Johnson and Johnson’s DePuy Synthes business ended 2015 on a clear upswing, if we’re looking at large joint reconstruction, but a slog if we’re talking trauma and spine.
For the final quarter of 2015, DePuy Synthes sold nearly $760 million of hip and knee implants, instruments and other related products—which was about 1% higher than the $751 million sold at the end of 2014.
But, of course, those numbers are in U.S. dollars. Most of these sales were in other currencies. Adjusting for currency effects and, impressively, hip/knee revenues rose about 6%. Which means that DePuy ended 2015 with a bang.
Spine and trauma…more difficult.
For the last quarter of the year, DePuy Synthes sold about $1.7 billion of spine and trauma products which was about 1% lower than the same quarter in 2014.
Again, those are U.S. dollars, so adjusting for currency effects, and the growth rates were actually up about 4%.
United States Sales Pulled up Rest of the World
U.S. demand for DePuy Synthes orthopedic products was extraordinary. No doubt helped by rising employment (and therefore insurance coverage) and the 11 million newly enrolled Obamacare beneficiaries, DePuy Synthes packed up, shipped and billed for 9.8% more hips, 7.6% more knees, 6.3% more spine and 7.7% more trauma products in the last quarter as compared to the fourth quarter of 2014.
Outside the U.S (OUS) demand, however, was a sharp contrast.
OUS DePuy Synthes booked 9.6% fewer hip sales, 8.5% fewer knee sales, 7.7% fewer trauma sales and 13.4% less spine sales.
Overall, the U.S. booked an impressive 7.4% sales growth while OUS sales fell by 10.6%.
Coming on the heels of Stryker’s strong finish to 2015, DePuy Synthes’ numbers are signaling that the orthopedic industry is both thriving and growing sales at an increasing rate. Despite the gloom and doom on Wall Street, orthopedics is very healthy and delivering excellent sales growth and operating profit margins.
Wall Street’s Take
- Wells Fargo: “In our view, management’s overall tone was very positive, expressing confidence in the growth outlook of the end-markets and JNJ’s ability to outpace the market growth. With nearly $20B[illion] of net cash, M&A remains a key focus for the company with management emphasized that it will be disciplined and decisive in doing deals. We increased our 2016 EPS estimate to $6.51 from $6.38 and we forecast 2017 EPS of $6.90. Raising our valuation range to $111-$113 (from $108-$110) based on 16x our 2017 EPS forecast.”
- RBC Capital Markets: “JNJ’s 4Q15 MD&D results appeared stable sequentially excluding the benefit from extra shipping days. JNJ’s MD&D sales of $6.43B (RBCe: $6.36B, cons: $6.33B) were up ~1.8% y/y cc (vs. +1.3% in 3Q15), excluding acquisitions, divestitures, and the impact from extra selling days. Management continues to see a slightly positive trend in U.S. healthcare utilization and noted that hospital admissions were up ~2% y/y, with US surgical procedures up ~1%+ y/y.”
- BMO Capital Markets: “This was a particularly good quarter for JNJ, underscoring why a diversified health care product portfolio continues to make sense for it: in Consumer, the full portfolio is benefitting the franchise, with the full return of its Tylenol products; in Medical Devices, Electrophysiology, Vistakon and Orthopaedics were standouts.”
- Needham & Co.: “JNJ’s results seem to indicate that med tech markets were stable to slightly improve on a global basis in 4Q15 with some improvement in U.S. growth offsetting some deterioration in emerging markets growth. We think this is positive for our med tech universe.”
