the US and by the time the device was approved in the US, physicians couldn't wait to get their hands on it. I mean, this was really a market that was already prepared and the only issues were those concerning price and Medicare reimbursement. And it's funny: in some parts of the country, hospitals actually make more money by using drug-eluting stents, while in others, they lost money. We could always tell what the reimbursement levels were based on our penetration rates: in some markets, it was 90%, in others it was 30%. But within a year of approval, penetration was up to 80%, so physicians couldn't have adopted it much faster.

One of the issues that Johnson & Johnson faced in the bare metal stent race was the sudden onrush of competitors: first Guidant and AVE and then, in quick succession Boston Scientific and Medtronic and a host of European companies. In drug-eluting stents, it's pretty much been you and Boston Scientific. In fact, a lot of folks thought that Boston would beat you to the market. But you beat them. How did you beat them and why do you think the other companies have stumbled so? What is so difficult about developing a drug eluting stent over a coronary stent?

It's because of the drug component. On the pharma side, it's a lot trickier, a whole different world, and we had in-house expertise. Yes, I think originally Boston said they were going to beat us by two years and we wound up beating them by one. But as I looked at what they said they were going to do, I knew they weren't right. They just didn't have that much experience on the drug side, while we had a lot of resources at Johnson & Johnson that we could pull together. It was actually one of the great projects at J&J, and everyone still talks about how well the collaboration worked within the corporation. We had help from everywhere to make this work. And it's hard for me to imagine if you didn't have that pharmaceutical expertise down the street from you, that you could do it quickly. I knew they'd have to hire a lot of the expertise or make arrangements through an alliance with some other company to get it. And that's what slowed them up.

And that goes for other companies. Why have the other companies stumbled? Because of the drug side. This is not easy. It's far easier to fail to put a drug and device together than it is to succeed, by far.

Cypher came out first and Taxus followed a year or so later. When Taxus finally got to the market, it suddenly took a lot of market share very quickly. How much did everyone at Cordis worry that this was Palmaz-Schatz all over again and that you were in danger of seeing this large market gain go away? To what do you attribute Taxus' rapid ramp-up? And why isn't it a long-term threat to Cypher?

I think success in drug-eluting stents is going to come from long-term results because once you introduce a pharmaceutical element, long-term outcomes do matter. And I think Cypher will still win because sirolimus is a better drug. And as the studies come out, I think we're seeing that. It's not a landslide and there are some who prefer Taxus. But everyone talks about how well Boston Scientific is doing, but I think our US market share is over 45%; we may even be ahead before the end of the year. On a worldwide basis, Cypher is the leader because we have a huge business in Japan where Boston doesn't sell any products yet.

Boston picked up a lot of business because physicians, again, went for the stent that is easier to use. But I think Cypher is going to be the market leader ultimately because I have a lot of confidence the drug is better, and at the end of the day, physicians will choose their stent based on what the results for the patient will be two years from now. I think over the long haul, sirolimus will be the drug of choice.

Perhaps because of the high profile of drug-eluting stents, the rivalry between Boston Scientific and Cordis has over the past several years, seemed to mirror the Ethicon Endo-Surgery/US Surgical rivalry. To a lot of outsiders, it feels like the Red Sox versus the Yankees. Does it feel that way to you?

To be honest, I think Boston has always made more of this than we have. They've complained that we wouldn't work with them or license technology to them because we were afraid of the rivalry. But that wasn't really it. We licensed from other companies because they had things we wanted to trade for with them. Boston does line up as Cordis' number-one competitor if you think about Cordis' old structure. Cordis had an endovascular business that goes against Boston's Meditech business, and we were competitors in EP and neurology. Boston's structure so closely parallels Cordis' organization that it creates the perception of a rivalry. But frankly, we never really focused on Boston. We worried more about Guidant and Medtronic AVE because for a long time, Boston's share of the stent market was under 10%. They've recovered a lot of that with the introduction of Taxus, but if Taxus hadn't been the first drug-eluting stent to follow Cypher, if it had been Medtronic's or Guidant's, we'd be talking about a Medtronic/Cordis or Cordis/Guidant feud. We always looked at who would be our biggest, closest competitor. We were never obsessed with Boston.

Just as you were leaving Cordis, Johnson & Johnson announced that it's going to buy Guidant. The deal has gone through a lot of difficult times, but it now looks like it's going to happen. How much of that deal was driven by the opportunities in putting the two interventional cardiology businesses together? How much of it was driven by the fact that J&J had long wanted to be in the cardiac rhythm management business?

Again, there's no simple answer, but rhythm management was the biggest consideration. Obviously over the years, we'd had many discussions inside J&J about cardiac rhythm management and there had been a lot of speculation about how and when and with whom we were going to get into that business. At the end of the day, Guidant was a nicer fit than any of the other options we considered, and that's why we decided to go that way. The combined vascular businesses will also have some advantages.

Your first responsibility when you came to the cardiovascular business was to oversee the Cordis merger. The Guidant merger just seems as if it's going to be a much larger, more difficult process—just a different magnitude altogether.

I agree.

Given how difficult it will be and all of the headaches that will come with integration, is the value of having Guidant so great that it's worth all the disruptions and difficulties? Wouldn't both be better off as independent companies?

Oh, no. I'm convinced that if JJIS and Cordis had remained two separate companies, that if we hadn't merged, both would have gone out of business independently because Cordis couldn't have survived without a stent and JJIS couldn't have survived without a broad line of products to keep it going when the stent business dropped off. For all of the difficulties of the merger, it allowed both companies to get into businesses they weren't in. And not just in cardiology—in endovascular, neuro, and electrophysiology, those businesses have flourished and now represent more than billion dollars a year. Would either company, on its own, have gotten to that level? I don't think so.

I'm sure there are going to be challenges with the Guidant integration. But at the end of the day, you have to keep in mind where you came from. Guidant today is a $3 billion franchise; I think that within J&J, it can be much bigger, a $6-7 billion franchise. It just has to be a better company because it will have more money to put into R&D and there will be opportunities to leverage skills and capabilities, while J&J will find skills and capabilities within Guidant that it will be able to leverage. All in all, I think both companies will be much better off being together.

We're unfortunately running out of time. Before we end, I want to ask you about what you're up to these days. I know you're working with the venture capital firm, NEA, and are also doing some projects that involve the mentoring and development of young talent.

I've always liked the idea of venture capital, and now I'm spending about 25% of my time as a venture partner at NEA. I enjoy it because I'm also working with many old friends, including clinicians, and a lot of new technology.

I'm also involved in some charity work. At J&J, we're encouraged to get involved with the community, so I'm working with the Florida United Way, and I've stayed on the board of the Newark (NJ) Museum. It's a great museum, number-one in the country in children's education—and they have a strong focus on science. I like working with them a lot.

And the third thing I'm doing is teaching, not full-time, but as a guest lecturer at Florida State. They're running classes for graduate students and undergraduates on leadership and business ethics, things like that. And then I'm also dividing my time between Washington DC and Florida, spending a lot of time with friends and family—the kinds of things I never had time to do when I was working.

Let me ask you a final question. You're one of what, I think, has to be an increasingly rare breed: an executive whose whole career was with one company. You must have had opportunities to go to other companies at various points. As you look back on it, what were the plusses and minuses of working only for J&J? And as you talk to younger executives in a device world driven by mergers and acquisitions and serial entrepreneurship, is that a viable career trajectory going forward?

Yes, I think it is. I don't know that anyone plans to be with one company his whole career, but in my case, I never really seriously thought about working anywhere else. The key is, if you stay at one company, are you constantly challenged or motivated? And, thankfully, I was always able to get challenging assignments at J&J. I think people look to leave a company when they don't feel valued or believe they're not getting challenges and I never felt that way at J&J. Sure, I got offers to go elsewhere, but the offers were never better than the challenges I was offered at J&J. Is it a career path for others? It's a very individual thing. I tend to think it won't happen as frequently in the future, but not because of industry dynamics. I just think people are more inclined to change today. I think the challenge is for companies: if they're smart, they'll do what they can to keep smart people. They'll let them know how valuable they are and give them challenging things to do.