“State of Orthopedics” Sounding Good at DePuy Synthes

Alex Gorsky, the chairman of Johnson & Johnson sounded like a happy man when he reported fourth quarter results on January 20, 2015.

His subsidiary, DePuy Synthes, showed 3% operational growth over the prior year and healthcare utilization rates in the U.S. increased for the second quarter in a row and are expected to keep rising. Gorsky told analysts that “governments are increasingly recognizing the need to continue to address healthcare needs and are taking steps to reward innovation through FDA and EMEA [European Medicines Agency] designations that are helping to speed product review times.”

In the U.S., Gorsky said there is probably the “clearest and the most tangible data” about utilization rates that he finds encouraging. “We think we’ve got about three quarters now in the positive, when I say in the positive I mean somewhere between 2% and 3% when we’re looking at hospital admissions [and] surgical procedures. Physician office visits still appear to be negative. So I think it’s too early to declare complete victory yet.”

He added that, in particular for medical devices, his company’s emphasis has been on “growth acceleration from innovation” and transforming their sales models to “better reflect the reality” that purchasing decisions are increasingly being made at the healthcare system level.

The “big focus” over the past year, he said, has been to make sure they’ve made the most of the significant investment made in Synthes. “And I think we made a lot of headway…. In fact I think we were one of the first companies to really look hard at spaces like orthopedics and recognize that consolidation was very likely to occur and so we were able to do that in a way where we feel we got a very good portfolio fit…. We feel that we’re in a very good position now particularly as many of our competitors are just starting to go through some of those consolidation initiatives.”

For the quarter, orthopedic sales of $2.441 billion declined slightly by 0.6%. A strong dollar cut 3.4% from reported sales.

Orthopedics sales growth, according to management, was driven by sports medicine, hips, spine and knees. “The successful launch of MONOVISC coupled with the continued strong growth for ORTHOVISC drove results for sports medicine.” On a constant currency basis, hip growth of 5% worldwide was driven by strong volume growth partially offset by continued pricing pressure. Primary stem platform sales were a major contributor to the results. Spine grew 3% with solid market volume growth and new product launches partially offset by continued pricing pressure. Knees worldwide increased 3% due to the “successful launch of ATTUNE, ” with pricing pressure offset by positive mix.

Yes, the State of Johnson & Johnson and orthopedics looks good from where Chairman Gorsky sits.