October 16, 2013 /www.thedeal.com/–Johnson & Johnson Inc. is still dealing with some major headaches in the integration of its acquisition of Synthes Inc., especially in smoothing out its sales functions.While revenue from Synthes products helped boost the company’s Medical Devices and Diagnostics (MD&D) business segment’s profitability in the second quarter, this quarter it was less so. The company has seen continued market and pricing pressure in that segment, J&J officials said during its third quarter sales and earnings conference call with investors Tuesday, Oct. 14.Overall, worldwide sales for the company were $17.6 billion, up 3.1% compared with 2012’s third quarter. In the U.S., sales were up 1.7%.New Brunswick, N.J.-based J&J made its largest acquisition ever when it purchased Synthes for $21.3 billion in June 2011.
J&J’s DePuy Synthes group of companies comprises joint reconstruction, trauma, spine, sports medicine and dissection power tools. It has the largest and most comprehensive portfolio in the $41 billion orthopedics and neuro market space.
“Not entirely satisfied” with the third-quarter results of the Synthes integration, its leader Michel Orsinger, worldwide chairman of DePuy Synthes Companies, said, however, “We have had some important wins.”Joint reconstruction, she noted, is performing very well, and “we believe we grew market share in hips.” The company generated double-digit growth in emerging markets, with the best results coming from China, Russia and Brazil.Emerging market growth, she said, is expected to increase “roughly four times” the rate of developed markets.A successful launch of the Attune Fixed Bearing Knee drove results outside the U.S. Worldwide, the knee business increased 3% with similar results both in and outside the U.S.Pricing in the U.S., however, has been a headwind. Prices in the spine business during the quarter were down 4.5%, hips down about 1.5% and knees down 0.5%.Orsinger said the company’s primary goal during the Synthes integration was to minimize customer disruption. “Based on feedback from customers, I believe we have achieved this in all but one platform.” That platform is sales.The company remains mired in technical changes, especially melding the Synthes sales force with its own. “We are combining different selling models, distributor base versus a direct selling model. Salespeople are calling on the same accounts from the same hospitals, requiring realignment of territories.” said Louise Mehrotra, vice president of investor relations for J&J. “It all takes time,” she added.As an example, Mehrotra said, “consultants ordering products need to do this from two different legacy ordering systems, which need to be harmonized through IT.”The company is in the final stage of realigning its sales territories, and Mehrotra said it is an opportunity to combine two product bags, leveraging the strength of legacy centers in the cervical area and the strengths of legacy DePuy in the lumbar area.
With the pressures on hospitals and health care systems to reduce prices while providing extra value, J&J is taking steps to help provide that value through “holistic” solutions, Orsinger said.
“We are driving not only a strong R&D pipeline, but a pipeline of new programs and services, collaborating together with partners,” said Orsinger.
She offered an example in which DePuy-Synthes is partnering with colleagues at J&J’s biologics unit, Janssen Pharmaceuticals Inc., in a project called Care4Today Orthopedic Solutions. Its goals are to create a program to help hospitals reduce the length of stay for joint replacement patients while enhancing quality of care and boosting patient satisfaction.
The program integrates patient education, a change management program for hospitals and home recovery supports. “The first impressive results from the pilot show reduced patient length of say and excellent patient and staff feedback,” Orsinger noted.
Johnson & Johnson’s revenue bright spot was its pharmaceuticals business, pulling in a 9.9% increase in net sales over the same quarter in 2012. Oncology products Zytiga and Velcade grew 57% on an operational basis. Immunology products grew 13.4% operationally, with sales in the U.S. up 3% and outside the U.S., 47.7%. Results were driven by its products Remicade, Simponi and Stelara.
J&J’s Raritan, N.J.-based Ortho Clinical Diagnostics business in the third quarter declined 8% over 2012 operationally. The company “remains on track” in evaluating strategic options for the diagnostics business, considering a spin-off or sale. J&J executives reiterated that a decision could take 12 months to two years, having begun the process in January.
J&J posts disappointing sales for Synthes group
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