DePuy Synthes Hip-Checks Consensus

DePuy Synthes reported sales of $2.469 billion during the second quarter of 2014, beating consensus of $2.45 billion. Excluding currency, sales were up 3.3% over the previous year’s quarter.

Strong Hips, Weak Knees

Hips were strong, rising 5%, while knees were weak, climbing only 1%. During a conference call with analysts on July 15, 2014, company management said they could not account for the knee weakness other than to say that a new seasonality may push knee procedures to be much more back-end loaded to the end of the year as patients hit their deductible. Management told analysts that demand for its Attune Primary Total Knee System was helping to offset pricing pressure. Pricing for knees in the U.S. was down approximately 2.6%, offset by positive 1.5% mix, for a negative 1.1% pressure.

The rise in hips including a 4% rise in the U.S. and up 6% outside the U.S. was primarily driven by the company’s primary stem portfolio, along with the second quarter U.S. launch of the new Corail Revision Hip System launch.

Spine Stabilizing

Spine sales improved slightly in the second quarter, rising by 1%. Joanne Wuensch, BMO Capital analyst, noted that the spine sales were the first positive growth rate since the third quarter of 2011. She added that the spine business continues to demonstrate increasing stability in the post-Synthes integration phase. Spine sales in the U.S. dropped -2%, but sales outside of the U.S. pulled the business into positive ground. Mike Matson of Needham & Company said in spite of the slow U.S. sales, this marked the third consecutive quarter of improved growth, which may indicate that the disruption caused by the Synthes integration is abating.

Trauma Growing Strong

Wuensch said that for a second consecutive quarter, trauma sales were strong, up 7%, excluding currency, with U.S. sales up 4% and sales outside the U.S. up 11%. “While [the first quarter of 2014] was aided by a recovery from last year’s Nail recall, the [second quarter] was primarily aided by a successful tender offer in the Middle East, reflecting the benefits of a broader product bundle, ” added Wuensch.

Hospital Utilization Depressed

Management noted that it continued to see slight declines in surgical and lab procedures at rates that were consistent with the past 12 months. In addition to the continued depressed hospital utilization, management also noted that a strengthening economy should help drive utilization higher.

With regard to orthopedics, management noted that increasing pricing pressure and market softness weighed on growth.

Ortho Market Growth Steady

Matson said that combining the DePuy Synthes and Biomet, Inc. results, he estimates that the second quarter’s recon growth was 3% on a constant currency basis, which is in line with his 3% estimate and 3% growth in the first quarter.