Johnson & Johnson's orthopedics sales didn’t meet analysts’ expectations last quarter. Are generic products to blame?
Johnson & Johnson’s orthopedics sales were lower than Wall Street’s expectations last quarter, and some are wondering if competition from generic products could be part of the problem.
|Hugo A. Felix, worldwide risk management director for DePuy Synthes, will speak on integrating risk management with device testing at MD&M Minneapolis on October 29, 2013.|
Worldwide, sales of J&J’s orthopedic products were up 1.1% year over year on an operational basis—a result RBC Caital Markets analyst Glen Novarro characterized as “notable underperformance relative to Consensus” in a report following release of J&J’s Q3 2013 earnings. There were bright spots in the company's ortho numbers, with growth in sales of hips and knees exceeding analyts’ expectations, but they weren’t enough to offset trauma sales of just 1% (RBC had predicted 4% growth) and a 2% decline in spine sales.
In a conference call with investors, Michel Orsinger, worldwide chairman of DePuy Synthes, J&J’s orthopedic franchise, cited the tough task of combining the Depuy and Synthes sales forces as well as pricing pressures in the trauma market as two of the factors challenging its orthopedic business.
Derrick Sung, senior medical device analyst at investment research firm Sanford C. Bernstein, wondered if generic products might be partially to blame.
“One of the longer term concerns that investors have had about the ortho market has been the potential for a generic or value segment offering to really penetrate and destroy pricing in the marketplace. The kind of the comments that you made on trauma are the first that I think we have really heard that,” Sung told Orsinger during the Q&A portion of the call. He also asked if pressure from generics might spread to J&J’s hip, knee, and spine business in the future.
Orsinger’s answer was cagey. While he acknowledged that providers are demanding “value creation,” he also stressed a demand to collaborate with larger companies.
“Scale, in the sense of DePuy Synthes, but also leveraging other opportunities within MD&D and within even other Johnson & Johnson portfolios, will give us the opportunity to work at a much higher strategic level with providers and, yes, provide more cost effective procedures, products but also services to ensure that this more total oriented solution and not just focused on products, will provide a relevant add on solution to every single stakeholder,” Orsinger said on the call. “So we are confident that, now, being part of J&J but combining those two companies, we can leverage breadth of the portfolio, scale. And this is what matters more than ever before to the healthcare providers and payers, by the way.”
Sung pressed further: “But do you, Michel, feel that the value segment in the U.S. is here to stay in ortho and continue to grow from here?” he asked.
Orsinger responded by challenging the definition of “value segment.”
“We define it as providing healthcare in a more effective way and this is not just focused on the product. This is not just focused on the price,” he said, adding that in addition to providing products, DePuy Synthes also provides services such as patient and provider education. “The discussions will continue obviously to deal on pricing, but we have now being part of a larger company DePuy Synthes and J&J, the unique opportunity to again leverage size and scale and create beyond product innovation service and program innovation which will create value,” Orsinger said.
Generic orthopedic implants sell for as little as half the price of their name brand counterparts, according to a report from global research, technology, and consulting firm Advisory Board Company. Generic competition in orthopedics has mainly focused on trauma devices so far but could spill over into spine, hip, and other orthopedic segments.
|Hear from DePuy Synthes's worldwide risk management director at MD&M Minneapolis.|
Jamie Hartford, managing editor, MD+DI
[image courtesy of DAVID CASTILLO DOMINICI/FREEDIGITALPHOTOS.NET]