Industry Trend Analysis - DePuy Synthes Will Continue To Transition Spine Portfolio - 02 OCT 2017

BMI View: The addition of the prodisc portfolio will support Centinel's expansion plans in the US and Australia. DePuy Synthes will meanwhile continue to transition its spine portfolio as it aims to strengthen its minimally invasive surgery (MIS) capabiliti es. MIS will remain a key growth driver in the spine segment a nd an improved MIS offering will enable the company to target a return to growth for its spine segment.

Centinel Spine, a privately held US based company, is to acquire DePuy Synthes ( Johnson & Johnson)'s worldwide prodisc assets. The acquisition is expected to close in Q417. The financial terms of the transaction were not disclosed.

Upon completion, Centinel will add cervical and lumbar artificial disc systems prodisc-C, prodisc-L, prodisc-C Vivo, prodisc-C Nova, prodisc-O and Discover to its portfolio, which presently includes Midline and Stalif interbody devices as well as Altos posterior cervical stabilisation, the Actilif cervical cage. The acquisition will leave DePuy Synthes with only the Inmotion lumbar disc.

Centinel is primarily focused on the US and Australian markets, and the addition of the prodisc portfolio will enable the company to further expand into these countries. Of the assets acquired by Centinel, only prodisc-C and prodisc-L have gained premarket approval in the US. Centinel intends to initiate US clinical studies to secure approval for other products in the portfolio.

DePuy Synthes Will Aim To Address Portfolio Gaps

With this divestment, DePuy Synthes will be less focused on the artificial disc market, retaining only the Inmotion lumbar disc. The company will continue to transition its spine portfolio as it aims to strengthen its minimally invasive surgery (MIS) capabilities and restore top line growth.

In FY2016, the Spine & Other segment recorded revenue of USD3.9bn, a 0.7% decrease y-o-y. In Q217, revenue in the segment decreased by 1.1% y-o-y. The decline reflected share losses in the US due to portfolio gaps. Acquisitions and product line extensions undertaken in FY2017 have been intended to strengthen the segment's MIS capabilities and target a return to growth in H217.

Declining Spine Growth Reflects Portfolio Gaps
DePuy Synthes Spine & Other And Total Orthopaedics - Underlying Revenue Growth (%, y-o-y), Q115-Q217
Source: Johnson & Johnson, BMI

In January 2017, DePuy Synthes announced an asset purchase and development agreement with Interventional Spine, a manufacturer of expandable cage technology. We note that this deal is intended to increase DePuy's minimally invasive capabilities and overall competitiveness in the spine market (See, 'J&J Will Drive Growth In Priority Platforms', January 5 2017).

DePuy will have similar aspirations for its acquisition of Sentio. The addition of Sentio's nerve localisation technology will strengthen DePuy's spine portfolio in lateral surgery and decompression procedures (See, ' DePuy Synthes Targets Further Deals To Bolster Spine Segment ', July 5 2017). Additionally, DePuy Synthes is planning extensions to its Viper platform solution, which provides surgeons with the control required to address a wide range of spinal pathologies, including complex conditions while maintaining a less invasive approach.