DePuySynthes 3Q: Strong Hips and Knees, Spine Dis-Synergies

Johnson & Johnson’s DePuySynthes reported sales were down .3% to $2, 283 million for the third quarter of 2013. Currency took a 1.4% bite. Excluding currency, sales rose 1.1%.

Pharma overtook devices during the quarter as the company’s largest business, prompting Bank of America analyst Bob Hopkins to call Johnson & Johnson (J&J) a “one-legged stool.”

Strong Hips, Knees and Spine Dis-Synergies

Hips and knees showed “strong numbers” according to Wall Street analysts, with hips up 6% and knees up 3%, excluding currency. According to Joanne Wuensch, BMO Capital Market analyst, spine sales, excluding currency, experienced “dis-synergies” with the Synthes integration and dropped 2%.

The company said hip sales were up 7% in the U.S. driven by demand for primary stem offerings. Knee sales were driven by a demand for company’s fixed bearing knee and revision knee platform. Spine was down 10% in the U.S. Hopkins said the Synthes integration problems have “no real turn in sight.”

The Orsinger Show

The October 15, 2013, quarterly call with Wall Street analysts was the Michel Orsinger show as J&J management focused on orthopedics.

Orsinger, the former head of Synthes, now the worldwide chairman of DePuySynthes, said there was “clear progress” in addressing U.S. spine disruptions and the “successful integration continues.” He said the company’s primary goal during the integration was to minimize customer disruption. “Based on feedback from customers, we believe we have achieved this in all, but one platform. As we combine two different sales forces with two different sales models in U.S. spine, we have experienced some disruptions in that business and we continue to take corrective measures.”

New Products and Services

He also highlighted successful new product launches, noting the Attune knee, VALCP mid-foot/hind-foot plating, MatrixRIB system and the Synflate vertebral balloon augmentation systems.

In addition to new products, Orsinger pointed to a new value-added program called Care4Today Orthopedic Solutions to help hospitals reduce the length of stay for joint replacement patients. The program integrates patient education, a change management program for hospitals and home recovery support. “The first impressive results from the pilot show reduced patient length of stay and excellent patient and staff feedback.”

Changing Customer Values

The key goal in discussions with the company’s customers is how DepuySynthes can provide value in the form of more holistic solutions. “So far the industry has been very much focused on surgeons and patients, obviously, delivering good clinical outcomes. Now the healthcare delivery system needs to find new ways to do so in a more cost effective way. Hence we are driving now not only a strong R&D pipeline but a pipeline of new programs and services, collaborating together with the partners. We don’t have all the answers today. But we understand more and more of their needs.”

Orsinger told analysts that while he is not entirely satisfied with the quarter’s results, “we have had some important wins. Joint reconstruction, especially in the U.S., is performing very well and we believe we grew market share in hips. Furthermore we generated double-digit growth in emerging markets with the best results coming from China, Russia and Brazil.”

Overall, management expects the orthopedic market to increase 2%-4% compounded annually between now and 2017.