Steady Sales, Smooth Marriage at DePuySynthes

On April 16, 2013, DePuy Orthopaedics, Inc., the biggest orthopedic player on the block reported relatively flat sales for the first quarter of the year, if you exclude Synthes sales. Sales were up 60% on an operational basis had Synthes been included. The results continue to confirm to analysts that the orthopedic market has stabilized.

Total sales were $2.385 billion. There were 1.5 fewer selling days in the quarter then the previous year that some Wall Street analysts thought could have added up to 3% in sales.

Hips, Knees, Spine and Trauma

Worldwide medical devices and diagnostics sales (where DePuy Ortho resides) were $7.1 billion. Synthes contributed approximately 14% worldwide operational sales growth, net of the divestiture of the DePuy trauma business.

On an operational basis, knees were down 1%, hips up 2%, spine declined 7% and trauma rose 2%. BMO Capital Markets analyst Joanne Wuensch estimated that the company took market share in hips.

Stable Market

Dominic Caruso, the company’s CFO, told analysts that while he believes that overall healthcare utilization trends continues to show signs of stabilization and the orthopedics market overall and DePuySynthes did particularly well in the fourth quarter, he did not see that persist in the first quarter of 2013.

“So if you neutralize for [fewer selling days], it’s about equal in terms of the overall impact to our business first quarter versus fourth quarter. So no great acceleration, but no deceleration per se in orthopedics, just really the selling days’ impact is what is dramatically impacting that business, ” said Caruso.

Integration Progress

With markets stable and DePuy Ortho holding its own, the story at the company is all about the marriage with Synthes in the second quarter of last year.

Caruso told analysts the integration is “going well.” He said the challenge, as he expected, was going to be in the area of integrating the spine sales forces. “We converted our current legacy DePuy spine business from a distributor based system to a direct selling basis, which is what Synthes had been doing. We had always expected that would be the way to go in the marketplace. So we have completed that transition. I would say there are some disruptions that we have seen as a result, not totally unexpected, but in fact some disruptions. But we think that’s a short-term issue because we think that’s a long-term benefit of having a direct sales force plus the combination of the two portfolios. It’s something that will allow us to compete very effectively in the spine space.”

He said the focus of the business integration now is on sales synergies. “We are starting to see some sales synergies. It’s too early to give you a specific number on that. The focus is primarily on sales synergies as opposed to the cost synergies, and we expect that that will improve as the integration continues to progress throughout this year and into the next.”