Rank: #4 (Last year: #4)
Prior Fiscal: $4.76 Billion
Percentage Change: +2.9%
No. of Employees: 16,377
Global Headquarters: London, United Kingdom
Roberto Quarta, Board Chairman
Namal Nawana, CEO
Graham Baker, CFO
Mark Gladwell, President, Global Operations
Melissa Guerdan, Chief Quality and Regulatory Affairs Officer
Vasant Padmanabhan, President of Research and Development
Cathy O’Rourke, Chief Legal and Compliance Officer
Phil Cowdy, Exec. VP, Business Development and Corporate Affairs
Massimiliano Colella, President, Europe, Middle East, and Africa
Rodrigo Bianchi, Interim President, Asia Pacific
Brad Cannon, President, Sports Medicine & ENT
Simon Fraser, President, Advanced Wound Management
Skip Hill, President, Orthopaedics
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
“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.