$5.81 Billion
Prior Fiscal: $5.55 Billion
Percentage Change: +4.7%
R&D Expenditure: $289M
Best FY24 Quarter: Q4 $1.57B
Latest Quarter: Q2 $1.55B
No. of Employees: 17,349
Global Headquarters: Watford, Hertfordshire, UK

The acquisition of CartiHeal by Bioventus seemed like a done deal. While the terms had been tweaked and adjusted due to issues with financing, and the upfront payment reduced significantly, the agreement finally appeared to be resolved. The company even announced as much on July 12, 2022. In a statement, it declared the deal was completed.

“We are excited to add CartiHeal to our diverse portfolio of active healing solutions,” commented Ken Reali, Bioventus’ CEO. “We believe the addition of CartiHeal will complement our joint preservation technologies and specifically our HA business, further supporting our short- and mid-term growth drivers and helping us to deliver on our goal of sustained double-digit revenue growth.”

But apparently, that wasn’t the case.

Fast-forward to February 2023; Bioventus announced it had entered into a settlement agreement with former CartiHeal shareholders regarding the company’s purchase commitments. Specifically, the arrangement enabled Bioventus to eliminate the entirety of $350 million of deferred purchase price obligations plus accrued interest. In exchange for releasing Bioventus of its financial pledge and granting a 30-day period in which it could attempt to secure funding, the company paid the former shareholders $10 million in cash as well as $150,000 in a non-refundable expense reimbursement payment.

Ultimately, the deal collapsed, and the situation (coupled with a dramatic drop in stock price over several years) cost Reali his job.

Enter Smith+Nephew. With CartiHeal again available to new suitors, Smith+Nephew agreed to an initial offering of $180 million in cash with the potential for an additional $150 million based on financial performance.

CartiHeal markets the Agili-C—an off-the-shelf, one-step treatment for osteochondral (bone and cartilage) lesions with a broader indication than existing treatments. It is indicated to treat a wide patient population, including those with lesions in knees with mild to moderate osteoarthritis, a previously unaddressed condition, as well as the approximately 700,000 patients who receive cartilage repair annually in the U.S. The solution is a porous, biocompatible, and resorbable scaffold that promotes natural regeneration of the articular cartilage and restoration of its underlying subchondral bone. It was granted Breakthrough Designation status in 2020 and gained PMA approval in 2022.

“The acquisition of this disruptive technology supports our strategy to invest behind our successful Sports Medicine business”, said Deepak Nath, CEO of Smith+Nephew. “Agili-C’s superior clinical performance makes it highly complementary to our existing knee repair portfolio and with our proven commercial expertise in high-growth biologics, we are confident that we will drive further success with this compelling treatment option.”

Three weeks after the start of the 2024 fiscal year, the deal was completed. This time, the coupling held.

While unique M&A situations make for interesting headlines, Smith+Nephew kept its own eyes on what it deems as the really important aspects. Primarily, it maintains a healthy product pipeline to ensure sales remain consistently headed in the right direction. In fact, the company revealed more than 60% of revenue growth in 2024 came from products launched in the previous five years. With that in mind, it provided several headlines on current innovation portfolio efforts.

During the 2024 AAOS meeting in February, the company launched its AETOS Shoulder System for anatomic and reverse shoulder replacement in the U.S. Developed to restore patients’ range-of-motion and help minimize arthritic shoulder pain, the system features the Meta Stem, designed for stability with metaphyseal fixation and an inlay collar, bone preservation, and to maintain patient anatomy. In addition, it offers a compact yet comprehensive portfolio of solutions that enhance the surgical experience by enabling intraoperative flexibility. With fewer steps for conversion and fewer instruments for primary anatomic and reverse, the system is designed to simplify the operating room flow.

During the same event, the firm revealed it had obtained a 510(k) clearance for ATLASPLAN 3D Planning Software and Patient Specific Instrumentation, which enables pre-operative case planning for total shoulder arthroplasty. This solution was developed in partnership with Materialise NV, a company with over 30 years of experience revolutionizing personalized solutions. The software features a user-friendly online web-based planner for access from any computer or tablet. It also enables fast turnaround from image upload to planning. Finally, an optional 3D-printed glenoid guide, designed with the patented coracoid clip for stability, provides a reliable and accurate method to execute the surgical plan through conventional surgical techniques.

April marked the launch of Smith+Nephew’s RENASYS EDGE Negative Pressure Wound Therapy System in the U.S., offering a patient-focused option for treating chronic wounds. The system is lightweight and compact, making it easy to carry or wear. It features a discreet canister and operates quietly to avoid drawing attention or disrupting patients’ daily routines.

In June, the firm released its CORIOGRAPH Pre-Operative Planning and Modeling Services, providing a personalized solution for surgeons and patients across partial and total knee arthroplasty procedures. It is exclusively for use with the CORI Surgical System—the only orthopedic robotic-assisted system to offer either intraoperative image-free or image-based registration, enabling the surgeon to choose whether or not to perform a pre-operative MRI scan. The CORI Surgical System offers proprietary tools and AI-driven software across the full suite of procedure solutions to deliver a robotics platform that is flexible and scalable across joint arthroplasty indications. Then, in December, the solution was cleared for total hip arthroplasty in the U.S.

During the middle of summer, 510(k) clearance was gained for the CATALYSTEM Primary Hip System. The technology was designed to address the evolving demands of primary hip surgery, including the increased adoption of anterior approach procedures and the expanding role of ambulatory surgery centers. The system was developed using global data sets across femoral morphologies to help deliver a precision fit. Featuring a triple-taper stem design with uniform proximal loading, the reduced distal stem geometry and shorter lengths are ideal for an anterior approach but suitable for all approaches.

September brought the launch of Smith+Nephew’s TOTAL ANKLE Patient-Matched Guides, giving surgeons a predictable and efficient option to help plan and perform total ankle replacement procedures. Engineered using 3D Systems’ VSP surgical planning workflows, the all-in-one guides are designed to achieve a precise patient fit using fluoroscopic alignment cues and efficient instrumentation and provide accuracy for planning.

In October, the firm launched its LEGION Hinged Knee System in the U.S. with proprietary OXINIUM (oxidized zirconium) implant technology that delivers the durability of metals, the wear resistance of ceramics, and corrosion resistance better than both. Part of the LEGION Total Knee System, this system is designed to provide a natural range of motion with medial pivot, lateral roll back, and screw home.

Before the end of the year, Smith+Nephew gained 510(k) clearance from the U.S. FDA for a stemless anatomic total shoulder for the AETOS Shoulder System (AETOS Stemless). AETOS Stemless addresses the growing demand for anatomic total shoulder replacement with a small operating room footprint, allowing for an efficient procedure. It is designed to maximize metaphyseal fixation and stability with an inlay collar, cruciate fins, and porous titanium coating to encourage biological fixation.

The company also entered into partnership arrangements with other organizations to further enhance its offerings to customers. In one such situation, an exclusive digital and advanced analytics collaboration was organized with Healthcare Outcomes Performance Company (HOPCo)—the world’s largest, fully-integrated, musculoskeletal value-based care and outcomes management company. The collaboration planned to focus on enhancing solutions for ASC customers, physicians, and their patients through HOPCo’s digital health and analytics platforms, myrecovery and Vitals.

The partnership provides a comprehensive technology platform that encompasses all musculoskeletal procedures performed in the ASC segment. The AI-powered myrecovery platform enhances the clinical experience by utilizing patient engagement tools such as remote care management, real-time communications, and remote therapeutic monitoring, while providing critical quality outcome metrics through proprietary activity tracking technology, functional outcomes reporting, patient-reported outcomes, and longitudinal data integration across a patient’s care journey. HOPCo’s Vitals platform provides tools, analytics, and dashboards to help Smith+Nephew customers deliver better, more efficient, and coordinated care while also meeting value-based care requirements, aiming to reduce cost.

In another arrangement, Smith+Nephew signed a co-marketing agreement with JointVue for its patented OrthoSonic 3D Surgery Planning Technology—the only ultrasound device on the market (at the time) to deliver 3D preoperative planning. JointVue’s technology allows surgeons using Smith+Nephew’s CORI Surgical System for robotic-assisted knee arthroplasty to create a personalized surgical plan, which may provide opportunities to improve patient satisfaction and operating room efficiency.

All of these efforts are to continue the upward trajectory Smith+Nephew has enjoyed. Its 2024 rise of 4.7% reflected a total revenue figure of $5.81 billion. The gains were equally celebrated across all units and businesses.

In its highest revenue-generating segment, Orthopaedics, growth was reported at 4.8% to finish with $2.31 billion. Led by Knee Implants, which was essentially flat, the unit contributed $947 million to the company’s coffers. Hip Implants rose to $619 million (3.2%). Other Reconstruction ballooned by 18.2% as a follow-up to its remarkable 27.8% 2023 gain, reporting a take of $131 million. Trauma & Extremities provided $608 million to the firm’s total, a 7.9% expansion.

Sports Medicine & ENT saw a 5.5% gain to achieve $1.82 billion in revenue. This was split between its three units. Sports Medicine Joint Repair notched the lion’s share with $982 million (4% growth). Arthroscopic Enabling Technologies led the segment with a 7.9% increase to add $632 million to the firm’s revenue. Finally, ENT put up $210 million in revenue, reflecting a 6.9% gain.

Advanced Wound Management, Smith+Nephew’s third business, posted $1.68 billion on the 2024 fiscal year, mirroring the company’s overall growth at 4.7%. With the group, Advanced Wound Care enjoyed the highest revenue tally but the lowest percentage increase, with $735 million and 1.4% respectively. Advanced Wound Bioactives brought in $581 million, an expansion of 5.1%. Sharing its $365 million in revenue with the firm, Advanced Wound Devices ballooned by 11.5%.

$5.55 Billion
Prior Fiscal: $5.21 Billion
Percentage Change: +6.5%
R&D Expenditure: $339M
Best FY23 Quarter: Q4 $1.46B
Latest Quarter: Q1 $1.39B
No. of Employees: 18,452

The purpose-built Smith+Nephew Academy Munich sits in Kustermann Park in the heart of the southern German city. The latest addition to the company’s global network of nine Academies, the facility opened in October 2023 to teach surgeons and healthcare specialists the latest surgical techniques and practice them using both hands-on and fully immersive, digital, interactive experiences.

The center for surgical innovation and training offers a central European hub for surgeons from across Europe, the Middle East, and Africa. At its peak, the Academy is expected to train up to 5,000 global healthcare providers at the site each year.

“Our investment in S+N Academy Munich is part of a global commitment to drive innovation and learning in medical technology, creating an environment where the best healthcare providers can learn, collaborate, and innovate in order to meet the needs of their patients,” Cynthia Walker, global senior vice president for Medical Education at Smith+Nephew, said in a press release.

The aging population’s demand for new technology and digital solutions—particularly in industrialized countries—fueled the demand for this new surgical training and education center. Improving outcomes and meeting cost efficiencies demanded from value-oriented healthcare systems were other factors contributing to the new facility’s inauguration.

“In 2023, we launched more than 20 new products in orthopaedics, sports medicine and wound care,” said Kenneth Garcia, Smith+Nephew’s senior vice president and general manager for Orthopaedics International. “The evolution of new technologies is allowing us to constantly realise, develop and implement what’s possible in healthcare, improving outcomes for patients and meeting the demands of health systems worldwide.”

In August 2023, incumbent CFO Anne-Françoise Nesmes announced she was stepping down as chief financial officer during the second quarter of 2024. John Rogers was appointed as her successor in November, joining as CFO-designate on Dec. 1. He joined the board as CFO during the first quarter of 2024.

Rogers was most recently CFO at WPP plc, where he led the implementation of their global transformation program. Before WPP he was finance chief at J Sainsbury plc and also served as CEO of Argos, Habitat and Sainsbury’s clothing and general merchandise business.

“I am delighted to welcome John to Smith+Nephew and look forward to working with him as we continue to turn around performance and deliver the 12-Point Plan,” Smith+Nephew CEO Deepak Nath said when Rogers’ appointment was announced. “I would like to thank Anne-Françoise for her dedicated service since she joined in 2020 and for her commitment to effecting a smooth transition to our new chief financial officer.”

The 168-year-old U.K.-based orthopedics and wound management company accrued $5.55 billion of revenue in its fiscal year 2023 (ended Dec. 31), rising 6.5% over the previous fiscal year and ahead of its full-year guidance range of 5%-6%. Operating profit was $425 million, with an operating profit margin of 7.7%. U.S. revenue jumped 7.8% to $2.98 billion, while Other Established Markets sales rose 7.1% to $1.61 billion. Emerging Markets slightly grew 1.3% to achieve the remaining $959 million in revenue.

The company’s Orthopaedics business captured $2.21 billion of revenue in its fiscal year 2023, growing 4.8% over the previous year. Knee Implant proceeds rose 4.7% to $940 million, while Hip Implant sales increased 2.5% to $599 million. Smith+Nephew highlighted performance outside of the U.S. due to improved product supply and execution as the main reason for the segments’ success in 2023.

The OR3O dual-mobility system for primary and revision hip arthroplasty entered the Indian market in August 2023. It incorporates Smith+Nephew’s Oxinium DH (diffusion hardened) advanced bearing surface for its liner and Oxinium on XLPE for the femoral head and polyethylene inserts, eliminating the risks of a modular CoCr liner and/or CoCr head ball used in the construct. Dual-mobility implants feature a smaller diameter femoral head that locks into a larger polyethylene insert.

Other Reconstruction sales ballooned 27.8% to $111 million in 2023 due to several expansions of the Cori surgical robotic system.

The Cori digital tensioner debuted in May. The purpose-built device lets surgeons quantify joint laxity in the native knee and achieve an optimal tensioning force in the knee before cutting bone. It automatically collects gap data at a specified force through the full range of movement, with a software interface that allows choosing the target force value. The digital tensioner aims to reduce variability when balancing the knee to make surgical planning more objective, as opposed to other commercially available alternatives.

May also saw the introduction of two products for Smith+Nephew’s Cori robotic and digital surgery portfolio: Personalized planning powered by AI and the RI.Insights data visualization platform. Personalized planning, guided by RI.Insights data, can be used to set initial implant placement in the total knee surgery based on AI-guided reference values and surgical planning preferences.

The data visualization platform can reference individual case performance and benchmark the data against an anonymized, global database. Surgeon-specific dashboards allow analysis of case times, resections, and alignment, as well as ligament tensioning data from the Cori digital tensioner.

Trauma & Extremities products posted $564 million in revenue, growing 3.7% over the prior fiscal year. This was provoked by a major product launch in the segment as well as broadened availability of the Evos plating system.

The Aetos shoulder system earned FDA clearance in June. It was designed as a cutting-edge press fit with a convertible humeral stem. Its “Meta Stem” was built to maximize stability, preserve bone, and maintain anatomy for anatomic and reverse total shoulder arthroplasty. The company also said it needs fewer steps for conversion and fewer instruments for primary and reverse surgeries. Aetos is especially useful for surgeons who want maximum flexibility to reconstruct the humerus and glenoid.

The company’s Sports Medicine & ENT business generated $1.73 billion of revenue in 2023, growing 8.8% over the prior year. Sports Medicine Joint Repair claimed $945 million of these sales, growing 8.7%. Sales in this segment, according to Smith+Nephew, were led by the Regeneten bioinductive implant for rotator cuff repairs—the product rolled out in India in July, and Japan in October.

The UltraTrac Quad ACL reconstruction technique debuted in March. It uses the company’s QuadTrac quadriceps tendon harvest guide, X-Wing graft preparation, and UltraButton adjustable fixation devices to make up the first integrated guide system for minimally invasive graft harvesting. The launch leverages increasing use of the quad tendon graft, which is often the best option for ACL reconstruction. Surgeons can harvest without a bone plug and directly visualize tendons.

New procedure solutions for foot and ankle soft tissue repair were also launched in 2023. The focused techniques and procedural kits are for ankle instability and Achilles tendon reconstruction.

A $330 million deal for knee regenerative technology company and university spinout CartiHeal was announced in November. CartiHeal’s FDA-approved Agili-C is an off-the-shelf, one-step treatment for osteochondral lesions that has a broader indication than existing treatments. Its porous, biocompatible, and resorbable scaffold promotes natural articular cartilage regeneration and restoration of underlying subchondral bone.

Agili-C was awarded FDA breakthrough status in 2020 and earned premarket approval (PMA) in March 2022. The PMA approval was based on a two-year trial confirming Agili-C’s superiority over microfracture and debridement to treat knee joint surface lesions, as well as chondral and osteochondral defects. At four-year follow up, the trial continued showing improvement in patient reported outcome scores, low surgical reintervention, and that the difference in improvement using Agili-C compared to the standard of care is statistically significant.

The deal for CartiHeal was completed in January 2024.

Ear, Nose and Throat sales ascended 28.1% to $196 million in 2023. The strong growth was attributed to performance of the company’s tonsil and adenoid business.

The Aris Coblation turbinate reduction wand was released in 2023 to further expand the portfolio. It uses the company’s Coblation plasma technology for a minimally invasive approach to reducing hypertrophic turbinates, providing targeted hemostasis with built-in, bipolar coagulation function. The wand allows variation of the degree of tissue removal based on the patient’s indication when treating the hypertrophic turbinates submucosally. It’s designed specifically for the Werewolf ENT controller.

The Advanced Wound Management business’s revenue rose 6.2% to $1.6 billion. Advanced Wound Care products reported a 1.8% rise to $725 million during the company’s FY 2023 due to growth from major categories of foams, films, and infection management. FDA 510(k) clearance was obtained for Allevyn Ag antimicrobial foam dressings last year as well.

Advanced Wound Bioactives posted a 6.3% increase with $553 million of revenue. This was mainly driven by growth from the company’s collagenase Santyl ointment, an enzymatic debridement agent for chronic dermal ulcers and severely burned areas.

Advanced Wound Device sales skyrocketed 17% to reach $328 million in Smith+Nephew’s fiscal year 2023. This was driven by both the company’s traditional Renasys negative pressure wound therapy (NPWT) system and single-use PICO NPWT system. The Versajet III hydrosurgery system, a surgical debridement device, also received FDA 510(k) clearance during the year.

$5.215 Billion 
Prior Fiscal: $5.212 Billion
Percentage Change: +0.06%
R&D Expenditure: $345M
Best FY22 Quarter: Q4 $1.36B
Latest Quarter: Q1 $1.35B
No. of Employees: 19,000

The irony is striking.

Granted, it’s not as remarkable as, say, a burning fire station or hemophobic trauma surgeon but it nevertheless exists, camouflaged within the pages of Smith+Nephew plc’s latest annual report.

The underlying theme of the 260-page document is “Life Unlimited”—an homage to the British company’s assortment of tools and technologies to repair and restore the human musculoskeletal system. “Physical health is never just about our body. It’s our mind, feelings, and ambitions,” Smith+Nephew states on the report’s first page. “When something holds us back, it’s our whole life on hold. We’re here to change that, to use technology to take the limits off living and help other medical professionals do the same. So that farmworkers, athletes, grandads, parents, and rugby players stare down fear, see that anything is possible, then go on stronger. Inspired by a simple promise. Two words that bring together all we do…Life Unlimited.”

The report is littered with real-world success stories of unlimited living through Smith+Nephew solutions. The tales relay the physical toils and triumphs of ordinary folks like Colin, who returned to the golf course, courtesy of the REGENETEN implant (rotator cuff repair); Allen, who is back on his feet (pain-free) by dint of ALLEVYN LIFE wound dressings (ulcerated foot); and award-winning powerlifter Mike, who regained his strength (and top honors) via the POLAR3 Hip System with OXINIUM.

“I’m back to doing what I love and competing in powerlifting,” Mike said in the report. “I like to think of each day as an experiment. What else can I do? How much stronger can I get?”

The sky’s the limit, really. As Smith+Nephew preaches in its Life Unlimited video, “when we get an athlete back to peak condition, that’s Life Unlimited. When we restore a body, we restore the whole person, we remind them that anything is possible. That their life is unlimited, too.”

Indeed, anything is possible, and reminding everyday Joes and Janes of their lives’ unlimited potential is certainly a missive worth conveying. But the message source is quite ironic, given Smith+Nephew’s failure to realize its own unlimited potential amid operational blunders and underperforming business units these past few years.

A major roadblock in Smith+Nephew’s own path to a “Life Unlimited” is its Orthopaedics franchise, which has faltered financially of late from a bloated product portfolio, inefficient instrument management, and the lack of a cementless knee.

Further limiting the company’s fiscal feasibilities was the disconnect that occurred between operations and commercial teams during the COVID-19 pandemic as well as its lack of agility and overall greater complexity compared to its larger peers. Supply chain constraints and surging raw material and freight costs also have kept the company from realizing its true potential.

In striving to lead by example—i.e., taking the limits off living—and perhaps to avoid coming across sanctimonious, Smith+Nephew launched a 12-point strategy last summer to fundamentally change its operations. The plan calls for fixing the problems in its Orthopaedics franchise, improving productivity, and accelerating growth in Advanced Wound Management and Sports Medicine.

Smith+Nephew wasted no time tackling the challenges in Orthopaedics: Within months of implementing its 12-point plan, the company reduced overdue orders by 35% from the year’s first-half peak and improved the percentage of completely filled customer orders.

It also opened an orthopedics manufacturing plant in Malaysia, and expanded its robotics-enabled CORI Surgical System by moving total hip arthroplasty and a cementless knee option onto the platform. The latter option debuted on the CORI system in late June (2022) with the implantation of the LEGION CONCELOC Cementless Total Knee. Launched in late 2021, the LEGION’s asymmetrical keel is designed to provide immediate rotational stability, while its patented 3D printed structure (CONCELOC Advanced Porous Titanium) encourages biological ingrowth.

“The aim in Orthopaedics is to be a procedure innovator with best-in-class implants…and paradigm-changing enabling technology on the CORI platform,” CEO Deepak Nath told analysts on a Q2 2022 earnings call last July, just three months after assuming the corner office from Roland Diggelmann. “…we had a major product gap; not having a cementless knee hurt us for a number of years. The fix for this is in place with the cementless LEGION that’s rolling out now.”

Smith+Nephew fortified that fix last winter by acquiring Orlando, Fla.-based Engage Surgical, maker of a cementless unicompartmental (partial) knee system that is optimized for robotics and will eventually be used with the CORI system. Following the deal, Smith+Nephew reportedly became the only medical device company offering both cemented and cementless partial knee implants in the United States, as well as robotics assistance through the CORI system.

So much for that product gap.

Besides filling the cementless knee product gap, Smith+Nephew tweaked its Orthopaedics offerings through various product launches and clearances last year. In late February, the company introduced the CORI Surgical System for knee replacements in Japan, building upon the growing adoption of its robotic solutions in that country. Japanese clinicians have been using Smith+Nephew’s Navio robot for knee replacements since 2019.

The first total hip arthroplasty cases commenced on the CORI system in June 2022. Three months later, the OR3O Dual Mobility System for primary and revision hip replacement premiered in Japan. Compared with traditional solutions, dual mobility implants have a small diameter femoral head that locks into a larger polyethylene insert to increase stability, reduce dislocation risk, and improve range of motion.

OR3O incorporates Smith+Nephew’s OXINIUM DH advanced bearing surface in its liner, and proprietary OXINIUM on XLPE in its femoral head and polyethylene inserts. In doing so, both the modular CoCr liner and/or CoCr head ball are eliminated from the construct, thus reducing the wear and corrosion risks associated with the alloy. OXINIUM DH (Diffusion Hardened) is a variation of Smith+Nephew’s OXINIUM Technology platform that increases the depth of hardening through an additive manufacturing process.

Shortly after releasing the OR3O System in Japan, Smith+Nephew marked the first CORI system cases using the LEGION Revision Knee. Then in early November, the company launched its JOURNEY II ROX total knee solution, a reverse hybrid construct for total knee arthroplasty. The device is designed to give surgeons the clinical advantage of advanced bearing material and anatomic design combined with the efficiency and potential long-term tibia fixation of cementless knees.

JOURNEY II ROX combines several of Smith+Nephew’s high-performance technologies in one construct, including the characteristics kinematics of Journey II TKA, the clinical history of CONCELOC Advanced Porous Titanium and the wear resistance of OXINIUM Oxidized Zirconium. The total knee system is compatible with the CORI robot.

“On the portfolio, we now have a full product range across hips and knees that we can offer to our customers,” Nath said. “There were major gaps in the past, but they’ve now been closed and we’re now starting to open a gap of our own against peers.”

It could be a while before that new gap benefits Orthopaedics, however. Total franchise revenue slipped 2% last year to $2.11 billion, owing to dwindling profits in three of its four product divisions. Trauma & Extremities sustained the largest loss—sales were down 5.7% to $543 million—followed by Other Reconstruction, where proceeds declined 5.4% to $87 million, and Hip Implants, where revenue sank 4.8% to $584 million. Knee Implants posted the only gain—sales went up 2.6% to $899 million.

Opposite results befell Smith+Nephew’s two other product franchises. Growth in two of the three Sports Medicine & ENT divisions boosted FY22 sales 1.9% to $1.59 billion, though profits were offset by a 480 bps foreign exchange headwind. Sports Medicine and Joint Repair revenue rose 3.7% to $870 million—due to product portfolio strength—while ENT proceeds shot up 16.8% to $153 million as procedure volumes continued to recover from pandemic lows. Arthroscopic Enabling Technologies sales were hampered by the global semiconductor shortage: revenue in this division waned 3.9% to $567 million. Franchise trading profit, however, was up 3% with a 29.7% trading profit margin.

“Our Sports Medicine business has delivered above market growth consistently for many years, building on our reputation for innovation. Many of the drivers for further growth are already in place, including expanding both our REGENETEN biologics platform into new indications and our technology leadership by adding advanced surgical capability onto our surgical tower,” Nath noted in the annual report.

Smith+Nephew implemented future growth drivers in its Advanced Wound Management franchise as well last year, introducing Europe and the United States to its DURAMA S Silicone Superabsorbent Dressing for highly exuding wounds, and the global market to the WOUND COMPASS Clinical Support App, a comprehensive digital support tool for healthcare professionals that helps reduce practice variation.

The app categorizes wounds by location, type, appearance, exudate volume, and wound depth, and then provides guidance on treatment, products, and the necessary times to consult a specialist. The guidance is accompanied by additional educational resources, images, and diagrams to help with decision-making when treating wounds. The app can also be customized to local customer formulary.

“Our Advanced Wound Management franchise has delivered above market performance since 2021 following extensive work to improve commercial execution, and we expect to build on this strong position going forward,” Nath stated in the report. “Growth drivers include our portfolio breadth and extensive evidence base. Both are differentiators and we see significant opportunities for further growth.”

Both differentiators helped drive Advanced Wound Management’s 2022 growth. Franchise sales rose 1% to $1.51 billion, but foreign exchange rates cut into profits by 530 bps. Advanced Wound Care proceeds decreased 2.6% to $712 million, but the gains in both Advanced Wound Bioactives and Advanced Wound Devices compensated for the loss. The former expanded revenue 4.8% to $520 million on strong skin substitute sales, and the latter increased proceeds 4.1% to $280 million due to robust demand for the PICO Single Use Negative Pressure Wound Therapy System. Franchise trading profit was down 8% with a trading profit margin of 28.8%.

Smith+Nephew’s overall fiscal 2022 revenue was flat at $5.21 billion (proceeds rose a mere $3 million) and operating profit plummeted 24.1% to $450 million. Trading profit slipped 3.7% to $901 million and trading profit margin of 17.3% was down slightly due to higher inflation in freight and logistics, the impact of China volume-based procurement, and sales/marketing expenditure levels returning to normal. The trading profit margin was below the updated guidance (17.5%) the company provided last summer.

Gross profit remained essentially flat, rising only $6 million, and earnings per share fell by more than half, going from 59.8 cents in 2021 to 25.5 cents in 2022.

$5.21 Billion
Prior Fiscal: $4.56 Billion
Percentage Change: +14.2%
R&D Expenditure: $356M
Best FY21 Quarter: Q4 $1.35B
Latest Quarter: Q2 $1.29B
No. of Employees: 18,369

In 2018, seven-year leader Olivier Bohuon retired. Namal Nawana, who had led rapid diagnostics firm Alere and oversaw its $5.3 billion acquisition by Abbott Labs in 2017, was then tagged to take the U.K.-based firm’s helm. However, Nawana left Smith+Nephew “by mutual agreement” after a year and a half as CEO, but several outlets reported his departure was because the company was unable to meet his remuneration demands. Apparently, he was compensated more handsomely at Alere.

Enter Roland Diggelmann, CEO of Roche Diagnostics as well as non-executive Smith+Nephew board member since 2018. And less than a year later, he was handed an unforeseen event that stifled elective surgeries across the world—for which Smith+Nephew is a major technological supplier—the COVID-19 pandemic.

Alas, he too left “by mutual agreement” after less than two years in the top job, as the company announced this past February. However, it’s unclear whether Diggelmann left because the pressure of leading Smith+Nephew through a pandemic was too much, or because the company’s fourth-quarter revenues last year missed analyst expectations, with global supply chain disruption continuing to hamper orthopedics sales.

Next in line is Deepak Nath, president of Siemens Healthineers’ diagnostics business, who began inhabiting the top office on April 1. His experience in the medtech industry is vast—before Siemens, he held senior roles in R&D, marketing, commercial, and divisional leadership at Abbott Labs, eventually rising to president of Abbott Vascular. There, he had a significant role in Abbott’s $28 billion buyout of St. Jude Medical. He also worked at Amgen and McKinsey and Company.

“[Nath] is joining us at an inflection point for the business and will bring his drive, experience, and expertise to lead the team in delivering our strategy for growth at pace,” Smith+Nephew’s chairman Roberto Quarta commented in a press release.

“Smith+Nephew is a great company with innovation at its core and a purpose of Life Unlimited, supporting patients around the world in returning to a healthy and fulfilled life,” Nath told the press. “I am honored to have been given the opportunity to lead the business. I look forward to building on Smith+Nephew’s rich history and heritage and working with the team to take it to the next level of growth.”

In 2021, Smith+Nephew’s performance recovered somewhat from the stifling effects of COVID-19 on medtech companies operating in the elective surgery theater. The company’s $5.21 billion of revenue last year approached pre-pandemic levels, growing 14.2% over the prior year. Margin and earnings also improved, but according to the company’s annual report, are still some ways behind pre-pandemic levels. According to Chair Roberto Quarta’s statement in the annual report, it was partly a matter of choice as the company made investments in increased R&D for new products and early-stage acquisitions. It was also a result of higher logistics and supply chain cost inflation.

Orthopaedics franchise revenue reached $2.16 billion in 2021, rising 12.5% over the previous year. Though it posted an increase, performance was stifled by COVID-19’s consequences on elective surgeries and near-term supply constraints, according to the company’s annual report. Knee Implants made up $876 million of the business’s sales, growing 6.6%. The segment’s performance was impacted by Chinese distributor ordering patterns ahead of a new volume-based procurement tendering program.

The JOURNEY II medial dished for total knee replacement and SYNC performance instruments were introduced in September. The tibial insert for JOURNEY II aims to optimize knee kinematics via a more constraining medial design, allowing the option of not cutting a PS box in the femur and either retaining or sacrificing the posterior cruciate ligament. SYNC performance instruments tout a new ergonomic design, reduced number of instruments, and compact tray design for a streamlined, user-friendly solution for surgeons. A customized tray configuration also helps minimize OR footprint and reduce central sterilization burden.

November saw the momentous launch of the company’s next-gen knee replacement, the LEGION CONCELOC cementless total knee system. The implant’s “advanced porous titanium” is 3D printed, created in a virtual environment, and manufactured additively to optimize porous structure and promote bony ingrowth. Its asymmetric keel helps achieve more immediate bone fixation.

“I’m excited for how this technology may lead to improved operating room efficiency while eliminating many of the past and current challenges of cementless knee designs,” Dr. Mathias Bostrom, an orthopedic surgeon at the Hospital for Special Surgery in New York City, and one of the system’s designing surgeons, told the press.

The Real Intelligence suite of enabling technologies including the CORI surgical robotic system hit the Australian and New Zealand markets last June. A month later the robotics-assisted orthopedic surgery solution entered the market in India, and came to the Canadian market in November.

CORI handheld robotics for total and partial knee replacement was launched in November. The compact, mobile device incorporates a 3D intraoperative imaging system with a robotic sculpting tool so surgeons can measure, plan, and perform a personalized knee surgery. According to Smith+Nephew, it’s so compact it can be moved from theater to theater to optimize patient flow through surgical units.

Hip Implants generated $612 million last year, growing 7.8%. The hips business was also affected by Chinese distributor ordering patterns as was the Knee Implant franchise.

During last year’s American Academy of Orthopaedic Surgeons (AAOS) annual meeting, Smith+Nephew unveiled a preview of RI.HIP navigation for the CORI surgical robotic system. The software release expands the company’s robotics platform to total hip arthroplasty to allow computer-guided (navigated) hip surgery in hospitals, outpatient departments, and ambulatory surgical centers.

Trauma & Extremities continued to be an expanding business for the company, shooting up 25.4% to reach $576 million. The growth was primarily due to the completion of the deal for Integra LifeScience’s extremities business, now fully integrated into Smith+Nephew’s portfolio.

Smith+Nephew completed the $240 million deal last January, gaining a complementary shoulder replacement and upper and lower extremities portfolio as well as a new product pipeline. The deal included a next-gen shoulder replacement expected to be ready for launch this year.

The franchise launched two new products at last year’s AAOS meeting. The Cadence total ankle flat cut talar dome system treats end-stage ankle arthritis in patients with varying anatomies and deformities for primary and revision surgeries via one simple cut on the talus. Atlasplan shoulder 3D planning was developed with Materialise for a web-based interface for shoulder arthroplasty pre-op planning and patient-specific surgical guide using the coracoid’s base for stability, fostering reproducible guide pin placement. Patient-specific instrumentation was also released for shoulder replacement.

Other Reconstruction makes up the remaining revenue for the Orthopaedics business, and its 2021 proceeds rose an impressive 34.1% to $92 million.

The ARIA Home PT remote physical therapy system launched last May. It leverages telehealth tools from licensed physical therapists and digital avatar-based guidance to help deliver improve patient adherence and cost reduction. 3D motion-tracking for the home educates, engages, and guides patients through their PT regimen and generates data for clinician and physical therapist review. Tele-consultation is also available between patients and their doctors.

The Sports Medicine & ENT franchise returned 17% revenue growth with 2021 sales of $1.56 billion. Profit was up 50% against 2020 for the franchise. Sports Medicine Joint Repair (SMJR) products garnered $839 million last year, growing 18.2% over the prior year due to strong U.S. sales of REGENETEN and NOVOSTITCH.

The FAST-FIX FLEX meniscal repair system rolled out last July. According to the company, at the time it was the only device offering a surgeon-guided, bendable needle and shaft to access all meniscal zones, enabling the opportunity to repair the meniscus instead of removing it. Its all-inside approach can remove the need for further incisions, reduce neurovascular injury risk, and support faster operating times. FAST-FIX FLEX also features 25% needle insertion area reduction and repair over 20% stronger than the company’s previous generation device.

Arthroscopic Enabling Technologies (AET) collected $590 million last year, posting a rise of 14.1%.

Last April saw the release of new enabling technologies for the company’s INTELLIO connected tower, the DOUBLEFLO inflow/outflow pump and 4KO arthroscopes and laparoscopes. DOUBLEFLO can be controlled remotely via an app and provides heads-up display projection on the arthroscopic tower so the focus can remain on the patient instead of the equipment. 4KO direct view arthroscopes display a 30% minimum resolution increase compared to the company’s HD DV arthroscopes. They also provide C-mount and direct view coupling so surgeons can choose the scope that works best for them.

The WEREWOLF FASTSEAL 6.0 hemostasis wand was released last August, adding orthopedic reconstruction to the portfolio’s purview. Using low-temperature thermal energy, it delivers hemostatic sealing during open procedures like total joint arthroplasty. The latest generation allows for one single tool to be used across sports medicine, ENT, and orthopedic procedures.

The ENT franchise captured $131 million of revenue to grow 23.3% over the previous year, despite COVID’s impact on the company’s introduction of the Tula device.

Advanced Wound Management segment revenue rose 14.2% to $1.5 billion. Advanced Wound Care (AWC) products grew 12.9% with $731 million in sales, driven by foam dressings. Advanced Wound Bioactives (AWB) sales increased 15.1% to $496 million thanks to the Osiris acquisition, and Advanced Wound Devices expanded 16% to $269 million because of demand for the negative pressure wound therapy and recovering elective surgery levels.

Last March Smith+Nephew also collaborated with Italy’s Movendo Technology to add Movendo’s HUNOVA multifunctional rehab device to its Real Intelligence enabling technologies for a fully digitized patient pathway from the pre-op stage to the post-rehab stage. The collaboration originally launched in Europe and expanded to other regions. HUNOVA can analyze 130 different lower limb biomechanic parameters before and after surgery, generating a bespoke functional evaluation knee index. This provides a personalized patient recovery program to support the return of the joint’s articulation strength and function. The index can also be extended to the hip and ankle.

$4.56 Billion
Prior Fiscal: $5.13 Billion
Percentage Change: -11.11%
No. of Employees: 17,914

The worldwide pandemic has had a devastating impact on public health over the last 18 months. Unrelenting in its virulence and unwavering in intensity, SARS-CoV-2 has killed more than 4.2 million people worldwide, (officially) infected 198.7 million others, and left tens of thousands with debilitating long-term complications.

Its effect on the human psyche has been equally as devastating: stress, insomnia, poor appetite, substance abuse, anxiety, and depression. The latter two consequences, in fact, have become more prevalent since the virus first surfaced—federal data show that four in 10 U.S. adults have felt anxious or depressed during the pandemic, up from one in 10 adults who experienced those feelings between January and June 2019. Young adults (ages 18-24) have been most affected by the pandemic—statistics indicate that more than half (56.2 percent) have struggled with anxiety or depression in the past year, and a higher proportion (25 percent vs. 13 percent of all grownups) have turned to alcohol or drugs to cope with their radically altered lives.

One of the pandemic’s more disturbing and unspoken mental health offshoots, however, is the collective penchant for excuse-making. Over the last 18 months, COVID-19 has gradually become a catch-all justification for indulging people’s fears, failures, and flaws.

Not ready for office work? Blame COVID-19.

Can’t find staff? Still unemployed? Curse the pandemic.

Real estate unaffordable? Cars, too? SARS-CoV-2 strikes again.

And again.

And again.

“I keep hearing, ‘Due to COVID, we can’t do this’ or ‘Due to COVID, we aren’t able to do that,’” Robert Rahal, Veterans Patient Experience Officer at the VA Central California Healthcare System in Fresno, wrote in a Feb. 25 Beryl Institute blog post. “Has the pandemic brought limitations to our table? Of course! But let’s not blame it for everything. Aren’t we far enough along in this pandemic that we, as leaders, have figured out ways to overcome the challenges? Understandably, there are reasons for not being able to do certain things…As organizations, let’s stop making excuses. Stop blaming COVID.”

Rahal is not asking for the impossible. Many individuals and businesses thrived last year in spite of the pandemic: Amwell (telemedicine), 3M (personal protection equipment), Pfizer (pharmaceuticals), HelloFresh (meal delivery), Peloton (fitness), and Amazon all generated healthy profits in 2020 as lockdowns and social distancing measures accelerated society’s digital transformation.

Smith+Nephew plc didn’t exactly thrive during the pandemic last year but it didn’t make excuses for its disappointing performance, either. Rather, the company continued to serve its customers and communities worldwide while working to further its mission of Life Unlimited.

No excuses.

“COVID-19 will have a lasting impact on our business and our markets,” Smith+Nephew’s 2020 Annual Report stated. “While it has presented significant challenges, it has also given us a unique opportunity to put in place new approaches to serve our customers better than ever before.”

ANALYST INSIGHTS: S&N is doing its best to try to keep up with Stryker and Zimmer in the robotics, navigation, and enabling technologies game. They are making positive moves in the ASC market. It will be interesting to watch how that translates in the next year to global market share in their core Ortho segments.

—Dave Sheppard, Co-Founder and Managing Director, MedWorld Advisors

Those new approaches (thus far) mostly involved online training and education programs. Last March, for example, Smith+Nephew launched a virtual surgeon-centric instructional program focused on surgical techniques and product safety. More than 11,000 healthcare professionals attended in the first month.

The company also set up a 24/7 helpline for U.S. patients and clinicians to educate them about advanced wound management devices and procedures, as well as general wound-related issues.

In addition, Smith+Nephew began evaluating its customer approaches last year in order to establish new, creative ways to meet clients’ needs while driving growth. The initiative aims to improve efficiency throughout the product lifecycle, enhance customer-focused digital technology use, reduce healthcare costs, and boost patient care levels.

“COVID-19 has required companies worldwide to adapt to new ways of working,” the company’s annual report noted. “In July, Smith+Nephew launched its ‘New Normal’ programme, with the objective of using the experience of the early months of COVID-19 to identify, align or accelerate existing efforts to prepare us for what comes next in our marketplace.”

No excuses.

Collaboration and community support is likely to figure into the company’s future based on its most recent past. Last year, Smith+Nephew worked with InTech Industries Inc. (Birmingham, Ala.) to ramp up face shield production, and partnered with the University of Oxford and King’s College London to develop a low-cost ventilator (OxVent). The company also used its 3D printers to produce PPE for a non-profit organization in Memphis, Tenn.

No excuses.

Elective procedure cancellations/postponements proved to be a major blow to Smith+Nephew’s finances last year, but the setback failed to prevent the company from innovating or reinforcing its prospects for long-term growth. The United Kingdom-based firm released a slew of new devices in 2020, including a robotics system, a suite of connected sports medicine surgical tools, and a business and patient management platform to help customers expand outpatient care.

“Faced with a global pandemic we could easily have made excuses. We did not,” Smith+Nephew CEO Roland Diggelmann told shareholders in the annual report. “Throughout this period we prioritized the health and safety of employees, continued to support our customers and communities, and at the same time undertook important work to strengthen the Group. This included increasing investment in R&D, launching multiple new products, and making strategic acquisitions in higher growth segments. I am proud of the approach we took and the progress we made.”

Neither its approach nor progress, however, could prevent Smith+Nephew’s finances from imploding last year. The United Kingdom-based firm reported an 11.2 percent total sales decline (to $4.56 billion), a whopping 41.6 percent drop in trading profit (to $683 million from $1.169 billion), and a 25.2 percent reduction in earnings per share (to 51.3 cents from 68.6 cents). Operating profit fell nearly 100 percent, going from $815 million in 2019 to $295 million in 2020.

The company lost revenue in all geographic regions and in each of its three reporting segments. Orthopaedics suffered the biggest loss, as the worldwide slowdown in elective procedures drove down sales 13.7 percent to $1.92 billion and cut profit 41.6 percent to $389 million.

Hip implants benefited from the REDAPT Revision and OR3O Dual Mobility Hip systems. The former launched in China last fall after its blessing by the National Medical Products Administration, while the latter debuted in November 2019. Smith+Nephew designed REDAPT to address the challenges of revision total hip arthroplasty, including bone fixation, predictable stem positioning, joint stability, and surgical efficiency. It aims to help reduce revision total hip arthroplasties by decreasing the frequency of implant movement.

The REDAPT’s unveiling in China occurred six weeks after Smith+Nephew launched the RI Hip Navigation System for THA, a product intended to maximize accuracy and reproducibility to deliver patient-specific component alignment. RI Hip Navigation helps surgeons control a patient’s pelvic tilt, leg length, and offset measurement, as well as improve cup placement. The system—which does not require a CT scan— uses express workflows and image-free technology.

Despite the new product launches, though, hip implant revenue fell 7.5 percent in 2020 to $567 million. The company’s Trauma business was more resilient, but sales still slipped 5.7 percent to $460 million; strong EVOS Plating System sales in that unit helped minimize losses.

Other Reconstruction revenue posted the second-highest deficit in Orthopaedics despite the release of a next-generation handheld robotics system and digital surgery platform last summer. Designed for both total and unicompartmental knee arthroplasty, the CORI Surgical System is meant to replace Smith+Nephew’s original robotics solution, NAVIO. The CORI system is small and portable, making it ideal for ambulatory surgery centers and outpatient procedures. CORI’s camera technology is more than four times faster than its predecessor and its cutting abilities can handle twice the volume. Moreover, the system’s modular design allows the company to scale CORI to other types of orthopedic procedures.

“The CORI Surgical System is truly next-generation robotics. Its efficient handheld form factor is ideal for surgery centers, which is where the market is moving, and it just erases away bone with the new bone milling technique,” Jimmy Chow, M.D., orthopedic surgeon for Hip and Knee, Orthopedic Institute of the West, said upon the device’s release. “The smart, intuitive software helps place and size the implant as well as balance gaps based on patient-specific anatomy and disease state.”

The data analytics platform that accompanies CORI—called RI.INSIGHTS—enables clinicians to benchmark robotic surgery experiences with other users to optimize surgical planning and improve patient-reported outcome measures. Previously, surgeons could not review complex robotic procedure information for individual patients or benchmark against their peers. But RI.INSIGHTS collects intra and post-op data during robotics-assisted procedures and presents the data alongside post-op patient outcomes, allowing surgeons to gain insights into robotics-assisted procedures.

“The RI.INSIGHTS platform maps the future of robotics and digital surgery,” Dinesh Nathwani, M.D., consultant orthopedic surgeon, Imperial College Healthcare, NHS Trust and The London Clinic, stated at RI.INSIGHTS’ release. “Robotics has proven accuracy, and using the wealth of individualized intra and post-op planning data that RI.INSIGHTS delivers, we can analyze surgical parameters like never before to provide the best customized robotic solutions for our patients.”

Since it was released on a limited basis last year, RI.INSIGHTS was powerless to prevent a 13 percent contraction in Other Reconstruction sales ($68 million total). Still, the decrease paled in comparison to the 21.1 percent abatement in Knee implant revenue (to $822 million).

In any other year, a new product would have boosted revenue in this category, but Smith+Nephew released its JOURNEY II Unicompartmental Knee System in North America and Europe as hospitals on both continents postponed or cancelled elective surgeries last spring. Bad timing.

The JOURNEY II system offers a patient-specific approach featuring a slimmer, more cost-effective two-tray configuration. The updated JOURNEY II knee adds a lateral-specific tibia baseplate and a greater range of femoral component and medial tibia baseplate sizes.

Besides the various sizes, the JOURNEY II’s femoral component is made with Oxinium, a zirconium alloy metal containing a ceramic zirconium oxide outer layer. Its hardness, low friction and resistance to scratches and abrasions make it more durable than cobalt-chrome alloys traditionally used in knee replacements. More than 2 million patients have been treated with Smith+Nephew implants made from OXINIUM technology.

“Smith+Nephew is proud to have an extensive history of innovation, highlighted by one of the flagship bearing materials in all of orthopaedics,” Randy Kilburn, senior vice president of Global and Commercial Marketing, Orthopaedics, told the press last June. “OXINIUM has helped over 2 million patients get back on their feet and we look forward to seeing millions more live their life unlimited in the future.”

Millions more could actually free themselves from orthopedic-related limitations with Smith+Nephew’s $240 million purchase of Integra LifeSciences Holdings Corporation’s Extremity Orthopaedics business. The acquisition is expected to strengthen the company’s extremities business by adding a focused sales channel, complementary shoulder replacement and upper and lower extremities portfolio, and a new product pipeline, including a next-generation shoulder replacement system. Smith+Nephew closed the deal in January (2021).

New product offerings from Smith+Nephew’s two other reporting segments also could help patients live without future limitations.

The Sports Medicine & ENT franchise debuted five new products in 2020, including a meniscal repair system, a suture anchor, and a connected tower platform.

First in line was the Tula System for tympanostomy tube placement. Inherited through Smith+Nephew’s January 2020 purchase of Tusker Medical Inc., the Tula system enables ENT (ear, nose, and throat) surgeons to place ear tubes in a fully conscious pediatric patient during an office visit (no anesthesia is necessary). The product was released in the United States in late May 2020, about four months after the Tusker Medical deal.

Next up was the INTELLIO Connected Tower Solution for connecting and controlling sports medicine systems. INTELLIO uses a centralized app to wirelessly connect and remotely control the major components of an arthroscopy surgical tower from outside a sterile field. The integrated solution features a remote control, on-screen display optimized for surgeon workflow, and a cloud-based image management portal.

Smith+Nephew released INTELLIO several days before European regulators approved its REGENETEN Bioinductive Implant in mid-June. The collagen-based product supports the body’s natural healing process by inducing new tendon-like tissue growth that biologically augments the existing tendon and disrupts the progression of disease.

The postage stamp-sized implant is delivered arthroscopically through a small incision and is completely resorbed within six months. More than 40,000 REGENETEN procedures have been completed since its U.S. introduction in 2014. “The U.S. market has demonstrated over the last five years that REGENETEN is changing surgeons’ traditional approach to rotator cuff repair,” Terry Byca, senior marketing director for EMEA, said upon the product’s CE Mark approval. “Biological healing is imperative and our Advanced Healing shoulder repair products together with REGENETEN take us into a new era for joint repair.”

That new era involves the NOVOSTITCH PRO Meniscal Repair System, which was granted CE Mark certification in early September 2020. The NOVOSTITCH PRO allows surgeons to place stitches arthroscopically in tight joint compartments, using a meniscus-to-meniscus circumferential compression stitch to repair tears that may have previously been unrepairable. The system includes an ergonomic and intuitive handle design and well-defined visual cues for precise stitch placement and control.

Within a week of NOVOSTITCH PRO’s CE Mark certification, Smith+Nephew released its HEALICOIL KNOTLESS Suture Anchor for rotator cuff repair. The unique open architecture design of the HEALICOIL Anchor, coupled with REGENESORB Material, aims to facilitate a jump-start in bone healing and formation.

“The real advantage of the [HEALICOIL] open architecture is that the marrow elements from the bone can reach the bone-tendon interface to promote healing where it is most needed,” Ian Lo, M.D. FRCS(C), assistant professor at the University of Calgary, noted in a news release. “We have seen that the anchor leads to more robust healing of the tendon to the bone.”

While it appears to be a promising technology, the HEALICOIL Anchor didn’t have much impact on Sports Medicine Joint Repair (SMJR) or overall franchise sales last year. SMJR revenue fell 10.5 percent to $710 million, while Arthroscopic Enabling Technologies proceeds declined 12.6 percent to $517 million, and ENT sales plummeted 30 percent to $106 million, the latter hampered by lower rates of ENT infections and general caution over restarting elective procedures.

Sports Medicine &ENT franchise revenue was equally as dismal, sinking 13.2 percent to $1.33 billion. Franchise profit tumbled 37.4 percent to $306 million.

The same storyline unfolded in Smith+Nephew’s Advanced Wound Management franchise, though new product introductions were far less frequent. The only fresh face to this division was the PICO 14 Single Use Negative Pressure Wound Therapy System, which builds upon the features and advantages of previous PICO sNPWT versions and has an enhanced pump that requires less user intervention. The latest system also has a 14-day pump duration.

While the Advanced Wound Management (AWM) franchise was more resilient to COVID-19’s financial repercussions than the company’s surgical divisions, its performance nevertheless was hindered by restricted access to healthcare facilities and lower elective surgery case totals. AWM franchise revenue dwindled 5.1 percent to $1.30 billion and profits decreased 14.6 percent to $316 million.

Advanced Wound Care sales contracted 7.7 percent to $647 million, while Advanced Wound Bioactives proceeds slipped 1.1 percent to $431 million, and Advanced Wound Devices revenue subsided 4.8 percent to $232 million.

$5.13 Billion
Prior Fiscal: $4.90 Billion
Percentage Change: +4.7%
No. of Employees: 17,637
Global Headquarters: London, United Kingdom

“…it is an honor to become the new chief executive of Smith+Nephew, a company I greatly admire,” Namal Nawana proclaimed when he took the helm in 2018. However, as it turns out, his enthusiasm wasn’t worth the $7 million annual package the company offered him, because he quit eighteen months later.

Technically speaking, his exit was “by mutual agreement” according to Smith+Nephew. But according to The Guardian, Nawana’s request for higher pay—around the $15 million mark, comparable to packages awarded by U.S. medical device makers—couldn’t be met under UK corporate governance standards. The board even discussed relocating the company to the U.S. during the summer, The Financial Times reported.

Perhaps Nawana thought he could use the leverage gained from boosting Smith+Nephew’s share price. Under his purview the UK-based firm’s annual revenue grew 2.9 percent in 2018 and an additional 4.7 percent last year, topping $5 billion in sales for the first time with 2019 proceeds of $5.13 billion. But once the board declined and asserted UK shareholders would never approve that high of a package, Nawana reportedly said he might not hang around—likely prompting an invitation to clear his desk.

That could be perceived as “mutual agreement,” but there’s no doubt who started the fight.

Roche Diagnostics CEO Roland Diggelmann—who was considered to lead Smith+Nephew in 2017, according to Berenberg analysts—filled Nawana’s vacancy last November, to the tune of an up to $7.1 million annual package. Before his 11-year career at Roche, he spent 12 years in orthopedics in strategy and leadership roles at Sulzer Orthopedics and Zimmer. He’s currently based at the company’s site in Baar, Switzerland.

“…I look forward to playing my part in shaping the future of the company and driving the next stage of growth,” Diggelmann said when he was revealed as the new CEO.

ANALYST INSIGHTS: It is beginning to be clear that the change of CEO in the past year has had an interesting impact on the culture of S&N. Moving from an aggressive CEO in Namal Nawana to a more conservative (former Roche) CEO in Roland Diggelman, expect M&A to play a lesser role in the culture of S&N going forward. It’ll be interesting to observe if S&N can stand in its own right against the major players or need to be acquired to stay competitive in a very dynamic market segment.

—Dave Sheppard, Co-Founder and Managing Director, MedWorld Advisors

Smith+Nephew was well-positioned for growth as of fiscal 2019’s end (Dec 31). The company’s Orthopaedic franchise revenue grew 2.5 percent to $2.22 billion last year. Smith+Nephew commands 12 percent of the hip and knee implant and 8 percent of the trauma and extremities markets per its 2019 annual report. Sales from knee implants rose 2.5 percent to $1.04 billion, led by strong demand outside the U.S. for the JOURNEY II and LEGION revision knee systems. Hip implant earnings grew 2.1 percent to $613 million, led by demand for the POLAR3 total hip and REDAPT revision hip systems.

Hip and knee product releases were quiet until Q4, when Smith+Nephew addressed the growing dual mobility segment—which, according to the Journal of Arthroplasty account for 9 percent of primary and 28 percent of revision hip replacements.1 The OR3O Dual Mobility System for primary and revision hip replacements hit the shelves in November. According to The Bone & Joint Journal, dual mobility hip implant components boost stability and range of motion thanks to a smaller diameter femoral head that locks into a larger polyethylene insert compared with traditional hip implants.2 OR3O is cross-compatible with the company’s R3 and REDAPT acetabular systems.

Trauma and extremities revenue swelled 2.4 percent to reach $488 million. Sustained double-digit growth from the INTERTAN intertrochateric antegrade nail, as well as the EVOS System’s roll-out, provoked this segment’s boost.

June saw the unveiling of CONQUEST FN, a telescoping compression screw and proximal femoral locking plate system for femoral neck fractures. Femoral neck procedures exhibit complication rates as high as 69 percent,3 according to Advanced Biomedical Research. The POGO screw provides continuous post-op compression to decrease hip pain and complications, which the plate’s dynamic locking fixation offers more control during treatment.

“…post-operatively, patients often follow-up very comfortable with minimal pain, and have progressed to weight-bearing more quickly. I feel this speaks to the enhanced stability of the implant,” Daniel Chan, M.D., an Orthopaedic Trauma Institute orthopedic traumatologist told the press.

The EVOS WRIST plating system launched at last September’s American Society for Surgery of the Hand annual meeting. Stainless steel and titanium volar plate options with variable- and fixed-angle locking, dorsal plates, and forearm-specific plates can facilitate simple and complex wrist fracture surgeries. Titanium distal ulna, intermediate column, radial column, and dorsal buttress plates encompass the suite of fragment-specific plates.

The Other Reconstruction franchise, which contains the NAVIO robotics-assisted surgical systems swelled an impressive 27.9 percent to reach $79 million. NAVIO can be used for both partial and total knee procedures and according to the company is the first and only robotics-assisted bi-cruciate retaining knee procedure available.

Smith+Nephew bought Brainlab’s orthopedic joint reconstruction business for an undisclosed amount in June. Used by over 500 hospitals, the portfolio includes digital workflow tools for pre-operative planning, intraoperative navigation, post-operative evaluation, and sharing. The technologies encompass cloud computing, tracking, augmented reality, robotics, AI, machine learning, image fusion, and anatomical segmentation. Smith+Nephew plans to integrate the technology into the next iteration of its surgical robotics system, NAVIO 7.0. The two companies will also collaborate to develop additional applications to bolster Smith+Nephew’s digital surgery system, including orthopedic reconstruction and sports medicine.

The company also acquired Switzerland-based Atracsys, maker of optical tracking technology for computer-assisted surgery, in June. Its fusionTrack 500 optical tracking camera will enhance Smith+Nephew’s digital surgery and robotic ecosystem, reducing procedure times and increasing accuracy in precision surgical tasks. Atracsys’ portfolio supports orthopedic, neurosurgical, spinal, and dental applications.

Sports Medicine & ENT segment revenue rose 5.1 percent to $1.54 billion. Sports Medicine Joint Repair proceeds ballooned 10.8 percent to $794 million, exhibiting four straight quarters of double-digit growth. There was consistent performance along knee and shoulder repair ranges, thanks to increased fervor for the REGENETEN bioinductive rotator cuff implant and NOVOSTITCH meniscal repair system.

Smith+Nephew released results for the STITCH Study in July. This study used NOVOSTITCH for the first-ever trial evaluating horizontal cleavage tear repair effectiveness. It was based on three endpoints: meniscal healing upon second look, freedom from re-operation, and knee pain/function improvements according to patient reported outcome (PRO) scores. Six-month results showed significant PRO improvement, 0 percent reoperation rate, and 100 percent meniscal healing.

Arthroscopic Enabling Technology income dropped 1.5 percent to $591 million last year, but two strong product launches finished off the year. The FLOW 90 Wand for the firm’s WEREWOLF COBLATION radio-frequency arthroscopy system was released last May. The 90-degree wand was designed for shoulder procedures but is indicated for all soft tissue types.

“…It excels at rapid bulk tissue removal while remaining very precise. FLOW 90’s triangular tip also enables you to do excellent dissection,” Dr. Scott Trenhaile, assistant professor, Rush University Medical Center, commented to the press.

The LENS 4K Surgical Imaging System for arthroscopic procedures arrived in late September. Its 4K 3CMOS ultra high definition camera’s control unit features an integrated light source, autoclavable camera head with programmable buttons, image management options, and tablet application to control the camera outside of the surgical field. Smith+Nephew expects LENS 4K to be particularly helpful to ambulatory and multi-surgery centers.

Advanced Wound Management sales grew 8.2 percent to achieve $1.38 billion in earnings. Advanced Wound Devices proceeds expanded 12.8 percent to $242 million, thanks to continued strong demand for PICO negative pressure wound therapy system and increasing contribution from the RENASYS negative pressure wound therapy system.

September proved to be a busy month, as the PICO 7Y single-use negative pressure wound therapy system (sNPWT) also hit the shelves. Its integrated Y connector enables two dressing to be used concurrently from one pump, meaning two wounds or incisions can be simultaneously addressed. (According to the company, PICO 7Y is particularly suited for breast procedures.) It also includes a check dressing indicator and is quieter than the first-generation PICO.

The firm acquired 85.5 percent of the share capital of Leaf Healthcare in April for an undisclosed amount (bringing Smith+Nephew’s total shareholding to 100 percent) following a successful two-year partnership. Leaf Healthcare’s Leaf Patient Monitoring System is a small, lightweight sensor that wirelessly monitors a patient’s position and mobility in the hospital. Tracking data gathered by the sensor helps to automate and document compliance with prescribed turn protocols for patients at risk of pressure injuries. In January 2018, a Stanford clinical trial found the system induced a 43 percent relative increase in turning protocol compliance in high-risk patients. Patients treated using the Leaf sensor were also found to be 73 percent less likely to develop a pressure injury.

Advanced Wound Care declined 3.5 percent, falling to $714 million because U.S. price pressure could not offset stronger European market performance. Advanced Wound Bioactives, however, skyrocketed 32.3 percent to $424 million thanks to the acquisition of regenerative medicine company Osiris Therapeutics.

Purchased for $660.5 million last April, Osiris manufactures placental, bone, and cartilage tissue allografts. A tissue cryopreservation technique is used to retain native tissue components (like mesynchymal stem cells), growth factors and extracellular matrix, and the tissue’s inherent functionalities. The firm’s Grafix and Stravix are used for wound covers, BIO4 for bone repair and regeneration, and Cartiform for articular cartilage repair and regeneration. According to Smith+Nephew, the skin substitute market is one of the highest growth and high potential wound management markets.

The company also prevailed in another battle in a patent dispute with Arthrex in August. A U.S. Court of Appeals panel rejected Arthrex’s attempt to overturn a ruling that two claims of an Arthrex surgical suture anchor patent are unpatentable. This loss was the second blow to Arthrex in a long-running dispute.

References

1. https://pubmed.ncbi.nlm.nih.gov/30711371/
2. https://pubmed.ncbi.nlm.nih.gov/29305445/
3. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3732879/

COVID-19 Consequences

Q2 2020 Revenue: $901 Million
Q2 2019 Revenue: $1.28 Billion
Percentage Change: -29.3%

All three of Smith+Nephew’s global franchises were held back by COVID-19’s stifling of elective surgeries for a part of Q2. April revenue was down 47 percent, May decreased 27 percent, and June dropped 12 percent.

“There remain many uncertainties as countries continue to battle COVID-19, but with our unique portfolio, proven strategy, strong balance sheet, and motivated workforce we are ready to take advantage as markets recover,” CEO Roland Diggelmann commented in the company’s press release detailing Q2 performance.

Smith+Nephew confirmed a contract with the UK government on April 1 to build OxVent ventilators, which are designed to allow for large scale production. OxVent ventilators are the result of joint collaboration between Smith+Nephew, the University of Oxford, and King’s College London. Government support was pulled from the project on May 4 due to actual clinical need and reviews of those put forward. The OxVent team is engaging with colleagues abroad from the U.K., where the need for ventilators is greater.

AT A GLANCE
$4.90 Billion
Prior Fiscal: $4.76 Billion
Percentage Change: +2.9%
No. of Employees: 16,377

Tim Whitehead recently celebrated a pair of rebirthdays—his second and third of the year.

The third rebirthday always follows closely on the heels of his second (July 20, the official start of online sales for the underwear company he co-founded), and comes more than four months after his first (March 20, his 2010 Super Rugby debut).

Whitehead’s most recent rebirthday, however, just might be the most meaningful. Six years ago on Aug. 2, the former South African rugby player resumed his professional football career after a seven-month stint on the DL. Whitehead fractured his radius (forearm bone) in a pre-season warmup game earlier that year but the injury failed to heal properly; he eventually was diagnosed with a nonunion despite surgical intervention.

“When I first went into the surgeon he told me it should take between eight to 12 weeks, which was understandable. It’s a break, it’s just one of those things, it’s a contact sport,” Whitehead said in an online video. “[But] to be bogged down every time with bad news from the surgeon—saying it’s not healing—is disappointing big time. It’s really frustrating because you see the guys training on the field and you can’t even pick up the ball and pass it around because you’re splinted. I battled big time with that and I was so achy to get back on the field, especially when you’re told initially two to three months, and it goes four, five, six months…it’s horrible for your mental status.”

Whitehead’s ailing psyche ultimately found refuge in bone stimulation technology from Smith & Nephew plc spinout Bioventus LLC. The company’s EXOGEN Bone Healing System (distributed by Smith & Nephew) delivers low-energy pulsed ultrasound to accelerate the natural repair of nonunions; clinical trials have shown the device to have an 86 percent equivalent success rate to surgery (though one study found EXOGEN to be ineffective).

Whitehead returned to the rugby field after seven weeks of daily EXOGEN treatments. He later went on to help his team (Durban’s Cell C Sharks) win the 2013 Currie Cup Premiere Division.

All’s well that ends well.

ANALYST INSIGHTS: With Narnal Nawana (CEO since May 2018) at the helm, S&N has become very aggressive in shoring up its orthopedic portfolio through M&A activities— with a specific emphasis on surgical navigation and robotic assistance. It will be interesting to watch how these moves translate to market share for S&N in the near future.

—Dave Sheppard, Co-Founder and Managing Director, MedWorld Advisors

Smith & Nephew is angling for a similar fairy tale-like comeback as it struggles to overcome years of sluggish sales growth and underwhelming operating margins. The company spent most of 2018 undergoing a head-to-toe transformation in an effort to recapture some of its former fiscal glory.

Under the direction of new CEO Namal Nawana, Smith & Nephew overhauled its leadership, organizational structure, culture, and strategy. Late last year it launched a new brand purpose—Life Unlimited—with three cultural pillars (care, collaboration, and courage) designed to foster teamwork, empathy, continuous learning, and unconventional thinking.

“Grounded in the service of patients and practitioners, these simple tenets guide us in our work together and couple the idea of continuous learning and improvement with the aspiration to lead in all our endeavors,” Nawana said in his annual letter to shareholders.

Accompanying Smith & Nephew’s new brand purpose is a new business growth strategy. Unveiled in time for a Jan. 1 (2019) kickoff, the growth plan targets five key imperatives to create value in the medium term:

• A focus on platform-specific plans, ambulatory surgery centers, and emerging markets with a special interest in China and Latin America
• Acquiring and developing technologies, particularly robotics, imaging, and augmented reality
• Accelerating portfolio growth, strengthening leadership and driving synergies organically as well as with M&As and partnerships
• Improving employee retention and attracting new talent
• Transforming operations and organization specifications for driving meaningful margin expansion

To implement these initiatives, Smith & Nephew adopted a new commercial model, switching from a regional selling network to a global marketing franchise system with dedicated presidents in orthopedics, sports medicine/ENT, and advanced wound management. These leaders have commercial responsibility for the United States, while other executives and regional commercial organizations support the company internationally.

“We have clarified our brand purpose with Life Unlimited and have introduced new culture pillars and strategic imperatives to support it,” Nawana wrote in Smith & Nephew’s 2018 annual report. “We are confident that we are building the right foundation for sustainable success and an ability to grow consistently with our markets in the future. There is much to do to achieve our goals and aspirations but we are grateful for the opportunity to positively affect the patients, practitioners, and health systems that we serve globally. The focus is now on unlocking the potential of Smith & Nephew…”

Nawana and his team freed a bit of that potential last year by growing revenue 2.9 percent to $4.9 billion and bolstering the company’s trading profit margin an impressive 23 percent to $1.12 billion. Dividend per share climbed 3 percent to 36 cents, reflecting an increase in adjusted earnings, but operating profit and earnings per share fell sharply due to restructuring charges (8 percent and 13 percent, respectively).

Smith & Nephew’s individual market sales were up worldwide in 2018, with emerging regions leading the charge at a 7 percent gain ($857 million). U.S. and other established markets both notched 2 percent increases ($2.35 billion and $1.69 billion).

Revenue increased in most of the company’s product franchises too, though trauma products reported flat growth last year from “reduced activity” in the Middle East, according to the annual report. That reduction offset solid gains from INTERTAN Nails and the new EVOS Small Plating System, eventually stalling sales at $493 million.

The stagnant Trauma revenue, however, had little impact on Smith & Nephew’s Orthopaedics business last year. Garnering $2.12 billion in the 12-month period ending Dec. 31, Orthopaedics constituted nearly half of the company’s total proceeds, thanks largely to improved hip and knee sales.

Hip implant revenue swelled 2 percent to $613 million on strong demand for the POLAR3 total hip solution and the continued rollout of the REDAPT Revision System, a distal fixation modular stem solution used for revision hip arthroplasty.

Knee implant sales posted the highest Orthopaedics growth rate—3 percent (to $1.01 billion)—as the company’s ANTHEM Knee, LEGION Revision Knee, and JOURNEY II Total Knee systems experienced double-digit gains in emerging markets. JOURNEY II sales also partially benefitted from the U.S. and Japanese launch of the JOURNEY II XR in March 2018; billed as the “next step in the evolution of total knee replacement surgery,” the JOURNEY II XR is designed to more accurately replicate the knee’s natural anatomy, according to Smith & Nephew. The implant also features a tibial baseplate for optimal fixation and fatigue strength, and the company’s advanced bearing surface technology (VERILAST) to reduce joint wear.

Product franchise revenue in Smith & Nephew’s two other businesses followed the same basic pattern as those in Orthopaedics. In the $1.5 billion Sports Medicine & ENT business, for example, the 2 percent decrease in arthroscopic enabling technologies was nullified by double-digit sales gains in sports medicine joint repair and other surgical devices.

Smith & Nephew attributed the 11 percent hike in sports medicine joint repair products ($697 million) to its shoulder solutions portfolio, which expanded in scope with the additions of the Q-Fix Curved, Q-Fix Mini and Suturefix Curved All-Suture Anchor systems (launched in March 2018). The Suturefix Curved and Q-Fix Curved help optimize the drill guide curve, maximize drilling accuracy, and offer visual and tactile orientation cues, while the Q-Fix Mini is the shortest all-suture anchor in its class at 17.1 mm, giving it particular application in small joint soft tissue procedures. Active deployment of both platforms eliminates manual anchor tensioning.

Helping the new entrants boost Smith & Nephew’s shoulder portfolio last year was the REGENETEN Bioinductive implant, which charted a staggering 130 percent growth rate in fiscal 2018. The company acquired the bioabsorbable solution with its October 2017 deal for Rotation Medical.

Smith & Nephew is hoping its $105 million purchase of Ceterix Orthopaedics and its NovoStitch Pro knee repair device last December is just as valuable in future years. Fremont, Calif.-based Ceterix’s NovoStitch Pro is designed to repair complex meniscal tears in the knee. Smith & Nephew considers the device “highly complementary” to its own Fast-Fix 360 device for vertical meniscal tears.

Another past purchase that paid off for Smith & Nephew last year was the 2015 acquisition of Blue Belt Technologies. The company credited the 10 percent increase in “other surgical business” sales ($209 million) to robust demand for Blue Belt’s NAVIO Surgical System, a next-generation handheld robotics platform designed to aid surgeons with implant alignment, ligament balancing, and bone preparation in total knee arthroplasty. NAVIO provides robotics assistance through CT-free navigation software and a handheld, robotic bone-shaping device. It is a highly portable system that can be moved freely within hospitals or ambulatory surgical centers.

The dramatic gains in “other surgical” and sports medicine joint repair devices more than compensated for the loss in arthroscopic enabling technologies revenue (down to $600 million). Smith & Nephew blamed the decrease on continued “softness” in mechanical and legacy radio-frequency resection; the company, however, is hoping to rectify that shortcoming with the recent launch of the Werewolf FLOW 90 Coblation wand (designed for the shoulder, but sufficient for all soft tissue).

Market softness also impacted Smith & Nephew’s $1.27 billion Advanced Wound Devices business last year, limiting growth in advanced wound care products. U.S. demand for ALLEVYN LIFE and pressure ulcer prevention technologies mixed with European market softness to cap gains at 3 percent and total sales at $740 million.

No such counteraction existed for advanced wound bioactives, though. Volume pressures with Santyl ointment sent sales in this product franchise tumbling 6 percent to $320 million, the annual report indicates. Revenue in this division could rebound this year, however, with the U.S. Food and Drug Administration (FDA)-approved removal of a safety warning on Smith & Nephew’s treatment for lower extremity diabetic neuropathic ulcers. The label on the box of Regranex gel (becaplermin) since 2008 warned of an “increased rate of mortality secondary to malignancy” after an initial study. The FDA’s Dec. 5 decision to remove the warning (after much petitioning by Smith & Nephew) follows multiple studies that demonstrated no increased safety risk from the gel.

Thankfully, the loss in advanced would bioactive revenue was partially offset by a 10 percent jump in advanced wound devices sales ($215 million). The increase was driven by strong demand for the company’s PICO sNPWT (single-use negative pressure wound therapy system), as well as the launch of two new models in 2018.

The PICO 7 sNPWT system debuted in Europe and the United States during two separate launches eight months apart. According to Smith & Nephew, the PICO 7 system delivers a more efficient vacuum, offers better leak management, and is more than 25 percent quieter than the previous version. It also includes a full indicator to help minimize unnecessary dressing changes.

Europe also was the chosen market for the October 2018 unveiling of the PICO 7Y sNPWT with Airlock technology. Made to treat two wounds simultaneously, the solution is reportedly the first to include an integrated Y extension, enabling the use of two dressings from one pump. The PICO 7Y comes with extended soft port and multi-site dressings to conform to complex anatomies, and features a check dressing indicator (like the PICO 7) to help minimize unnecessary dressing changes. The device also is touted to be 23 percent quieter than the first-generation PICO.

The PICO 7Y was released roughly a month after Smith & Nephew settled a patent infringement lawsuit with Conformis Inc. over patient-specific knee implant technology. The agreement between the two firms requires Smith & Nephew to pay $10.5 million, and includes a “limited patent cross-license” resolving all patent litigation.

Conformis sued Smith & Nephew three years ago, claiming its rival’s Visionaire cutting guides infringe upon eight patents. Branded a “custom fit,” the Visionaire guides are used with off-the-shelf Smith & Nephew implants, including the Journey II, Genesis II, and Legion devices.

The Conformis settlement capped a busy legal year for Smith & Nephew. In January 2018, a federal appeals court ruled against Arthrex Inc. in its suture anchor-related patent spat with the company, and then two months later upheld a Smith & Nephew patent in a dispute with Hologic Inc.

$4.8 Billion
NUMBER OF EMPLOYEES:  15,933

The buzz was back. Bigger than ever this time.

The babble, however, shouldn’t have been a surprise to anyone, least of all to Olivier Bohuon. He’s heard the rumors before (practically per annum) during his seven-year reign as Smith & Nephew’s CEO, and he’s addressed those whispers almost as often—to no avail.

Truth be told, the rumors have never really gone away. They’ve existed for many years—well before Bohuon’s tenure—ebbing and flowing with the various changes in Smith & Nephew’s finances, management, and stakeholder team.

The most recent round of hearsay began circulating last fall amid reports of Bohuon’s retirement and the addition of activist investor Elliott Management Corp. as a top shareholder (billionaire Paul Singer’s hedge fund is considered a particularly aggressive backer, having launched activist campaigns at more than 50 companies over the last five years—19 of them occurring in 2017). “We believe the two events [Bohuon and Elliott Management] might be related and that they likely signal a change in strategy that could include selling the company,” Needham & Co. analyst Mike Matson wrote in an October note to investors.

Such speculation intensified earlier this year after Smith & Nephew implemented a major cost-cutting program to boost earnings and replaced Bohuon with a chief executive acclaimed for his deal-making prowess. Namal Nawana, master integrator of the DePuy-Synthes union and orchestrator of last year’s Alere Inc.-Abbott Laboratories pairing, began his rule on May 7 (Bohuon remains with the United Kingdom-based company in an advisory role until Nov. 6).

Takeover rumors continue to swirl as Nawana wrangles with slow revenue growth and stockholder pressure to improve profit margins. A disappointing first quarter (2018) prompted Smith & Nephew to lower its full-year guidance by one percentage point, leaving the firm with a (currently) slim-to-none chance of topping its 2017 overall growth rate.

Smith & Nephew’s overall revenue swelled 2 percent last year to $4.76 billion and trading profit climbed 3 percent to $1.05 billion, according to company financial data. Operating profit jumped 17 percent to $934 million but earnings per share (EPS) remained flat at 87.8 cents.

“We could clearly see areas of the business where the company excelled in 2017, such as Global Operations where we have improved quality and supply, and R&D, where we have an exciting new product pipeline,” Board Chairman Roberto Quarta told investors in Smith & Nephew’s 2017 annual report. “Whilst the trading performance of the Group was better than in 2016 and we delivered within our guidance, we continue to endorse the chief executive’s view that this business can and should deliver better results and reinforce the need for continued focus on driving better execution.”

Indeed, Smith & Nephew turned in a mediocre financial performance last year, posting gains in several geographic and product categories but incurring losses (or flat growth) in various others. United Kingdom sales, for example, fell 8.3 percent to $244 million, while U.S. and Other Established Markets revenue remained flat at $2.3 billion and $1.67 billion, respectively. Emerging markets proceeds, however, ballooned 13 percent to $781 million on the strength of double-digit growth in China as well as increased business in the MidEast.

Five of Smith & Nephew’s nine product categories sustained losses or stagnant sales last year. Hip Implants, Advanced Wound Care, and Advanced Wound Bioactives revenue was flat while Arthroscopic Enabling Technologies and Other Surgical Businesses proceeds were down compared to 2016 totals.

Hip sales fared better in the second half of 2017, thanks mainly to the REDAPT Revision Femoral and POLARSTEM Cementless Stem systems, but the franchise could only muster a $2 million sales increase compared with 2016 (to $599 million). The REDAPT system is comprised of a monolithic stem, a 3D-printed porous shell, and a fully porous acetabular cup (introduced in 2016). The POLARSTEM implant, contrarily, is made for direct anterior approach procedures and has a profile intended for easy insertion through a smaller incision.

Advanced Wound Bioactives revenue suffered the same fate as Hips, gaining sales momentum in the second half of 2017 but failing to eclipse the $342 million it generated the previous year. The last-half trajectory was largely driven by SANTYL Ointment sales and its growing popularity with office-based doctors, but it was partially offset by waning reimbursements for Smith & Nephew’s OASIS Wound Matrix, a naturally-derived extracellular matrix replacement for chronic and traumatic wound treatment. SANTYL also benefited from new clinical data proving its efficacy as a pressure ulcer treatment, but that advantage could not overcome the reimbursement headwinds.

Advanced Wound Care sales fell victim to “soft” market conditions in Europe but strong U.S. growth kept the franchise (barely) in the black through a $1 million sales increase (to $720 million).

Soft market conditions also impacted Arthroscopic Enabling Technology sales, leading to a 2.5 percent sales decline last year (to $615 million). The “softness” affected mostly the mechanical resection sector and Smith & Nephew’s legacy radiofrequency technology, which includes the WEREWOLF and QUANTUM 2 COBLATION controllers and high-performance COBLATION wands for ablating, resecting, and coagulating soft tissue, and enabling blood vessel haemostasis.

“Our new LENS visualisation system and WEREWOLF COBLATION system are growing in share within our portfolio and we expect a gradual improvement in 2018,” Smith & Nephew’s annual report said.

An improvement also is likely within the Other Surgical Businesses franchise, which comprises the company’s ENT (ear, nose, and throat) portfolio and the NAVIO Surgical System, a next-generation handheld robotics platform designed to help surgeons better align implants, balance ligaments, and prepare bone for surgery. Last year, the company expanded the NAVIO platform to support its JOURNEY II, LEGION Primary, and GENESIS II total knee arthroplasty systems but the augmentation could not spare the franchise from an 11.7 percent sales decline (to $189 million). Smith & Nephew attributed the loss to the 2016 divestiture of its Gynaecology business.

Although it was powerless against the divestiture, the NAVIO System nevertheless helped Smith & Nephew further entrench itself in the highly competitive global knee replacement market. In Q4 last year, the company initiated the limited market release of the NAVIO platform for its JOURNEY II XR bi-cruciate retaining total knee, which features a tibial baseplate designed for optimal fixation and fatigue strength, and Smith & Nephew’s Verilast low-friction technology.

The company also ventured into new markets last year with its ANTHEM Total Knee System and accompanying ORTHOMATCH Universal instruments—products specifically tailored to meet the anatomical needs of Asian, Middle Eastern, African, and Latin American patients. Smith & Nephew specifically introduced the ANTHEM system to customers in Chile, Colombia, India, Mexico, the Middle East, Russia, and South Africa over the course of 2017, bolstering demand for the product and contributing to a 5.6 percent spike in Knee Implants revenue (to $984 million). Strong demand for the JOURNEY II Total Knee System and LEGION Revision Knee System positively impacted sales totals as well.

Strong demand was a driving force within the Sports Medicine Joint Repair franchise too, particularly for Smith & Nephew’s shoulder repair portfolio. The popularity of products like ULTRATAPE, FIRSTPASS ST (a retrograde suture passer), MULTIFIX S (an all-PEEK knotless screw-in anchor), and HEALICOIL (a family of open architecture suture anchors) helped increase total sales 6.8 percent to $627 million last year. The company also rolled out its new LENS Surgical Imaging and WEREWOLF COBLATION systems to customers in 2017, and ensured future growth through the $210 million purchase of Plymouth, Minn.-based Rotation Medical Inc., developer of tissue regeneration technology for rotator cuff repair. The postage stamp-sized product received U.S. Food and Drug Administration clearance in 2014.

“The Rotation Medical Rotator Cuff System is an innovative technology serving unmet clinical needs,” Bohuon said upon announcing the acquisition in late October. “It is highly complementary to our Sports Medicine portfolio and provides a compelling new treatment option for our customers. Rotation Medical further strengthens our strategy to invest in disruptive technologies that accelerate the transformation of Smith & Nephew to higher growth.”

Expediting the path to higher growth in Trauma & Extremities was the TRIGEN INTERTAN hip fracture system, a product clinically linked to lower implant failure/revision surgery risk, faster times to fracture union, and a high return to pre-fracture status. Sales in this product franchise rose 4.2 percent in 2017 to $495 million.

Advanced Wound Devices more than tripled that growth rate last year, increasing sales 12.8 percent to $194 million on the strength of its PICO system. The single-use, canister-free negative pressure wound therapy solution is designed to treat both open wounds such as pressure ulcers and closed incisions.

“In 2017, I was pleased with the resultant commercial performance in many areas,” Bohuon said in Smith & Nephew’s annual report. “Our healthy balance sheet, good cash generation, and increased dividend demonstrate the robust foundations underpinning our business.”

Smith & Nephew reinforced those foundations with several partnerships and distribution agreements that give the company access to new technologies. Those alliances include:

• • A partnership/distribution deal with Leaf Healthcare, a developer of a wireless patient monitoring system for pressure ulcer/injury prevention. The technology is reportedly “highly complimentary” to Smith & Nephew’s Allevyn Life and Secura skin care products.

• • A partnership with Imperial College in London to develop enhanced surgical techniques relating to ligament function, biomechanics, and soft tissue injuries of the knee, including torn menisci and anterior cruciate ligament rupture. The three-year union with the college’s Department of Mechanical Engineering will focus on biomechanical research into extra-articular ligaments and their functions while gaining insight into the meniscus, the cartilage disc acting as a cushion between the femur and tibia.

• • A collaboration with the University of Hull to drive research into revolutionary approaches to wound care. The pairing is expected to create one of the world’s largest Wound Care Research Clusters to develop scientific insights and pioneering treatments for advanced wound care.

$4.7 Billion
NUMBER OF EMPLOYEES: 15,644

Few announcements shake up a corporation more than the sudden illness of its leader. At the start of February 2016, Smith & Nephew plc released the type of news nobody wants to hear: the company’s CEO, Olivier Bohuon, had been diagnosed with cancer. The press release revealing this development made sure to mollify readers by stating he was afflicted with “a highly treatable form of cancer,” but emotions were surely running high both within and outside the company as many pondered how Bohuon’s treatment would fare, and what management changes may occur in the near future.

“Olivier will remain chief executive officer and be actively involved in running the company through much of his treatment period, which will begin later this month,” the release went on, somewhat satiating the worrisome masses. According to Smith & Nephew, the only governance measure taken during Bohuon’s treatment was calling upon Chairman Roberto Quarta’s executive oversight, if required. “The treatment will include chemotherapy, and is expected to be completed by late autumn,” the release assured readers.

News regarding Bohuon’s treatment and recovery was scarce, save for whatever hints about his health could be gleaned from his voice in earnings calls every quarter. Thankfully, Quarta’s statement in Smith & Nephew’s FY 2016 (ended Dec. 31) report brought happy tidings.

“In early 2016 we announced that our chief executive officer, Olivier Bohuon, had been diagnosed with cancer, and would require treatment across much of the year,” he explained. “We were delighted to welcome him back to work full time in October.”

“As you know I undertook medical treatment during 2016 and I want to thank shareholders and employees who sent me their best wishes during this time,” Bohuon said at the end of his letter in the company’s annual report. “Moreover, I want to thank all of our employees who continue to strive to deliver on our commitments, embodying a Smith & Nephew culture immersed in our values of innovation, trust, and performance. It is good to be back at work full-time amongst such inspiring people.”

The sentiment is surely returned, Mr. Bohuon. Congratulations on the successful recovery!

Revenues Remain Relatively Flat

Smith & Nephew did achieve revenue growth in FY16 with $4.7 billion in sales, but the $35 million increase from 2015 is a far cry from the year-over-year $200 million growth the company had been achieving in 2014 and prior. The largest hindrance to the company’s growth was cited by both chairman and CEO to be difficult trading conditions in the Gulf States and China. According to Bohuon, the market conditions in those areas alone lopped off over a percentage point from the year.

The company’s Sports Medicine, Trauma & Other franchise (which contains product lines for sports medicine joint repair, arthroscopic enabling technologies, trauma and extremities, and other surgical businesses) reported an increase of 1 percent from 2015 with $1.9 billion in sales. The most significant fuel for this growth came from the sports medicine joint repair portfolio, which includes a broad array of instruments, technologies, and implants necessary to perform minimally invasive surgery of the joints, including the repair of soft tissue injuries and degenerative conditions of the knee, hip, and shoulder. This division rose 7 percent in global sales to $587 million from the prior year, with double digit growth in the United States thanks to gains made from the 2014 ArthroCare acquisition.

ANALYST INSIGHTS: As a key player in orthopedics and related minimally invasive surgery, Smith & Nephew is under pressure to perform. “Bolt-on” M&A has only had minor impacts while pricing pressure is hurting the company’s financial performance—leading to investors to freeze the pay of CEO Oliver Bohuon in March. This may lead to some more dramatic M&A movement in the near future.

—Dave Sheppard, Co-Founder and Principal, MedWorld Advisors

Further broadening this division, in January 2016 Smith & Nephew acquired BST-CarGel, a first-line cartilage repair product that is used in tandem with microfracture and other bone marrow stimulation techniques for the initial treatment of most sizes of focal cartilage tears. BST-Cargel is a biopolymer-based solution mixed with a patient’s blood and implanted into the joint after a microfracture procedure. Delivered arthroscopically, it can treat damaged cartilage in synovial joints like the knee, hip, ankle, and shoulder. After implantation it functions as a scaffold, sticking to the cartilage surface to stabilize the blood clot while new cartilage is regenerated.

The arthroscopic enabling technologies business, which contains an array of minimally invasive surgery-enabling systems and devices, was flat in 2016, earning $631 million. Further diversifying the company’s offerings in this division, Smith & Nephew also launched the Werewolf Coblation System in 2016. The Coblation process creates and applies an energy field called “glow discharge plasma” to ablate molecules in the tissue, and operates at lower temperatures than other radio frequency-based technologies. Werewolf beefs up the technology with a new controller to support a broad variety of wands, and also adds a range of advanced safety features. The Trauma & Extremities division, which features technologies that stabilize severe fractures, correct bone deformities, treat arthritis, and heal soft tissue complications, fell 4 percent to $475 million from the previous year due to destocking in the China business as well as reduced tender activity in the Gulf States.

The Other Surgical Businesses franchise rose 5 percent from the previous year, exhibiting $214 million in sales. This section of the company undoubtedly faced the most changes of all in 2016, divesting one business and acquiring another.

The company closed the book on its acquisition of surgical robotics company Blue Belt Technologies Inc. in January 2016. Blue Belt’s Navio surgical system provides robotics assistance in partial knee replacement surgery through CT-free navigation software and a hand-held, bone-shaping device. One of Smith & Nephew’s goals in acquiring Navio was to expand into total knee, cruciate retaining knee, and revision knee implants—and thus far the company was able to accomplish one of those goals. The company’s Journey II BCS and CR total knee systems were implanted with assistance from Navio for the first time in July 2016, allowing precise and efficient placement without a pre-operative CT scan. Currently available for the Journey II total knee system, additional total knee systems are expected to be supported by the Navio system in future releases.

In August 2016, the company completed the sale of its Gynaecology business to Medtronic plc for $350 million. The business was built around Smith & Nephew’s resection technologies, mainly its Truclear System for hysteroscopic resection and removal of uterine tissue. The division had historically contributed a little over 1 percent to the company’s revenue, but is expected to strongly complement Medtronic’s existing portfolio.

In October 2016, the company also christened a $55 million manufacturing plant devoted to sports medicine orthopedic devices. Stationed in the Coyol Free Zone, Alajuela, Costa Rica, the facility will add up to 250 new job positions to the 1,700 existing ones, employing a total of 1,950 employees in Costa Rica.

The Advanced Wound Management franchise, which encompasses products for wound care, bioactives, and devices, dropped 3 percent in 2016, garnering $1.2 billion in sales. The Advanced Wound Care portfolio (which includes offerings for exudate management, infection management, and a cornerstone range of products) was the largest contributor to this loss, falling 5 percent to $719 million in revenue due to destocking in China and weakness in sections of the European market that the strong U.S. performance could not offset. The Advanced Wound Bioactives division also experienced a 1 percent loss.

The Advanced Wound Devices business is comprised of the company’s Negative Pressure Wound Therapy (NPWT) and surgical debridement product lines. It exhibited the only reported gain in this franchise, rising 3 percent from 2015 with $172 million in revenue. The Pico system, the company’s pioneering single-use, canister-free NPWT solution, led the charge in this division’s strong performance. In 2016, Pico was used for the millionth time to treat a patient. Designed for both open wounds and closed incisions and leveraging Smith & Nephew’s dressing technology, it’s as easy to apply as a wound dressing and provides a discreet, unobtrusive means to carry on NPWT in daily life.

The Reconstruction franchise, which contains the company’s knee and hip implants, grew 3 percent to $1.5 billion in sales. Knee implants were the single largest revenue producer for the company, capturing 20 percent of total sales and rising 6 percent to $932 million from the previous year. The 2016 launch of the Anthem Total Knee System was one aspect driving growth here. Anthem’s launch caters to the growing trend of personalized orthopedic devices, designed from both intraoperative measurements and patient CT analysis to create a knee offering fit for a wide variety of patients. The limited market release of the Journey II XR bi-cruciate retaining knee implant and gains from the company’s 2015 purchase of the Zimmer Unicompartmental High Flex Knee for the U.S. market also fueled growth in this sector. The Blue Belt Technologies acquisition also began to add to the gain, as in July 2016 the Navio system was used for its first-ever robotics-assisted total knee replacement. Because less than 10 percent of knee replacements are partial (according to the company), moving Navio into total knee procedures stands to greatly increase the system’s utilization and grow this sector.

The Hip Implants division fell 1 percent from 2015 with $597 million of revenue. The franchise offers a range of specialist products for hip joint reconstruction, including the Anthology and Synergy Hip Systems, the Polarstem Femoral Hip System, the R3 Acetabular System, and the Polarcup dual mobility system. According to the company, every year more than 2 million patients worldwide undergo total, resurfacing, and revision hip replacement procedures.

During the 2016 American Academy of Orthopaedic Surgeons annual meeting, Smith & Nephew unveiled an intriguing addition to its hip portfolio—the Redapt Revision Acetabular Fully Porous Cup with Conceloc technology, which was cleared by the U.S. Food and Drug Administration in November 2015. Meant for revision cases where compromised bone makes implant fixation and stability more challenging, Redapt is additively manufactured to create an entirely porous implant to mimic the structure of cancellous bone and facilitate ingrowth.

Redapt’s Conceloc Advanced Porous Titanium technology replaces external coatings—for example, sintered beads or fiber mesh—to promote osseointegration. Variable Angle Locking Screws also work within the implant’s geometry to provide both compression and a rigid construct to the acetabular shell.

“This fully porous cup gives surgeons flexibility in ways that simply weren’t possible before,” Craig Della Valle, M.D., professor of orthopedic surgery at Rush University Medical Center in Chicago, Ill., who participated on the surgeon design team for the new Redapt Cup, said in a company press release. “The locking screws, screw-in trials, purpose-built liners, and screw hole patterns optimized for hard-to-access areas really set it apart during a revision procedure. This cup builds on good technology and turns it into something spectacular.”

$4.7 Billion
NUMBER OF EMPLOYEES: 15,644

As an encore to the company’s purchase of ArthroCare in 2014, Smith & Nephew plc announced in October 2015 that it was acquiring Blue Belt Technologies for $275 million. This investment thrust Smith & Nephew into the business of next-generation robotics-assisted technologies that would further expand the company’s breadth of orthopedic surgical innovations.

The primary technology windfall for Smith & Nephew was Blue Belt Technologies’ Navio surgical system, which offers robotics assistance in unicondylar or partial knee replacement surgery. The system features computed tomography-free navigation software and a unique hand-held, robotic bone-shaping device. It can also be easily moved throughout a hospital, as it was developed to be a portable solution.

In its rationale for the acquisition, Smith & Nephew representatives cited several reasons for the transaction:

• • It creates a strong combined partial knee portfolio from which to accelerate growth in the area of partial knee replacement surgery.

• • Significant further upside anticipated from a range of new product launches that will expand Navio into indications beyond partial knees.

• • Additional opportunities from using Smith & Nephew’s global commercial infrastructure to widen adoption of robotics-assisted technology outside of the United States.

At the time of the announcement, CEO Olivier Bohuon said, “This acquisition is a compelling strategic move, with the combination of complementary products and R&D programs creating a platform from which we can shape this exciting new area of surgery. It reinforces our distinctive orthopedic reconstruction strategy, which combines cutting edge innovation, disruptive business models, and a strong emerging markets platform to drive outperformance.”

The company demonstrated that focus on emerging markets two more times during 2015. First, in March, Smith & Nephew announced the acquisition of a Colombian distributor, EuroCiencia Colombia. The firm had been the sole distribution channel in the country for Smith & Nephew since 2006. The move reflected similar transactions made by Smith & Nephew in emerging regions such as Turkey and Brazil in 2013.

Later in the year, Smith & Nephew bought the trauma and orthopedics business of DeOst LLC, as well as DC LLC, a manufacturing company in the DeOst group. The firm had been a distributor of Smith & Nephew’s products in Russia since 2009. In a July press release announcing the transaction, Bohuon said the company made the acquisition to better support its Russian customers. Financial terms of the deal were not disclosed.

These moves mirror statements made by Roberto Quarta, chairman of the board, in his overview statement, “We have continued to pursue the same strategy as in previous years, building a strong position in Established Markets, focusing on Emerging Markets, innovating for value, simplifying and improving our operating model, and supplementing organic growth with acquisitions.”

Financial Performance

Smith & Nephew reported $4.63 billion in sales in 2015, a slight increase over 2014. Looking closer at the numbers from the company, $715 million (15 percent, an increase of 11 percent over 2014) of its total revenue was credited as coming from the aforementioned emerging markets (China, Asia, India, Russia, Middle East, Africa, and Latin America). The United States, its largest market, contributed $2.21 billion, while other established markets (Australia, Canada, Europe, Japan, and New Zealand) provided $1.7 billion in revenue. Combined, the established markets saw a 3 percent increase over 2014 (individually, the United States boasted 5 percent growth).

While the company seeks to devote approximately 5 percent to its research and development expenditure each year, 2015’s final number was slightly off from that at 4.8 percent. That figure still reflects a healthy $222 million investment, but still fell short of its numbers in 2014 and 2013.

In terms of individual product group revenues, the company saw moderate fluctuation compared to 2014’s numbers (after adjusting for the effects of currency translation and the inclusion of the comparative impact of acquisitions and exclusion of disposals) with a few favorable increases. Knee implants provided $883 million in revenue, a 5 percent increase. The company’s Journey II Total Knee System along with a strong marketing campaign for its Verilast technology drove the growth, primarily localized in the United States. Also up over the prior year, sports medicine joint repair provided $606 million in revenue, reflecting a 7 percent increase. The growth was largely due to the enhanced portfolio as a result of the ArthroCare purchase in that prior year.

Also seeing gains, the trauma and extremities ($497 million in revenue; 2 percent increase), advanced wound bioactives ($344 million in revenue; 7 percent increase), advanced wound care ($755 million in revenue; 8 percent increase), and other surgical business ($205 million in revenue; 10 percent increase) were all up over 2014. These positives were the result of a combination of factors including continued success among proven product brands, expansion of offerings from the ArthroCare acquisition, and new product releases (several of which are featured in the next section).

Not all divisions, however, enjoyed gains. If it wasn’t for the voluntary removal of certain sizes of its Birmingham Hip resurfacing System, the company’s hip implants division would have seen a 1 percent increase. As a result, however, it was flat with $604 million in revenue. Similarly flat over 2014 was arthroscopic enabling technologies ($573 million in revenue), but continued trends in minimally invasive surgical procedures should see growth in this area. The only product division to see a decrease was advanced wound devices, which saw a 3 percent drop ($167 million in revenue). Challenges in the distribution of the Renasys system negatively impacted the overall results for this area.

New Technologies

While a company’s mature product lines are what keep the lights on today, the new innovations it launches to the industry are what will keep those lights bright in the years to come. With this in mind, Smith & Nephew made several new product announcements in 2015 that will do just that. Growing its orthopedic device portfolio to address needs in both its established and emerging markets continues to be an obvious priority for the firm. Following are some of the new product highlights that were launched in 2015.

• • Addressing needs for rotator cuff and labrum repair where anatomic space is limited, the Q-Fix All-Suture Anchor was announced. Repeatable, consistent performance in the expanding anchor and its indication for deployment in tight spaces should help this product to become a long-term success for the company.

• • Suturefix offered surgeons an ultra-soft suture anchor for hip and shoulder labral repair. “When the design team started working on this anchor, surgeons were very clear with what they wanted—a small, soft anchor that is easy to deploy and delivers excellent fixation in a variety of bone qualities,” said Scott Schaffner, vice president of the Global Sports Medicine Franchise.

• • At the Orthopaedic Trauma Association’s annual meeting in San Diego, Calif., Smith & Nephew announced the launch of its Trigen Meta-Tan, representing an expansion of the company’s femoral nail portfolio. The product’s design enables it to be used to address a number of femoral fractures, from specific hip fractures to mid-shaft fractures and fractures near the knee.

• • Following the medical device industry trend toward resorbable technologies, the Nasastent Dissolvable Nasal Dressing was launched. Following sinus surgery, this device—made from a plant-based material—is used to minimize bleeding and prevent post-op adhesions. Unlike other dressing alternatives, this product does not need to be removed by a physician after breaking down. Instead, it converts into a gel after absorbing sufficient nasal fluid and drains with the natural outflow.

In addition to its own new product innovation announcements, Smith & Nephew acquired the Zimmer Unicompartmental High Flex Knee (ZUK) system in the U.S. market. The deal was related to the merger between Zimmer and Biomet and provided a clinical proven system for knee replacements that grew Smith & Nephew’s offerings in that space. While financial terms were not disclosed, all existing inventory and certain intellectual property were involved in the transaction.

Further expanding its overall offerings, in July, Smith & Nephew announced a distribution agreement with Scopis GmbH, a German developer and manufacturer of surgical navigation systems. The arrangement made Smith & Nephew the exclusive provider of the Scopis TGS Target Guided Surgery system for ENT procedures in the United Kingdom, Ireland, and Belgium. According to Scopis, the system is a “next-generation” solution for navigated functional endoscopic sinus surgery that offers surgeons highly advanced image guidance and visualization capabilities in a single system.

$4.62 Billion
NO. of EMPLOYEES: 14,000

It seems like 2014 was all about the art of the acquisition. London-based Smith & Nephew plc was one of the first medtech companies to announce a blockbuster deal.

In February, company officials unveiled plans to buy Austin, Texas-based sports medicine company ArthroCare Corp. for $1.7 billion. ArthroCare made products used in arthroscopic surgery on shoulders and knees, focusing on soft-tissue surgery, making devices, instruments and implants that improve surgical procedures, including a radiofrequency technology that dissolves soft tissue with less damage than traditional heat-driven processes.

Calling the deal “compelling” at the time, Olivier Bohuon, CEO of Smith & Nephew, said the buy would “rebalance” Smith & Nephew in areas of higher growth. He noted that his company’s sports medicine business currently was growing by a high single-digit percentage, compared with a low single-digit growth range for replacement hips and knees.

“We wanted to acquire in high-growth businesses, and sports medicine is definitely one of them,” he said.

Smith & Nephew officials highlighted when the deal was announced that cost reductions and additional sales would boost their firm’s annual profit picture by about $85 million in the third full year after the purchase is complete. Integration costs would be around $100 million over a three-year period.

The companies were no strangers to doing business together. Smith & Nephew’s sports medicine arthroscopic business had sold ArthroCare’s Colblation RF technology through a licensing agreement. The acquisition eliminates payments to ArthroCare, which amounted to approximately $24 million in 2012.

“ArthroCare and Smith & Nephew know each other well from our licensing and supply arrangements, and this is a natural transaction for both companies,” said David Fitzgerald, president and CEO of ArthroCare prior to the completed acquisition. “The board [of directors] believes that this transaction is in the best interest of our shareholders.”

Once the deal was closed, Fitzgerald—along with other top executives—left ArthroCare.

Among the strategic reasons for the purchase that Bohuon noted, were:

• • Creation of a comprehensive resection and repair portfolio with “exciting growth” prospects;

• • Combination of ArthroCare’s latest generation of radio frequency technology and Smith & Nephew’s mechanical blade portfolio to give customers greater choice; and

• • ArthroCare’s shoulder anchor innovation “strongly” complements Smith & Nephew’s strength in knee repair, forming an “extensive, integrated portfolio.”

ArthroCare also offered an ear, nose and throat business, which Bohuon said has development opportunities outside the United States. ArthroCare also had a small presence in spine, wound care, urology and gynecology, which aligned with some of Smith & Nephew’s non-orthopedic businesses.

In January, ArthroCare resolved a long-standing investigation by the U.S. Department of Justice, paying a $30 million fine to settle allegations of securities fraud by former management. The settlement made the buyout more likely, Raj Denhoy, an analyst at Jefferies LLC, told The Wall Street Journal at the time.

But the road to a finalized deal wasn’t without potholes. As soon as the deal was announced, a group of ArthroCare shareholders sued, claiming the deal was undervalued.

Smith & Nephew agreed to pay $12 million to settle the legal wrangling. ArthroCare investors alleged in lawsuits filed in Wilmington, Del., that the offer didn’t meet what they felt the company’s value ought to be. The agreed upon price was 6.3 percent more than ArthroCare’s closing price Jan. 31 in Nasdaq trading. ArthroCare rose above the takeover price, indicating some investors might be speculating on a higher offer. Smith & Nephew settled to avoid the “inconvenience, expense, risk, and distraction of further litigation,” according to court papers filed on April 10. Company officials denied all allegations of wrongdoing or liability. Shareholders approved the deal in May last year and the purchase was wrapped up on the 29th of that month.

New Product Highlights

With more than 5 percent ($235 million in FY14) of the company’s revenue going toward research and development, you’d expect a strong, steady product pipeline—and FY14 certainly saw its fair share of new technology rollouts and strategic partnerships. There were quite a few notable new product milestones for the 159-year-old company in fiscal 2014.

October saw the launch of the Evos Mini plating system for complex long-bone fractures of the arm and leg. The system is designed specifically for trauma surgeons, and includes a variety of mini, flat plates and screw sizes necessary to address both fracture reduction and short-term fixation while the final, load-bearing repair is being completed. According to Smith & Nephew, a growing trend among trauma specialists involves reducing long-bone fractures using a mini fragment system designed for either the hand or foot. However, because the plates in traditional systems are designed for the more rounded shape of the body’s small bones, surgeons often have to modify the plates. Because they are meant to be used on the smaller, thinner bones of the hand and foot, the screws designed for these systems often are too short to use in larger, dense long bones such as the thigh or forearm.

Organized into a single tray, each Evos Mini plating system includes three different, color-coded, size modules that offer a variety of up to eight low-profile plate geometries. Along with the plates, each module also offers the instrumentation for implementing the corresponding low-profile screw options for cortical, cancellous and osteopenic bone. With sizes up to 80 millimeters, the system’s screws also offer variable-angle locking technology, which allows placement of a locking screw up to 15 degrees off-axis.

In July 2014, Smith & Nephew entered the forefoot market with the launch of its Hat-Trick toe repair system. Comprising three separate repair options, the Hat-Trick system includes products for metatarsophalangeal ligament repair and reconstruction, a metatarsal osteotomy guide, and a revisable, all-PEEK (polyether ether ketone) implant for proximal inter-phalanges fusion, also known as hammer toe correction. “Although treating lesser toe deformities is extremely common, getting consistently predictable outcomes has eluded surgeons worldwide,” explained orthopedic surgeon Charles Saltzman, M.D., chairman of the system’s scientific advisory board. “Current standards of treatment are known to have unacceptably high complication rates. The Hat-Trick system is a new three-part approach designed to not only treat the deformity, but also the underlying problem that led to the deformity in the first place.”

Also in July, Smith & Nephew signed an agreement with Blue Belt Technologies, makers of the Navio orthopedic surgical system. Under this agreement, surgeons using the Navio system will be able to implant Smith & Nephew’s Journey Uni partial knee. The Navio System provides surgeons with precise surgical planning and handheld robotic-controlled bone preparation for use with partial knee replacements. Through its advanced, intraoperative navigation, the system guides the surgeon in optimally placing the implant and balancing the knee in order to deliver consistent results.

In March, during the annual meeting of the American Academy of Orthopaedic Surgeons, Smith & Nephew rolled out its much-anticipated Journey II cruciate retaining (CR) knee replacement. The new implant extended the Journey II total knee system to procedures that preserve the posterior cruciate ligament, which accounts for approximately half of all knee replacement procedures. The Journey II CR knee is designed to restore more normal motion via the reproduction of both the shapes of the joint’s hard surfaces and the normal force behavior of the soft tissues, such as ligament and muscle firing patterns. As a result, the soft tissue’s readjustment to new shapes and forces after surgery is minimized, helping to return the patient’s stride to its natural motion, according to the company. The Journey II CR knee is made from Smith & Nephew’s Verilast technology, which is the combination of two wear-reducing materials, proprietary Oxinium alloy and a highly crosslinked plastic liner.

Also in March, Smith & Nephew announced a partnership with Dania Beach, Fla.-based OrthoSensor, which develops “intelligent” orthopedic devices and data services designed to provide quantitative feedback to surgeons and hospitals. OrthoSensor’s Verasense sensor-assisted surgery technology for soft tissue balancing will be used when implanting Smith & Nephew’s Journey II and Legion total knee systems. Smith & Nephew joined other orthopedic implant manufacturers—Zimmer, Biomet and Stryker, to name a few—in using OrthoSensor’s technology. Verasense uses sensor technologies to enable evidence-based surgical decisions regarding component position, limb alignment and soft-tissue balance to improve outcomes in total knee replacement.

Historically, soft-tissue balancing has been accomplished by subjective surgeon feel. According to OrthoSensor, research shows that patients whose knees have been balanced with its system report less pain and experience greater improvements in function, activity levels and satisfaction postoperatively. At year-one, 97 percent of patients whose knees were quantifiably balanced using Verasense sense said they were “satisfied” to “very satisfied” with the outcome of their total knee arthroplasty, which the company points to as a “marked improvement” compared to the average 81 percent satisfaction reported following traditional surgery without the Verasense technology.

In February, the company launched its Polarstem cementless stem for total hip replacement in the United States. Available outside the United States since 2002, the implant is one of the company’s most popular stems globally and features a unique geometry and surface texture. Polarstem earned 510(k) clearance from the U.S. Food and Drug Administration (FDA) in October of 2013. Polarstem implant offers several design features that assist with muscle sparing approaches for U.S. surgeons who use the direct anterior approach for total hip replacement. For example, the proximal portion of the stem is wider to help reduce the possibility of movement downward into the bone. The distal portion of the stem is shorter and features a narrower tip, making it easier to implant through the smaller incision used in the direct anterior approach. Lastly, the stem features an advanced surface texture of titanium plasma and a hydroxyapatite layer.

Verilast technology is a low-friction bearing couple combining Oxinium oxidized zirconium, a patented ceramicized metal alloy for the femoral head, and a cross-linked polyethylene (XLPE) cup liner for the acetabulum. During lab testing, Verilast technology demonstrated 67 percent less wear than the combination of cobalt chrome and XLPE. With the direct anterior approach, an incision is made on the front of the hip rather than the side or back. As a result, the surgeon can follow the natural spaces between the hip joint’s muscles and tendons, thereby minimizing the damage to the surrounding soft tissues. Because there is less soft tissue that needs to heal, patients undergoing direct anterior hip surgery reported less postoperative pain. Additionally, because the gluteal muscles and other natural stabilizers are left undisturbed during the direct anterior approach, it is possible for patients to regain mobility more quickly and ultimately go home from the hospital sooner.

Financial Details

For fiscal 2014 (ended Dec. 31), revenue was $4.62 billion, an increase of 2 percent on an underlying basis and 6 percent on a reported basis (2013: $4.35 million). Acquisitions added 5 percent to the reported growth rate, while currency was responsible for a 1 percent negative impact on growth.

“Our 2014 performance reflects the choices we have made to invest in transforming the growth profile of Smith & Nephew,” noted CEO Bohuon in a prepared statement. “We improved our existing businesses, driving a sustained improvement in U.S. hip and knee implants and building rapidly in the emerging markets. We strengthened our higher growth platforms, acquiring ArthroCare to give us a broader sports medicine portfolio. We created new growth platforms with the mid-tier portfolio and Syncera disruptive models that fulfill unmet customer needs, and advanced wound bioactives again delivered double-digit growth.”

The Advanced Surgical Devices (ASD) division delivered 2014 revenue of $3.29 billion, up 3 percent (2013: $3.02 billion).

Revenue was up 2 percent in the United States to $1.56 billion, flat in “other established markets” at $1.23 billion, and up 17 percent in the emerging and international markets to $511 million. All franchises contributed to improved performance with revenue growth in knee implants up 2 percent to $654 million; hip implants up 1 percent to $873 million; trauma and extremities up 4 percent to $506 million; sports medicine joint repair up 8 percent to $576 million; arthroscopic enabling technologies up 1 percent to $542 million; and other ASD (including ear, nose and throat and gynecology) up 10 percent to $147 million.

The Advanced Wound Management segment is grouped into disposable wound care products (Advanced Wound Care), electrical equipment for wound therapy (Advanced Wound Devices), and bioactives (Advanced Wound Bioactives). Sales for Advanced Wound Management delivered 2014 revenue of $1.32 billion, down 1 percent on an underlying basis (2013: $1.35 billion). For Advanced Wound Management, revenue was down 4 percent in the United States ($454 million) and 2 percent in other established markets ($699 million), and up 14 percent in the emerging and international markets ($166 million). Advanced Wound Care revenue was down 4 percent ($805 million). Sales of Advanced Wound Devices were down 9 percent ($192 million), impacted by the U.S. Renasys hold. Sales of Advanced Wound Bioactives, however, delivered strong growth, up 15 percent ($322 million).

Smith & Nephew temporarily ceased commercial distribution of its Renasys negative pressure wound therapy product line in the United States. This action followed instruction from the FDA to obtain new regulatory clearances through the premarket notification process with respect to certain design enhancements made to the systems.

Operating profit for 2014 was $749 million (2013: $810 million), reflecting acquisition costs largely relating to ArthroCare, amortization of acquisition intangibles, and legal and other items incurred. Profit before tax was $714 million (2013: $802 million).

$4.35 Billion
NO. OF EMPLOYEES: 12,024

Many companies, first time out of the proverbial gate with a new product may find success, but divine providence won’t sustain growth for long. It takes a plan, a formula, a roadmap—call it what you like. In the long-term, success doesn’t just happen. It’s planned for.

The “plan” (both in the short term—i.e., the most recent full fiscal year—and farther down the road) for orthopedic heavyweight Smith & Nephew plc for FY13 (ended Dec. 31) was a healthy mix of new product introductions (stoked by a robust R&D pipeline) plus the promise of emerging-growth areas such as the BRIC countries (Brazil, Russia, India and China).

According to the report from consulting company Deloitte called its “2014 global healthcare outlook,” as the U.S. and European markets level out—especially in the large-joint markets—over the next five years, the Asia-Pacific market is expected to be the fastest-growing region in the world for orthopedic devices. The Deloitte report highlighted healthcare spending in emerging Middle East and Asian marketplaces. Middle Eastern countries are expected to see a 10 percent increase in healthcare spending while China and India are expected to see a 14 percent and 17 percent growth, respectively, due to fast-growing populations and expanded access to healthcare.

Due East

During the fiscal year, Smith & Nephew’s emerging and international market sales grew 18 percent to $563 million, comprising 13 percent of the company’s revenue (up from 8 percent in 2010). By contrast, established markets grew 2 percent to $3.8 billion.

China, for example, is now Smith & Nephew’s sixth-largest global market, and delivered revenue growth of more than 30 percent in 2013. To meet growing demand in that market, the company opened an extension of its Advanced Wound Management unit’s manufacturing facility in Suzhou, China, more than doubling the size of the facility (totaling 291,000 square feet) and doubling output capacity.

The company made key purchases in growth markets—distributors and manufacturers.

Smith & Nephew acquired the Brazilian distribution of its wound care products from Politec Saúde for an undisclosed amount. Politec Saúde, was the exclusive distributor of Smith & Nephew’s Advanced Wound Management (AWM) products in Brazil, and derived about one-quarter of its overall revenues from advanced wound management sales. Smith & Nephew also purchased Brazilian distribution partner Pró Cirurgia Especializada.

“Being closer to the customer is at the heart of our emerging markets strategy. Brazil is a long-term opportunity and this is an important investment which creates a significant platform from which we can grow,” said CEO Olivier Bohuon.

Bouhon’s international shopping spree also included targets in India—Adler Mediequip Pvt Ltd. and with it, the brands and assets of Sushrut Surgicals Pvt Ltd., which makes orthopedic trauma products in India for the Indian market. The financial terms of the deal were not disclosed. The move was Smith & Nephew’s entry point into India, which has a growing trauma segment.

“Through this important acquisition we are continuing to deliver on our strategic priorities to build leadership positions in the emerging markets, to supplement our organic growth through acquisitions, and to bring forward a mid-tier offering for these regions,” said Bohuon. “Sushrut-Adler has a long and distinguished history, a reputation for quality products and a loyal customer base. Its trauma portfolio strongly complements our established positions in orthopedic reconstruction and sports medicine in India, giving us an enhanced platform from which to continue to build a sustainable business.”

Products include primarily trauma implants and instrumentation, but the companies also have spine and limb salvage portfolios.

In addition, the company bought the distribution arm of its orthopedic reconstruction, trauma and sports medicine products in Turkey from Plato Group for an undisclosed amount.

Aggressive R&D

For FY13, research and development represented 5.3 percent of Smith & Nephew’s revenue—a healthy increase of 35 percent to $231 million from $171 million in 2012.

The company’s big-ticket product launch was the Journey II Bi-Cruciate Stabilized (BCS) total knee system from the company’s Advanced Surgical Devices (ASD) sector. It is the second generation of the Journey knee product.

“The Journey II BCS knee takes knee performance beyond the current standards for fit and alignment and gives patients the complex motion, strength and stability of a human knee,” said Gaurav Agarwal, president of Smith & Nephew’s joint reconstruction business. “You don’t have to ask patients if it feels like a normal knee—you can see it in their gait and in their post-op[eration] X-rays. We redefined knee implant function when we launched the original Journey knee in 2005, and with Journey II we have again outpaced traditional knee replacement technology.”

According to officials from Smith & Nephew, this most recent Journey knee is more than an iterative change to an existing product. It is, they claim, the result of “intense research and design,” and the development of what the company calls “Physiological Matching” technology. Using its LifeMOD human simulation software, Smith & Nephew engineers were able to conduct proprietary analysis of the bone, ligament and muscle forces that impact the knee, and then account for those forces within the design of an implant that restores anatomic shapes and normal motion.

“Unlike implants that create unnatural motion with a symmetric, circular design, or with a rotating platform, the Journey II BCS knee accommodates the swing-and-rotate of the knee with the same engineering principles the body naturally uses,” explained Steven Haas, M.D., chief of the Knee Service at Hospital for Special Surgery in New York, N.Y. “As a result, the muscles and ligaments around the new joint don’t have to work harder because the implant’s natural shape and resulting motion allow these soft tissues to move in familiar ways. This leads to higher patient satisfaction scores, more mechanical efficiency of the muscle, and a more natural feeling while walking or bending in the months after their procedure.”

The Journey II is made from Smith & Nephew’s Verilast material, which is the combination of two wear-reducing materials—the firm’s proprietary Oxinium alloy and a highly cross-linked plastic liner. Smith & Nephew claims that Verilast “significantly” reduces implant wear compared to traditional bearing couples on the market. According to the company, Oxinium is 4,900 times more abrasion resistant than cobalt chrome and reduces knee replacement wear on traditional liners by up to 85 percent compared to cobalt chrome components.

Smith & Nephew also introduced the Healicoil Regenesorb bio-composite suture anchor. Building on the success of its Healicoil PK design, this new suture anchor is the first device to use the company’s proprietary Regenesorb material—an advanced biocomposite that has reportedly been shown in pre-clinical studies to be absorbed and replaced by bone within 24 months.

“The Healicoil Regenesorb suture anchor is a perfect marriage of implant design and material,” said orthopedic surgeon Scott Trenhaile, clinical assistant professor of surgery, University of Illinois College of Medicine at Rockford. “Within this one implant, I get the bone ingrowth and mechanical strengths of the original Healicoil, as well as the bioabsorption advantages that come from gradually transferring the stresses to the healing bone as the anchor is steadily absorbed.”

Most biocomposite implants use the osteoconductive properties of beta tricalcium phosphate to provide 18 months of sustained bone formation. While this is effective in creating a “scaffold” for enhancing new bone formation, Regenesorb goes one step further by adding a second osteoconductive component, calcium sulfate. Calcium sulfate has been shown to work in the early stages of bone healing and is associated with increased levels of local growth factors.

All Healicoil suture anchors use an open-architecture design that eliminates the inner diameter material found in traditional, solid-core anchors. Pre-clinical testing has demonstrated that this design allows for new bone to fill the spaces between the threads and within the central channel by 12 weeks after implantation. In addition, the extended, fully-threaded Healicoil Regenesorb anchor design was shown in biomechanical testing to provide more threaded engagement than other biocomposite anchors, delivering greater pullout strength in poor-quality, osteoporotic bone. The company claims that the Healicoil inserter engages nearly 100 percent of the anchor’s length, which minimizes stress and provides predictable insertion into hard bone by distributing torque along the entire length of the anchor.

“When we introduced the Healicoil PK Suture Anchor, its design set a new standard for innovation in our industry,” said Brad Cannon, president, endoscopy, trauma and extremities for Smith & Nephew. “With Healicoil Regenesorb, we combined the benefits of that design with an advanced material to raise the standard even higher.”

Designed primarily for shoulder rotator cuff repair, the Healicoil Regenesorb suture anchor is also indicated for use in the knee, elbow, foot and ankle.

The company rolled out 23 new products from its AWM division, such as the Durafiber Ag (the element symbol for silver) antimicrobial dressing. The Durafiber Ag combines a highly absorbent, gelling fiber filler dressing infused with silver, which is a broad-spectrum antimicrobial. According to the company, the addition of silver provides clinicians with a different approach to address bacterial contamination posed by medium to heavily exuding wounds. The U.S. Food and Drug Administration cleared Durafiber Ag in 2011, but the company chose to delay the release of the dressing in the United States.

Smith & Nephew’s InVenture program—in which surgeons inventors are paired with product development experts from the company—delivered the Modular Rail System in 2013, a external fixator used for deformity correction and limb restoration designed in collaboration with Dror Paley, M.D., of the Paley Advanced Limb Lengthening Institute at St. Mary’s Medical Center in West Palm Beach, Fla. “Over the course of my 25-plus year career, I’ve tried many of the available rail systems on the market, none of which fully meet my needs,” Paley said. “Working with Smith & Nephew, I was able to design and develop a modular, multi-planar rail which can articulate across the hip, knee, ankle or elbow joints while allowing for lengthening and deformity correction.”

Adding It All Up

The company’s revenue for the year was $4.35 billion, compared with $4.14 billion in 2012. Advanced Wound Management delivered strong growth, officials noted, led by Healthpoint Biotherapeutics, a wound-care company Smith & Nephew’s acquired in 2012 for $782 million (Healthpoint is now known as Smith & Nephew Biotherapeutics). Bioactives are a rapidly growing area of wound care. Greater understanding of wound biology is driving the development of new biopharmaceuticals designed to stimulate the body’s own regenerative processes.

The company’s operating profit was $810 million (2012: $846 million), reflecting integration costs and increased amortization of acquisition intangibles from the acquisition of Healthpoint. Profit before tax was $802 million. The 2012 profit before tax was $1.1 billion, which included a $251 million profit on disposal of the company’s clinical therapies business.

ASD (hips, knees, trauma, extremities, sports medicine and arthroscopic devices) delivered $3.02 billion in revenue, compared to $3.11 billion in 2012. Growth by franchise: Knee implant sales (29 percent of revenue) were flat; hip implant sales (22 percent of revenue) were down 1 percent; trauma extremities products (18 percent of revenue) were up 4 percent; sports medicine joint repair (16 percent of sales) grew top line by 7 percent; arthroscopic technologies (15 percent of sales) dropped 2 percent. In the company’s ASD “other” category (2 percent of revenue), which includes gynecology instrumentation, revenue growth was 14 percent. Operating profit for the Advanced Surgical Devices sector was up 4 percent to $620 million.

AWM delivered revenue of $1.34 billion, up from $1.03 billion in 2012. Revenue growth was up 22 percent in the United States, up 3 percent in our “other established markets,” and up 20 percent in the emerging and international markets. Advanced wound care (63 percent of sales) revenue grew by 1 percent, advanced wound devices (16 percent of sales) grew by 20 percent, and advanced wound bioactives (21 percent of sales) were up 47 percent. AWM’s operating profit was down 8 percent to $190 million.

Going Big in 2014

In one of the first jackpot medical device deals of 2014, Smith & Nephew announced plans to by ArthroCare Corp. for $1.7 billion, increasing the company’s reach in the faster-growing sports medicine market. ArthroCare, based in Austin, Texas, makes products used in arthroscopic surgery on shoulders and knees. Sports medicine typically involves minimally invasive soft-tissue surgery from sports or work-related injuries. Arthrocare specializes in soft-tissue surgery. It makes devices, instruments and implants that improve surgical procedures, including a radio-frequency technology that, according to the company, dissolves soft tissue with less damage than traditional heat-driven processes.

“We wanted to acquire in high-growth businesses, and sports medicine is definitely one of them,” Bohuon said when the deal was announced.

But the road to ownership wasn’t free of bumps. Smith & Nephew agreed to pay $12 million to settle lawsuits filed by ArthroCare Corp. shareholders who took legal action because they believed the takeover was undervalued. As of May this year, regulatory authorities in Europe and the United States had given the merger their blessing.

$4.1 Billion
NO. OF EMPLOYEES: 10,477

It’s been a bit of a roller coaster ride for the orthopedics sector of the medical device industry. And just like it’s easier to weather a storm in a tanker than in a rowboat, larger firms have more weight behind them to endure the rolling market waves.

For London, United Kingdom-based orthopedic giant Smith & Nephew plc, fiscal 2012 (ended Dec. 31) was a mixture of ups and downs, much like those stormy waves tossing ships around in unsteady waters. The large-joint sector—hips and knees—was down in the short term despite the positive demographics working in the sector’s favor. Emerging markets bolstered sales, so did the trauma and extremity markets, though not at stunning percentages. Sales within sectors that aren’t completely orthopedic-specific, such as wound management, also helped to balance flatter results from joint-generated revenue.

For the year, the company reported “healthy underlying revenue and profit growth,” meaning that excluding charges related to factors such as divestitures and the impact of foreign currency fluctuations, there was modest growth. Despite underlying reported growth of 2 percent, fiscal 2012 sales were $4.1 billion compared with $4.2 billion for 2011. Reported trading profit was $965 million, up from 2011’s profit of $961 million. Earnings per share was up 81 cents, more than 25 percent. The company spent $171 million on research and development efforts, up 2 percent from 2011.

Sales from the Advanced Surgical Devices (ASD) group (created in 2011 with the merger of the orthopedic and endoscopy groups) generated $3.1 billion of revenue, compared with $3.3 billion in 2011. Revenue grew by 1 percent in both the United States and other established markets, while emerging and international markets reported a stronger 10 percent uptick in sales. The company’s knee implant business grew 3 percent. The hip implant business declined 3 percent in the face of the continuing industry issues with metal-on-metal hips. Trauma grew 3 percent, and sports medicine joint repair continued to be a strong market, growing at 8 percent. Smith & Nephew has been dedicating additional resources to grow its trauma business—in particular, in the United States, where it is recruiting more sales representatives and created specialist sales teams to serve the differing requirements of trauma and extremities customers. Arthroscopic enabling technologies revenue fell 2 percent. In 2012, the ASD group acquired San Clemente, Calif.-based LifeModeler Inc., a provider of biomechanical human body simulation tools and services and the developer of the software used in creating the company’s Journey BCS knee system. Smith & Nephew had worked with LMI for more than 10 years before the purchase. With the new software capabilities now in house, according to the company, orthopedic innovations can be tested and validated faster and more cost effectively prior to the production of a physical prototype, potentially shortening the time it takes to develop new products and bring them to market. Terms of the deal were not disclosed.

The company’s Advanced Wound Management (AWM) division delivered $1 billion in revenue, flat from 2011. Revenue was up 7 percent in the United States, 2 percent in other established markets and 11 percent in the emerging markets. The AWM division delivered more than 30 new products or line extensions during 2012. Notably, for this sector of the business, after years of legal wrangling, the company reached a settlement agreement with Winston-Salem, N.C.-based Wake Forest University that resolved all existing negative pressure wound therapy patent litigation. Terms of the settlement were confidential. The original suit had alleged that Smith & Nephew infringed two patents owned by Wake Forest University Health Sciences for technology that had been exclusively licensed to Kinetic Concepts Inc. To add to its AWT coffers, Smith & Nephew completed the $782 million cash acquisition of Healthpoint Biotherapeutics. Healthpoint makes bioactive solutions for debridement, dermal repair and regeneration. The purchase was part of the company’s “Strategic Priorities” program, launched in 2011, which was implemented to invest in higher-growth products and geographies, as well as working to develop more synergies within the company to reduce cost.

Throughout the year, Smith & Nephew had a number of new product rollouts in markets worldwide.

They included:

• • The U.S. Food and Drug Administration granted 510(k) clearance for the Polarcup hip system with titanium/hydroxyapatite coating; the Redapt revision femoral system; the Journey II CR knee system and Journey II deep-dished articular inserts; Twinfix Ultra PK, TI, HA suture anchor for gluteal tendon indications; Footprint Ultra PK suture anchor for gluteal tendon indications; and Bioraptor and Osteoraptor suture anchor for labral reconstruction indications (the labrum is a fibrous cartilage ring that rims the hip socket that is reattached to the bony socket of the joint using small anchors and sutures).

• • Several products were approved in Japan including Anthology hip stems; Legion, Verilast CR, PD and Revision knee systems; Genesis knee constrained articular inserts; and Trigen low-profile bone screws for trauma applications.

• • In Europe, the company renewed approval for the Journey BCS knee system and obtained approval for Journey II BCS knee system.

At the beginning of the year, Smith & Nephew spun off its biologics unit, forming a joint venture majority owned by Essex Woodlands, a healthcare private equity firm. The move was designed to give Smith & Nephew a much-needed infusion of cash for product research and development activities. The spinoff, called Bioventus LLC, is 51 percent owned by Essex Woodlands and 49 percent by Smith & Nephew.

As part of the deal, Smith & Nephew received nearly $100 million in cash and a $160 million five-year note from Bioventus.

“In a single act we have given our existing biologics business the resources to address longer-term development projects, retained access to the exciting area of orthobiologics, realized value for reinvestment in nearer-term opportunities, and freed up management resources to focus on driving efficiencies in established markets,” said CEO Olivier Bohuon. “Essex Woodlands are strong partners and the joint venture will benefit from their significant expertise in developing healthcare businesses.”

The business continues to be headquartered in Durham, N.C., and the existing management team, led by its former head of the Smith & Nephew division, Mark Augusti.

“We are very excited about the formation of Bioventus and our strategic partnership with Smith & Nephew to advance innovation in orthobiologics,” said Marty Sutter, founding partner and managing director of Essex Woodlands. “We applaud Smith & Nephew for their forward thinking in working with Essex Woodlands and our partners in this groundbreaking venture. No one has created such a platform for innovation before”.

Essex Woodlands’ investors are no strangers to the orthopedic market. Past investments include Orthovita (acquired by Stryker Corp. in May 2011); St. Francis Medical (acquired by Kyphon in December 2006 and subsequently acquired by Medtronic Inc. in July 2007); Spinal Concepts (acquired by Abbott Laboratories in June 2003); Confluent Surgical (acquired by Covidien plc in July 2006); United Orthopedic Group and LifeCell (acquired by Kinetic Concepts in April 2008).

Also at the beginning of the fiscal year, the company paid $22.2 million to settle allegations that its subsidiaries paid bribes to win business in Greece. In court papers filed Feb. 6, the U.S. Department of Justice and U.S. Securities and Exchange Commission (SEC) accused Smith & Nephew of charging a Greek distributor full price for its products, then paying to shell companies the amount of discounts usually given. The money sent to the shell companies was used to bribe publicly employed Greek healthcare providers, according to court documents. Between 1998 and 2008, Smith & Nephew’s U.S. and German subsidiaries authorized about $9.4 million in payments to induce the purchase of its medical devices, lawmakers said.

The SEC’s complaint contends that Smith &Nephew subsidiaries created a “slush fund” that made illicit payments to public doctors employed by government hospitals or agencies in Greece. On paper, it appeared as though Smith & Nephew’s subsidiaries were paying for marketing services, but no services actually were performed. The scheme basically created off-shore funds that were not subject to Greek taxes to pay bribes to public doctors to purchase Smith & Nephew products.

“Smith & Nephew’s subsidiaries chose a path of corruption rather than fair and honest competition,” Kara Novaco Brockmeyer, chief of the SEC Enforcement Division’s Foreign Corrupt Practices Act Unit, said in a brief but forceful prepared statement. “The SEC will continue to hold companies liable as we investigate the medical device industry for this type of illegal behavior.”

The SEC’s complaint was filed in U.S. District Court in Washington, D.C. It provided an overview of Smith &Nephew’s corporate structure as well as a brief history of the alleged misconduct, stating that the firm’s U.S.-based subsidiary, Smith & Nephew Inc., and its German subsidiary, Smith & Nephew Orthopaedics GmbH, have sold products in Greece since the 1970s through Greek distributors. Greece has a national healthcare system in which most hospitals are publicly owned and operated; doctors working at those hospitals are government employees and “foreign officials” as defined in the

Foreign Corrupt Practices Act (FCPA).

The SEC claims the alleged misconduct began in 1997, when Smith & Nephew’s subsidiaries developed a scheme to make payments to three United Kingdom-based shell entities controlled by the distributor. Those funds were used by the distributor to pay bribes to Greek doctors on behalf of the Smith & Nephew subsidiaries.

Smith & Nephew failed to stop the bribery once employees became aware of the payments. In one e-mail exchange between employees at the U.S. subsidiary and a distributor over the amount of the commissions, the distributor stated, “… In case it is not clear to you, please understand that I am paying cash incentives right after each surgery…” Smith & Nephew Inc., however, did not reduce commissions. Smith & Nephew agreed to settle the SEC’s charges by paying more than $5.4 million in disgorgement and prejudgment interest. Its subsidiary Smith & Nephew Inc. agreed to pay a $16.8 million fine as part of a deferred prosecution agreement with the Department of Justice. The company also agreed to boost internal controls as well as allow an independent compliance monitor to review its FCPA compliance program for 18 months.

Smith & Nephew’s U.S. base is in Memphis, Tenn.

$4.3 Billion
NO. OF EMPLOYEES: 10,743

All companies experience growing pains every now and then. Facebook currently seems to be wracked with them as it seeks solutions to sagging sales and rebuilds investor confidence damaged in a rocky public trading debut.

Both Microsoft and Intel corporations are experiencing pangs of maturation too, as they reinvent themselves to remain competitive in a mobile device-dominant industry. Data from information technology research and advisory firm Gartner Inc. show that global PC shipments fell 1.4 percent in the fourth quarter of 2011.

The aches have even spread to older companies—multinational entities like Daimler and PepsiCo, which are implementing various productivity and investment initiatives to jumpstart growth. PepsiCo, for instance, is increasing the advertising and marketing budget of its global brands (particularly in North America) by $500 million to $600 million this year to spur sales.

“…Over the past five years, PepsiCo has delivered double-digit compound annual growth in core net revenue, 8 percent compound annual growth in core earnings per share, and returned about $30 billion to shareholders in the form of dividends and share repurchases,” PepsiCo Chairman and CEO Indra Nooyi said when the company announced its 2012 strategic priorities in February. “Our goal is to continue on that earnings trajectory over the next five to 10 years, fully recognizing that we need to make changes in how we operate to address the challenges we identified in the review process. 2012 will be a transition year, in which we will be taking the appropriate steps to build a stronger, more successful company going forward.”

Smith & Nephew international figures for fiscal 2011.

Smith & Nephew plc experienced its own growing pains last year, welcoming a new chief executive who orchestrated an ambitious corporate realignment that streamlines operations in developed countries and targets growth in the emerging markets of Brazil, Russia, India and China (known collectively as the “BRIC” countries). This quartet of nations has a combined population of 2.7 billion people, a gross domestic product that ballooned 92.7 percent over the last decade (2000-2010), market capitalization valued at $6.4 trillion last year, and—perhaps most importantly—an incredible need for healthcare products and services.

The realignment—announced last summer—merged Smith & Nephew’s Orthopaedics and Endoscopy business segments into a new Advanced Surgical Devices division, a move that forced out Joseph M. DeVivo, an astute businessman who had led the Orthopaedics segment since 2006 (shortly after the realignment was announced, DeVivo was named president and CEO of AngioDynamics). The company’s advanced wound management business remains its own separate unit. Both divisions focus on the established markets of the United States, Canada, Europe, Japan, Australia and New Zealand.

Smith & Nephew’s earnings broken down by sector.

Smith & Nephew also created a new division to focus solely on the BRIC markets. This division has some autonomy, selling the company’s full suite of endoscopy, orthopedic and wound management products. It also is charged with helping to drive research and development initiatives.

A fourth division is concentrating on international markets such as Central and Latin America, Eastern Europe, South Africa, South Korea and Southeast Asia. While this division mainly is served by distributors, management is streamlining the number of distributors it uses, as well as examining and targeting market opportunities for investment.

The four divisions each have a manager that reports directly to the CEO.

Clearly, the realignment is designed to help the company grow sales in the BRIC bloc—executives are aiming for a four-fold increase within the next four years, from $120 million to $500 million. Given the demographics and unprecedented economic growth in the BRIC market (its import and service demands are estimated to be more than $2 trillion, or 13.5 percent of global imports), Smith and Nephew’s 2016 revenue goal may not be such a difficult one to attain.

“In emerging markets, we will build upon our initial success in China and expand to create sustainable businesses in India, Brazil and Russia,” CEO Olivier Bohuon wrote in his first letter to company shareholders. The Frenchman with two decades of experience in the pharmaceutical industry (but none in the medical device sector) succeeded former chief executive David Illingworth in April 2011.

“These emerging markets are enjoying good GDP growth and there is an increasing demand for high-quality medical products from amongst the population and an expanding surgical infrastructure to deliver these safely, the key features required to make a new market attractive to Smith & Nephew. Our performance in the established and emerging markets will be driven by an unremitting focus to innovate for value…Our future success depends upon offering new technologies designed for each market where we operate. We are accelerating our rate of innovation by increasing the research and development budget and prioritizing projects that will deliver maximum value.”

Smith & Nephew certainly seemed to prioritize effectively last year: Total revenue jumped 8 percent to $4.3 billion and gross profit climbed 6.8 percent to $3.1 billion. While much of that growth stemmed from gains in each of the company’s three business segments (the orthopedic manufacturer reported its 2011 full-year earnings under its former organizational structure), part of the overall revenue increase can be linked to higher R&D funding.

After maintaining research levels during the Great Recession, Smith & Nephew increased its R&D budget last year by 10.6 percent to $167 million, or 3.9 percent of total revenue. Since the start of the slowdown in late 2007, the company has spent an average of $153.4 million annually on research and development.

Such a healthy dose of research dollars has led to a plethora of new products over the last five years, including the Legion/Genesis II Total Knee System, the Fast-Fix meniscal repair system, the Twin-Fix suture anchor for rotator cuff repair, the Allevyn AG Gentle Border and Cadex dressing, the PEEK Interference Screw, BioSure PK Interference Screw, TwinFix Ultra PK FT Suture Anchor and the Knotless Instability Anchor, among others.

The Visionaire line of custom-fit instruments for knee replacement surgery helped boost sales in the Orthopaedics division by 5 percent in 2011 (year ended Dec. 31). Sales rose $117 million to $2.3 billion; more than half of that total came from the United States, where revenue climbed 2 percent to $1.2 billion. International revenue jumped 9 percent to $1.1 billion.

Knee implant sales grew 8 percent to $869 million due mainly to solid demand for the Legion Total Knee System, which incorporates the company’s Verilast technology, a mix of Oxinium alloy and a highly cross-linked polyethylene designed to help reduce wear—one of the leading causes of implant failure. Smith & Nephew extended its Visionaire instrument line further into its knee portfolio last year with the launch of Visionaire for the TC-Plus knee system.

Global hip sales increased 2 percent to $704 million. The main growth driver in this product category was the R3 Acetabular System, an advanced multi-bearing acetabular cup implant used in total hip replacements. The R3 device is engineered for multiple bearing options and has a porous coating designed to enhance fixation and bony in-growth.

The company claims the R3 Acetabular System provides flexibility for surgeons and is designed to reduce wear. Optimized inserts accommodate larger head sizes and help the R3 System achieve a greater range of motion. Despite such advantageous features, Smith & Nephew decided in June 2012 to start a voluntary market withdrawal of the optional metal liner component of the R3 System. Chief Medical Officer Andy Weymann said the London, United Kingdom-based firm regularly reviews product efficacy and is not satisfied with the clinical results of the optional metal liner component.

Roughly 7,700 metal liners have been implanted in patients since the component was introduced in 2007 and launched globally in 2009. Most of the liners have been used in stemmed total hip replacements. The withdrawal of the R3 System’s metal liner component could possibly impact the company’s global hip sales in 2012.

The impact, however, could very well be absorbed by future sales of the SMF Short Modular Femoral Hip System, a primary hip stem that substantially is shorter than traditional length stems yet maintains optimal fixation and stability, according to product literature. Unveiled in February 2011, the SMP Hip complements the firm’s new Direct Anterior retractor set, an instrument system and technique that enables orthopedic surgeons to enter the hip socket through the front or anterior, which results in significantly less soft tissue disruption and post-operative pain than traditional procedures.

Also making its market debut last year was the Strucsure CP, an advanced injectable, hard-setting bone graft substitute designed to gradually resorb while being replaced by natural bone. The material joined Smith & Nephew’s Trauma product line, which generated $457 million in revenue last year, a 5 percent increase compared with the $434 million the devices garnered in 2010. Despite the increase, however, this product category underperformed during the second half of 2011. Chief Financial Officer Adrian Hennah blamed the poor showing on the mid-year expiration of an $8 million annual royalty agreement. The death of that agreement trimmed global trauma sales by 2 percent in Q4 and U.S. trauma revenue by 3 percent, he noted.

Clinical therapies revenue finished the year strongly, climbing 7 percent to $237 million.

The Endoscopy division delivered a strong performance as well last year, collecting $939 million in total revenue, a 10 percent increase compared with 2010. U.S. sales rose 3 percent to $363 million while overseas proceeds ballooned 15 percent to $576 million.

Sales of sports medicine repair products grew 15 percent to $448 million, thanks partly to the launches of the Fast-Fix 360 Meniscal Repair System and the Bioraptor Curved guide system.

Arthroscopy devices garnered $303 million in sales last year, a 7 percent increase compared with 2010. Top-selling devices included the company’s new Dyonics Platinum range of specialty blades.

Visualization product proceeds fell 4 percent to $107 million, due mostly to the company’s “strategy to focus only on those capital items [that] are closely aligned with the core resection and repair businesses,” the annual report states.

Smith & Nephew’s Advanced Wound Management division experienced the best growth of 2011—sales jumped 12 percent to $1 billion. International deals outweighed domestic transactions by a considerable margin: Overseas sales grew 13 percent to $830 million, while U.S. revenue climbed 6 percent to $189 million.

Growth drivers in the Advanced Wound Management division included PICO, a single-use negative pressure wound therapy system, the Rynasys Soft Port and the Versajet II, a hydro-surgery debridement product.

$4 Billion
NO. OF EMPLOYEES: 10,172

Forget the gold watch or personalized pen set. David Illingworth will receive a much more gratifying parting gift when he finally leaves Smith & Nephew plc in August—a sense of professional accomplishment. Four years ago, as the world economy began its gradual descent into the fiscal abyss, Illingworth vowed to transform the company into an operation that would run more efficiently, regularly out-perform the market and consistently invest in its future.

Illingworth, then CEO, figured he had a pretty good shot at achieving his goal. Then the global economy crashed and burned, jeopardizing Illingworth’s plans as well as the fortunes of his company, Europe’s largest maker of knee and shoulder implants. With dwindling demand and pricing pressures weighing heavily on the firm’s growth prospects, Illingworth wasn’t sure he’d be able to deliver on his promise.

But he did. And now, as he leaves Smith & Nephew to return to the United States, Illingworth can take pride in knowing that he achieved a most difficult goal in the most trying of circumstances. Not a bad way to end a career.

“Four years ago we set [for] ourselves the goal of significantly improving the efficiency of our business,” Illingworth said in the company’s 2010 annual report, his last with the firm (he is succeeded by Olivier Bohuon, former chief executive of French drugmaker Pierre Fabre SA).“Despite the economic challenges, we have achieved that goal. Not only that, but Smith & Nephew is outperforming the market in the majority of its business segments and we have built a culture of sustainability generating efficiency gains to fund our investments for growth.”

Those investments last year culminated in the opening of a 32,800 square-foot manufacturing plant in Beijing, China, and the creation of a new executive management position to oversee medical device development in that country. The new manufacturing facility—which replaces a smaller building the company inherited when it purchased Plus Orthopedics Holding AG in 2007—currently is producing surgical instruments as well as hip and knee replacement parts for Smith & Nephew’s international customers. The company eventually will shift its focus to domestic customers, designing parts specifically for Chinese patients once the market there evolves. Executives, however, don’t intend on waiting very long for that evolution to take place: They already have had four education centers built in China that will train 5,000 surgeons in advanced orthopedic techniques in the next five years.

To further accelerate the evolution of China’s medical device market, Smith & Nephew bigwigs promoted Kelvin Johnson, president of Emerging Markets, to the new position of National Executive for China. Johnson is charged with helping Smith & Nephew gain market share in China by fostering the development of the domestic device sector, accelerating the rollout of manufacturing facilities, and creating a “One Company” culture among local businesses. Johnson is performing his duties as NationalExecutive in addition to his tasks as Emerging Markets president.

“The Chinese market for our broad range of products is substantial,” Illingworth said in announcing Johnson’s promotion last June. “We see considerable potential to work with Chinese surgeons to develop new technologies, and we have already shown our recognition of the country’s manufacturing excellence by the construction of two factories for our Advanced Woundcare and Orthopaedics businesses. Kelvin’s appointment as National Executive…is a further demonstration of our commitment to China.”

Smith & Nephew’s venture in the Middle Kingdom, however, was just one of several areas where the company funneled investment dollars last year to shore up future growth. The firm also financed the rollout of Lean manufacturing principles in all its factories worldwide, and developed an in-house incubator process called InVentures. The program is designed to foster innovation by soliciting implant design ideas from surgeons and other customers, and turning those suggestions into new products quickly, usually in the span of 24 hours.

Hoping to eventually cash in on the purchasing power of hospitals, GPOs and government contracts, company executives created a second new management position last year, appointing former salesman Jerry Goodman as president of Health Care Systems. He is responsible for building and sustaining relationships with hospital systems, group purchasing organizations, key accounts, surgery center development companies and government associated contracting.

Some of Smith & Nephew’s past investments began to bear fruit last year, as new additions to the Allevyn product line and favorable patent litigation rulings both domestically and overseas helped expand Advanced Wound Management sales by 7 percent to $912 million and operating profit by 52 percent to $220 million. The new products included Algisite Ag in Japan; Opsite Visible Drain dressing and negative pressure wound therapy dressing kits with ports in both Europe and the United States; Allevyn Gentle Border Lite, featuring a silicone gel adhesive that minimizes pain and trauma to a wound upon removal of a bandage; and the No-Sting Skin-Prep Spray, a liquid film-forming dressing that dries in less than 30 seconds and lasts up to four days.

New product launches also were responsible for boosting 2010 sales in Smith & Nephew’s Endoscopy segment, where revenue swelled 7 percent to $855 million and operating profit climbed 16.5 percent to $197 million. Arthroscopy device sales, which grew 11 percent to $720 million, comprised the bulk of the revenue in this segment. Executives attribute the healthy gains in arthroscopy sales to the launch of several new repair and resection products, including the Bioraptor Knotless Suture Anchor, a device used to repair a torn labrum in the hip and shoulder; and the Biosure Sync Tibial Fixation System, a product that features a sheath and screw that can achieve a 360-degree graft-to-bone contact throughout the tibial tunnel. The company’s Twinfix and Footprint suture anchor product lines received a boost from the incorporation of the Ultrabraid suture, which provides stronger knot strength and a low profile knot stack, and the Twinfix Ultra PK Suture Anchor, a device that addresses variation in bone density and tissue quality for rotator cuff repair in the shoulder. Both the Twinfix and Footprint product lines are designed to provide easy, secure and strong repairs with precise control over final tensioning, according to merchandising data.

In addition to the new device launches, the Endoscopy segment secured regulatory clearances for various products in most major markets. In Japan, where the approval process is more lengthy, regulators gave their okay to the company’s Ultra Fast-Fix Kinsa RC, Endobutton CL Ultra and various Twinfix suture anchors.

The Orthopaedics segment—the largest of the company’s three business units—maintained its sales lead in fiscal 2010 (year ended Dec. 31), generating $2.19 billion for the company, a 2 percent increase compared with the $2.1 billion the unit garnered in 2009. Operating profit spiked 22.6 percent on the solid sales of both reconstruction and trauma products. Reconstruction products comprised the lion’s share of revenue for the segment, earning $1.5 billion, a 3 percent increase compared with the $1.4 billion those devices collected in 2009. Trauma products grossed $435 million, while clinical therapies sales slipped 5 percent to $223 million. Executives blamed the decrease in clinical therapies product sales to the divestiture of the company’s niche pain management business and the dissolution of its small spine distribution business in Germany. The losses, however, were somewhat offset by strong sales of the Exogen Ultrasound Bone Healing System and the firm’s joint fluid therapies.

Besides retaining its sales edge, the Orthopaedics segment also shouldered the brunt of new product launches and regulatory approvals last year. In what seemed like a repeat of its 2009 agenda, the company received at least 20 product approvals and clearances worldwide, including those for the Trigen Sureshot Distal Targeting System for Intramedullary Nailing, which helps reduce surgery time and X-ray exposure. Other approvals were granted for the VLP Foot and Ankle Plating System (a plate and screw system to manage foot and ankle fractures), instrument upgrades to the Birmingham Hip Resurfacing System, additions to the R3 Acetabular device, and the Journey Select Knee System and Legion Porous Plus HA primary Femoral Components.

The company received CE Mark approval to use Exogen on all osseous defects and Durolane for osteoarthritis pain relief in synovial joints as well as for pain relief after arthroscopic surgery. European Union regulators also gave their blessings to the Sureshot Distal Targeting System, Visionaire Patient Matched Cutting Blocks, and the use of Durolane for treatment of mild to moderate osteoarthritis in a broader range of joints.

Overall company sales of $4 billion grew 4 percent compared with 2009. Operating profit jumped 27 percent to $920 million, and earnings per ordinary share climbed nearly 16 cents to 69.3 cents.

$3.8 Billion
NO. OF EMPLOYEES: 9,764

Each year, the executive team at Smith & Nephew plc charts the company’s business growth based on four longstanding strategic pillars: Customer led; Efficiency; Investing for Growth; and Alignment. The Investing for Growth pillar calls for the firm to drive sales from new opportunities such as biologics, emerging markets and adjacent technologies.

In 2009, the Investing for Growth pillar seemed to dominate the other three strategies as the company launched a bevy of new products and re-invested in its facilities in such emerging markets as China to ensure future growth. Smith & Nephew also strengthened its research and development efforts, making several key moves during the year that reinforced its reputation among the industry’s major orthopedic manufacturers for fostering innovative new product development.

In addition to devoting $155 million, or 4.1 percent of its total sales last year to R&D, company executives appointed a chief science officer. The new role, which went to veteran researcher Naseem Amin, was created to give Smith & Nephew an avenue for finding “new products that yield the greatest return for patients, healthcare professionals, shareholders and other stakeholders.” Amin is expected to play a critical role in building the company’s innovation and research and development capability in the years ahead, executives said.

Amin joined Smith & Nephew in August 2009. Previously, he was senior vice president of business development at Biogen Idec, a biotechnology firm in Weston, Mass. Before that, he worked for Genzyme Corporation, BaxterHealthcare and Eli Lilly and Company.

The company’s renewed focus on R&D also resulted in the opening of a new facility in Durham, N.C., that develops advanced biological therapies to promote healing and relieve pain. Corporate managers said they wanted the company to locate a facility in the Research Triangle area in order to access leading research universities.

Smith & Nephew expanded beyond North Carolina to leave its mark on three continents last year. The company opened or commissioned surgeon training centers in Shanghai, China; Lucerne, Switzerland;York, United Kingdom; and Memphis, Tenn. China became a hotbed of activity as executives mapped out a strategy to capture a leading share of that country’s medical device market, which is expected to swell to $6 billion by 2013. To reinforce its commitment there, the company created a “China Board” to guide strategy and located a head office in Shanghai. In addition, the firm broke ground on an orthopedic manufacturing site outside Beijing, and celebrated the opening of an Advanced Wound Management manufacturing plant in Suzhou.

The $60 million facility in Suzhou, which replaces the company’s manufacturing plant in Largo, Fla., is the first to be built and operated by Smith & Nephew since entering the Chinese market in 1994. The facility manufactures Allevyn adhesive dressings and other products for the company’s Advanced Wound Management franchise. Executives said the new manufacturing plant produced 9.6 million Allevyn dressings last year.

New additions to the Allevyn product line helped propel Advanced Wound Management sales by 6 percent last year to $846 million and operating profit by 41 percent to $144 million. The new products (released in both the United States and Europe) included Allevyn Ag Gentle, Allevyn Ag Gentle Border, Acticoat Flex 3 and Acticoat Flex 7. The Allevyn Gentle Ag dressings combine the antimicrobial protection of silver with silicone and soft gel adhesives to minimize pain and trauma to the wound when removing the dressing, according to a Smith & Nephew news release. The Acticoat products are made specifically for treating wounds that are highly susceptible to infection in “awkward anatomical” areas such as the face and hands.

The Acticoat products are the second-largest brand in Smith & Nephew’s wound management portfolio.

As such, Smith & Nephew decided it was best to assume full control of the intellectual property, manufacturing and assets related to the product’s nanocrystalline silver technology. In December, the company purchased the manufacturing assets and intellectual property from Nucryst Pharmaceuticals Corp. (based in Fort Saskatchewan, Canada) for $21 million.

Japanese regulatory officials approved a host of wound therapy products last year as well, including the Allevyn Ag Gentle Border and Cadex dressing. Allevyn products are sold there under the Hydrosite trade name.

Other new products introduced to the market in fiscal 2009 (ended Dec. 31) included a range of wound dressings for orthopedic procedures and the Renasys enhanced negative pressure Though new endoscopic devices helped drive a 15.7 percent increase in operating profit last year, the Endoscopy segment could not overcome the sharp decline in demand (mostly from hospitals) for visualization equipment such as digital cameras, scopes, light sources and monitors. As a result, 2009 revenue fell 1 percent to $791 million, dragged down by a 20 percent decrease in visualization products ($121 million). Arthroscopy device sales, which grew 7 percent to $647 million last year, comprised the bulk of the revenue in this segment.

Despite the decline in demand for visualization systems, the segment achieved some financial success with the debut of devices that stand a good chance of producing significant revenue for the company in the next several years. One of those devices is the Biceptor Tenodesis System, an updated approach to bicep tendon repair that enables surgeons to reattach the tendon to the humerus, or upper arm bone, using an all-arthroscopic procedure. Doctors claim the device simplifies biceps tenodesis procedures by eliminating steps and shortening the length of surgery.

Another promising new product launch last year was the Dyonics 5.5mm Bonecutter Electroblade Resector, an all-in-one device for treating one of the most common sources of shoulder pain—subacromial impingement. The resector performs the work of three separate devices: a mechanical shaver for soft tissue removal, a burr to smooth bone, and a radiofrequency probe to seal blood vessels at the surgery site. Use of the resector, Smith & Nephew executives said, often results in shorter procedures.

In addition to the new device launches, the Endoscopy segment secured regulatory clearances for various products in most major markets (except Japan, where the approval process is more lengthy). Approval was granted for the PEEK Interference Screw, BioSure PK Interference Screw, TwinFix Ultra PK FT Suture Anchor and Knotless Instability Anchor. The products, all made of polyetheretherketone, are designed to reattach ligaments, tendons or soft tissues to bone in knees, shoulders or other articulating joints.

The Orthopaedics segment—the largest of the company’s three business units—shouldered most of the new product launches and regulatory approvals in 2009. At least 20 approvals and clearances were granted worldwide, including those for the Journey Select knee system and Legion Porous Plus HA primary femoral components as well as upgrades to Birmingham Hip Replacement instruments, additions to the R3 Acitabular system, and accessories for the VLP Foot Plating Screw System. In addition, Japanese regulatory authorities approved the Trigen Meta-Nail system and Intertan Nail System, while European officials gave their okay to the company’s MIS hip stem and MDF revision hip stem. Smith & Nephew also received higher classification approvals for its total knee and total hip arthroplasty systems, and perfected the development of the Trigen Sureshot distal targeting system for intramedullary nailing. The Trigen device eliminates considerable amounts of radiation exposure to orthopedic trauma surgeons.

One of the more profitable new products for Smith & Nephew last year was its platform of patient-matched cutting blocks for total knee procedures. Dubbed Visionaire, the system uses a patient’s magnetic resonance imaging scans and X-rays to create custom cutting blocks that allow surgeons to achieve optimal mechanical axis alignment as well as save time in the operating room.

The Visionaire instruments, along with standbys such as the Legion Total Knee System, helped generate $2.1 billion in sales for the Orthopaedic segment last year, a 1 percent decrease from the $2.15 billion the unit earned in 2008. Operating profit climbed 7.3 percent to $410 million. Reconstruction products earned the most money for the segment ($1.4 billion), followed by orthopaedic trauma devices ($414 million) and clinical therapy systems ($235 million).

Overall company sales of $3.8 billion were flat last year, remaining on roughly the same level as 2008. Operating profit grew 15 percent to $723 million, and earnings per ordinary share climbed nearly 11 cents to 53.4 cents.

$3.8 Billion
NO. OF EMPLOYEES: 9,757

$3.4 Billion
NO. OF EMPLOYEES: 9,190

Some may have seen the orthopedic market cool in 2007, but that wasn’t the case for Smith & Nephew. Even as Sir Christopher O’Donnell retired from his post as head of the company’s board at the end of July, David J. Illingworth smoothly stepped into the role of CEO and was able to boast a 21% increase for the year’s revenues by the end of 2007. The double-digit increase, enviable for any company in business, was particularly impressive given 2006 revenues only had grown 9% compared with 2005. Whether examining revenues by product type, sales region or business segment, year-over-year increases were, in some cases, as high as 76%.

Once again, Smith & Nephew used its experience as a 152-year-old company to deftly handle legal entanglements with the government, complete strategic acquisitions, roll out new products and boost profits. By the year’s end, the company’s total revenue was $3.37 billion, compared with $2.78 billion in 2006.

Accounting for more than one-third (37%) of its revenue totals, the Reconstruction segment (overseen from Smith & Nephew’s Memphis, TN location), contributed $1.24 billion in 2007, up 35% from $919 million in 2006. The company reported that 18% of that gain was due to the May 2007 acquisition of Plus Orthopedics, a private Swiss company, for $889 million. Global knee revenue was up 25% for the year to $634 million, while global hip revenue grew 50% to $567 million.

Reconstruction growth (20%) in the United States ($618 million) was attributed to healthy sales for products such as the Legion and Journey knees and the Birmingham hip resurfacing system, all launched in recent years. The company can claim even greater success internationally, with revenue rising 54% in 2007 compared with 2006, bringing the year’s total to $622 million. Europe sales grew 76% (more than half of which was a result of acquisitions), and Japan sales grew 13%.

The next largest contributor to Smith & Nephew’s 2007 revenues, with 23% of total revenues, was the Advanced Wound Management segment. For the year, this unit saw revenue increase 12%, from $698 million in 2006 to $779 million in 2007. US revenues increased 13% to $157 million, while revenues outside the United States were on par with an 11% increase to $622 million. European regions all posted double-digit percentage gains, but growth in Japan was flat, according to the company.

In May 2007, Smith & Nephew strengthened its offerings in wound management by purchasing BlueSky Medical Group, Inc., a private US company, for an initial payment of $15 million, with future milestone payments of up to $95 million. The company’s stated strategy has been to enter to the negative pressure wound therapy market, which the executive team believes is estimated at $1.4 billion. The Allevyn hydrocellular dressings were enhanced with new versions in the past couple of years, with 2007 bringing additions such as silver variants. Acticoat also offered new dressings for infection prevention. Last year, the company also entered into an agreement with Covalon Technologies, Inc. to distribute a range of denatured collagen dressings.

The Endoscopy segment, which added 22% of the company’s total revenue, reported growth of 13% to $732 million, compared with $648 million in 2006. In the United States, sales increased by 5% to $361 million and were driven by the knee and shoulder repair sector as well as revenues from the company’s Visualization and Digital Operating Room, which grew 7% due to the launch of the HD660 camera. Overseas revenue gains were healthier at 22% for the year, bringing the total to $371 million by the close of 2007.

The company expanded its shoulder repair offerings with the launch of the Kinsa RC Suture Anchor, while the arthroscopic hip repair market benefited from the introduction of the Lateral Hip Positioning System. The Endoscopy segment also redesigned and expanded its line of Clear-Trac disposable cannulas. Regulatory clearances also were granted in most major markets (excluding Japan) for the Kinsa anchor, Ultra Fast-Fix, Trufit BGS, 560 High Definition camera system and various arthroscopy instruments and devices.

Revenues from the Trauma and Clinical Therapies segment, which contributed 18% of Smith & Nephew’s total revenue, grew 20% to $618 million in 2007, compared with $514 million in 2006. US revenue for the year increased 12% to $414 million, while international revenue increased 41% to $204 million.

The company’s 2006 acquisition of Durolane hyaluronic acid product paid off in 2007 as it accounted for 5% of the underlying growth in sales outside the United States within clinical therapies (which grew 27% for the year). US clinical therapies operations were aided by a larger sales force that drove growth of Exogen (22%) and Supartz (10%) products. By August 2007, Exogen had captured the industry’s top market share position for long bone stimulation, according to the company

The fixation product segment grew 17% for the year. In the United States, where sales grew 11%, continued growth of the Peri-Loc compression plate system (launched in 2006) and the launch of the Intertan nail contributed to the gains. The Peri-Loc Variable-Angle Locked Plating System was a significant introduction for 2007, as was the Peri-Loc Periarticular Reduction Forcepts Set. Other important launches in fixation included the Large Cannulated Screw System, Trigen Meta-Nail Blocking Screw Instruments, Trigen Percutaneous Intertrochanteric/Femoral Antegrade Nail Instruments and Caption Platelet Rich Concentrate System.

Overall, the company’s largest markets were the United States (46%) and Europe (35%), with Africa, Asia and Australia and other regions rounding out the balance. In the United States, Smith & Nephew reached a settlement in September with the US Attorney for the District of New Jersey’s office with regard to the subpoena the company (along with four other competitors) received in 2005 pertaining to antitrust law violations related to implant sales. Smith & Nephew paid a civil restitution payment of $29 million and legal costs of $1 million, as well as agreed to improve its compliance system.

A few minor product recall issues also were dealt with in 2007. In March, the company recalled 539 RF Denervation probes, used with the Electrothermal 20S Spine System in radiofrequency heat lesion procedures for pain relief, due to sterility labeling issues. A packaging error at a subcontractor also led to a voluntary withdrawal of 185 Birmingham hip resurfacing system implants. In addition, a precautionary recall was announced for knees from the TC-Plus, VKS and RT-Plus knee ranges after it was deemed that a limited number of semi-finished knee implant castings had a higher-than-specified iron content due to a production error at a supplier’s factory.

On first glance, very little appeared to be slowing Smith & Nephew down in 2008. The company’s first quarter, ended March 29, produced revenue gains of 22% to $911 million, compared with $744 million for the first quarter of 2007. The Reconstruction segment grew a substantial 44% to $377 million, while Advanced Wound Management, Trauma and Clinical Therapies, and Endoscopy had percentage increases of 2% ($189 million), 11% ($151 million) and 10% ($194 million), respectively. New product introductions for 2008 include the Arthrogarde Hip Access Cannula, the Footprint PK Suture Anchor, the R3 Acetabular System, Vertilast Technology and the Caption Disposable Platelet Concentration System.

In spite of the slew of product launches and double-digit sales increases, management said the results for the quarter were tempered by some problematic issues related to sales practices in Europe by Plus Orthopedics—the company now is working to harmonize standards in the group with Smith & Nephew’s company-wide standards. For the full year, the company expects projected revenues to be reduced by about $100 million as a result of the problems. The Trauma and Clinical Therapies segment also had disappointing US sales, which were flat at 1% growth, but Illingsworth noted that European business was strong.

With favorable global market conditions overall, Illingsworth remained optimistic regardless of the problems he has inherited. “Although this has been a challenging quarter in parts of our business in Europe, we have taken firm action and we are confident that the overall business is in a strong position for continued strong sustainable profit growth,” he concluded.

$2.8 Billion
No. of Employees: 8,830

As a key player in the orthopedic reconstruction business, Smith & Nephew proved in 2006 that it will continue to exercise dominance in orthopedic devices. Amid a flurry of product launches and acquisitions, the company increased its annual revenue by 9% compared with 2005, totaling $2.8 billion in 2006.

The year started with a decision to split its orthopedic business unit into two separate global units: Orthopaedic Reconstruction and Orthopaedic Trauma and Clinical Therapies. These two newly formed units contributed $919 million (10% growth) and $497 million (13%), respectively, to FY 2006 revenue.

Some of the most notable product launches in the Reconstruction unit included the Journey knee, the Birmingham Hip Resurfacing system (in the United States) and Emperion hip system. Adding to the bottom line in 2006 were the late-2005 launches of Legion and Anthology. New products contributed 15% of the unit’s total sales in 2006.

Meanwhile, the Trauma group launched an upper extremity system for the Peri-Loc Periarticular Locked Plating System, as well as the Intertan Intertrochanteric Antegrade Nail for treatment of femoral fractures, the Meta Nail for fractures of the femur and tibia, and the Exogen 4000+ Bone Healing System. The company also received FDA approvals for 6.5 mm and 8 mm Cannulated Screws (April), Caption Disposable Platelet Concentrator (May) and Peri-Loc B Plates (September). The Trauma group also formed a strategic alliance with Q-Med AB (a Swedish company) as a means of gaining share of Q-Med’s propriety technology for the production of stabilized non-animal hyaluronic acid for orthopedic applications. As part of this agreement, Smith & Nephew gained rights to market, sell and distribute Durolane single-injection hyaluronic acid therapy (approved in Europe and Canada).

Non-orthopedic units had mixed results. The Endoscopy segment grew 9% in 2006, adding $665 million to the company’s total sales. Some of its notable launches included the Calaxo Osteoconductive Interface Screw, the Bioraptor Hip Suture Anchor, the Hip Positioning System and the Kinsa Suture Anchor.  In addition, the company launched digital products, such as  the 660HD Image Management System and the Condor Control System.

Advanced Wound Management had a flat year, with $698 million in sales, a 1% increase. The division launched enhanced Allevyn Non-Adhesive dressings in Europe, which expands upon the Allevyn Adhesive and Sacrum introduced in early 2006.

In terms of total revenue for Smith & Nephew, nearly half of all sales occurred in the United States, which contributed nearly $1.4 billion, an 8% increase since 2005. Europe contributed $867 million, a rise of 6% over the last year. Other regions, including Japan, added $547 million to the bottom line, reflecting a 12% increase

In attempts to bolster its sales in Europe, Smith & Nephew shelled out $72 million in July 2006 for OsteoBiologics Inc., which markets bioabsorbable bone graft substitutes and provides the only off-the-shelf bioabsorbable implant for articular cartilage repair on the European market.

In legal news, Smith & Nephew was granted a favorable court ruling against Synthes in October 2006. The dispute drew its roots in November 2002, when Smith & Nephew brought Synthes to court on issues related to patent infringement. A permanent injection mandated that Synthes could no longer sell or promote the Synthes Trochanteric Fixation Nail and Proximal Fixation Nail products in the United States for the use of repairing intertrochanteric fractures.

Of course, the year wouldn’t complete for the orthopedic industry, it seems, without a subpoena for the major players. Smith & Nephew was one of five companies in the industry to receive subpoenas from the US Attorney’s Office concerning possible antitrust law violations relating to the sale of implants. Investigations are ongoing.

The year wrapped up with Smith & Nephew expressing interest and then terminating speculation that it would merge with Biomet Inc. and become one business. Biomet has since been the target of a private equity group (for more information, read Top of the News on page 12).

Foreseeable change is in the air for Smith & Nephew, with the first half of 2007 reflecting a time of executive realignment, more product launches and key acquisitions.

Major switches in executive posts were unveiled in early 2007, with the most significant announcement being that Smith & Nephew’s chief executive, Sir Christopher O’Donnell, would retire on July 31. A nearly 20-year employee of the company who served in his post since 1998, O’Donnell was responsible for streamlining the company from nine divisions to its current four. His replacement is David Illingworth, former COO, who assumed responsibility as chief executive on July 1.

In the first half of 2007, Smith & Nephew’s Advanced Wound Management business hit the ground running in mergers and acquisitions. In January, the division announced an agreement with UDL Laboratories Inc., a subsidiary of Mylan Laboratories Inc., to exclusively distribute Biobrane Biosynthetic Wound Dressing outside the United States. In line with the company’s expansion initiatives, the Advanced Wound Management division announced in March an agreement with Covalon Technologies for its advanced range of collagen dressings and became the sole distributor of ColActive.

Additionally, in May, the division agreed to purchase BlueSky Medical Group Inc. for $15 million (plus additional payments depending on performance). BlueSky manufactures negative pressure pumps and wound dressing kits. According to Smith & Nephew, its strategy in purchasing this company is to enter the “fastest growing segment of the advanced wound care market.”

In the same month, Smith & Nephew entered into a global distribution agreement with Teknimed SA to distribute, market and sell Teknimed’s Spine Fix bone cement product (for treatment of spinal compression fractures) in North America, Europe and Australia.

Most recently, Smith & Nephew acquired Plus Orthopedics Holding AG, a private Swiss company, in June, for $889 million. According to Smith & Nephew, this purchase will double the company’s share in the European reconstruction market, and the combined company will become the third largest orthopedic business in Germany. The acquisition also increases Smith & Nephew’s presence in Asia. Plus Orthopedics, an implant manufacturer, had $300 million in revenues in 2006.

In July, Smith & Nephew globally launched its new Journey Deuce bi-compartmental knee system, which is intended to provide nearly 70% of patients receiving a total knee replacement the option of a more minimally invasive, bone- and ligament-preserving treatment. The implant is called the Deuce because it replaces only two areas of the knee most commonly affected by osteoarthritis while keeping the third area intact.

Traditional total knee replacement resurfaces and replaces the ends of the thighbone, shinbone and knee cap. However, one study has indicated that up to 70% of the disease in osteoarthritic knees is limited to the kneecap and the inner portion of the thigh and shinbone. The Journey Deuce treats only the diseased areas leaving the lateral portion of the femur and tibia untouched. The system is designed using oxidized zirconium, a wear-reducing surface.

During this year’s American Academy of Orthopaedic Surgeons annual meeting, a financial analyst firm Wachovia selected the implant as the “most innovative reconstructive product” at the event. The Journey Deuce will be available in the United States, Canada, Australia and Europe, and nearly 200 non-design team surgeons have been trained on the system to date, the company said.