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Johnson & Johnson Is a Quitter

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When most companies get knocked around by competitors, they lick their wounds and fight on. What does Johnson & Johnson (NYSE: JNJ  ) do? It cuts off the arm with the injury, throws on a tourniquet, and focuses on what's working well. When you have as many arms as Johnson & Johnson has, being a quitter isn't necessarily a bad thing.

The diversified health-care giant has decided to exit the drug-eluting stent market. Its Cypher stents have seen better days. When it was a two-horse race between Johnson & Johnson and Boston Scientific (NYSE: BSX  ) the stent held up OK, but after new stents from Medtronic (NYSE: MDT  ) and Abbott Labs (NYSE: ABT  ) entered the market, sales have fallen dramatically -- from $1.35 billion in 2008 to just $627 million last year.

In addition to halting production of the Cypher stents by the end of the year, Johnson & Johnson also plans to drop development of its next-generation stent called Nevo.

The remaining three players in the U.S. market will surely benefit from Johnson & Johnson's exit. There isn't that much market share still held by the Cypher stents to divvy up, but the absence of Nevo's entrance should help. Interventional cardiologists are notorious for liking to try the newest toys. Of the three, Boston Scientific should benefit the most since it currently has the largest share.

Johnson & Johnson plans to concentrate on other products that its Cordis unit produces. Excluding the drug-eluting stents, sales of its portfolio of vascular products increased 8% last year.

Ditching drug-eluting stents might be a good move for the long run, but it'll be costly in the near term. Johnson & Johnson plans to close two manufacturing plants, consolidate research and development sites, and lay off 900 to 1,000 people. All told, Johnson & Johnson expects to take a charge of $500 million to $600 million.

That's one expensive tourniquet.

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Fool contributor Brian Orelli holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Abbott Laboratories, Johnson & Johnson, and Medtronic. Motley Fool newsletter services have recommended buying shares of Abbott Laboratories and Johnson & Johnson, as well as creating a diagonal call position in Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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