J&J’s Ortho’s 3Q Debut

Johnson & Johnson’s orthopedic franchise (formerly DePuy), excluding the impact of the Synthes acquisition in December 2011, grew sales by approximately 2.5% on an operational basis in the third quarter of 2012. Including Synthes, reported sales of $2.290 billion were a 65.5% increase over the previous year.

Hips, Knees, Spine and Trauma

Operationally, hips were up 3% worldwide driven by 6% growth in the U.S. due to strong results in primary stem platform sales partially offset by continued pricing pressure. Hips outside the U.S. were flat with soft sales in Europe offsetting gains in other regions. Competitive pressures and the softer market impacted growth in Europe.

Knees worldwide increased 3% on an operational basis with the U.S. up 6% driven by fixed bearing and revision platforms. Sales outside the U.S. were flat due to softer sales primarily in Europe due to competitive pressure. Including the Synthes business and excluding the divested DePuy trauma business, trauma grew approximately 4% on an operational basis with the U.S. up 1% and sales outside the U.S. up 7% on an operational basis. U.S. growth was impacted by shipping patterns.

Including the Synthes business, worldwide spine was down 3% on an operational basis with the U.S. down approximately 6% with continued pressure on price. Outside the U.S., sales grew approximately 1% operationally.

Sales

 ($ in millions)

% Change* 

Total Reported Sales

$2, 290

2.5%**

     Knees

3.0%

     Hips

3.0%

     Spine

down 3.0%

     Trauma

4.0%

*constant currency
**ex Synthes
Source: Johnson & Johnson

Payers and Utilization Rates

When asked about comments by competitors citing insurer pushback for spine procedures, company officials said they did not see that in their business, though the payers have been “asking for evidence in the spine world for many, many years.” They said they believed it was just a continued trend.

Dominic Caruso, the company’s CFO, told analysts on October 16 that U.S., healthcare utilization rates, primarily hospital admissions and surgeries, show early signs of stabilization, and U.S. joint reconstruction volumes appear to have improved. “While some positive signs can be seen, these signs are still too early to signal any meaningful recovery…We’ve now seen a couple quarters of these low rates of growth, and of course they’re not exciting low rates of growth but they’re not declines which is what we saw for the previous nine quarters, and more growth in orthopedic procedures in particular.”

Caruso also noted that the company recorded a $94 million after tax increase in the accrual for DePuy ASR hip related costs, based on updated international registry information.

Synthes Integration

Regarding Synthes integration, Caruso said it was early since closing the deal in mid-June. “Our first priority is no disruption to customers. But the updates that we’re getting tell us that things are moving along just fine. We’re integrating obviously the spine businesses, because they’re the two businesses that we had that were similar. So that’s where the bulk of the integration is occurring.”

“And so far so good. We’re going to take this carefully. We’re going to be measured in the way we do this so that there’s very little disruption if any, and we’re confident that’s the right way to do it for the long term. The leaders are intact. We’re very pleased to have the Synthes leadership team join Johnson & Johnson, and as you all know, Michel Orsinger, the previous CEO of Synthes now leads our entire combined orthopedics business.”

Overall, the company’s Medical Devices and Diagnostic Segment had sales of $7.1 billion, up 16.1% on an operational basis as compared to the same period in 2011. Currency had a negative impact of 3.6 points resulting in a total sales increase of 12.5%.