07.20.23
Rank: #24 (Last year: #24)
$5.215 Billion
Prior Fiscal: $5.212 Billion
Percentage Change: -0.06%
R&D Expenditure: $345 Million
Best FY21 Quarter: Q4 $1.36 Billion
Latest Quarter: Q1 $1.35 Billion
No. of Employees: 19,000
Global Headquarters: London, United Kingdom
KEY EXECUTIVES:
Roberto Quarta, Board Chairman
Deepak Nath, CEO
Brad Cannon, President, Orthopaedics, Sports Medicine & ENT, and Americas
Simon Fraser, President, Advanced Wound Management and Global Commercial Operations
Paul Connolly, President, Global Operations
Phil Cowdy, Chief Corporate Development and Corporate Affairs Officer
Myra Eskes, President, APAC Region and Global Service
Vasant Padmanabhan, President, Research and Development
Alison Parkes, Chief Compliance Officer
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.
$5.215 Billion
Prior Fiscal: $5.212 Billion
Percentage Change: -0.06%
R&D Expenditure: $345 Million
Best FY21 Quarter: Q4 $1.36 Billion
Latest Quarter: Q1 $1.35 Billion
No. of Employees: 19,000
Global Headquarters: London, United Kingdom
KEY EXECUTIVES:
Roberto Quarta, Board Chairman
Deepak Nath, CEO
Brad Cannon, President, Orthopaedics, Sports Medicine & ENT, and Americas
Simon Fraser, President, Advanced Wound Management and Global Commercial Operations
Paul Connolly, President, Global Operations
Phil Cowdy, Chief Corporate Development and Corporate Affairs Officer
Myra Eskes, President, APAC Region and Global Service
Vasant Padmanabhan, President, Research and Development
Alison Parkes, Chief Compliance Officer
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.