07.26.17
$4.7 Billion
KEY EXECUTIVES:
Roberto Quarta, Chairman
Olivier Bohuon, CEO
Graham Baker, CFO
Michael Frazzette, Chief Commercial Officer
Rodrigo Bianchi, President, Asia Pacific and Emerging Markets
Brad Cannon, President, Europe and Canada
Glenn Warner, President, U.S.
NUMBER OF EMPLOYEES: 15,644
GLOBAL HEADQUARTERS: London, United Kingdom
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!
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.
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 & 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.
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 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, 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.”
KEY EXECUTIVES:
Roberto Quarta, Chairman
Olivier Bohuon, CEO
Graham Baker, CFO
Michael Frazzette, Chief Commercial Officer
Rodrigo Bianchi, President, Asia Pacific and Emerging Markets
Brad Cannon, President, Europe and Canada
Glenn Warner, President, U.S.
NUMBER OF EMPLOYEES: 15,644
GLOBAL HEADQUARTERS: London, United Kingdom
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!
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
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 & 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.
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 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, 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.”
