07.24.12
20.Smith & Nephew
$4.3 Billion
KEY EXECUTIVES:
Olivier Bohuon, CEO
Adrian Hennah, Chief Financial Officer
Mark Augusti, President, Clinical Therapies/Biologics
Michael Frazzette, President, Advanced Surgical Devices
Roger Teasdale, President, Advanced Wound Management
Francisco Canal Vega, President, Emerging Markets
Kelvin Johnson, President, International Markets
Gordon Howe, Sr. VP, Global Planning & Development
NO. OF EMPLOYEES: 10,743
GLOBAL HEADQUARTERS: London, UK
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 such as 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 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; the move prompted the departure of Joseph M. DeVivo, who had led the Orthopaedics business segment since 2006. The company’s advanced wound management business remains a separate unit. Both divisions focus on the established markets of the United States, Canada, Europe, Japan, Australia and New Zealand.
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 Americas, 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 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.
$4.3 Billion
KEY EXECUTIVES:
Olivier Bohuon, CEO
Adrian Hennah, Chief Financial Officer
Mark Augusti, President, Clinical Therapies/Biologics
Michael Frazzette, President, Advanced Surgical Devices
Roger Teasdale, President, Advanced Wound Management
Francisco Canal Vega, President, Emerging Markets
Kelvin Johnson, President, International Markets
Gordon Howe, Sr. VP, Global Planning & Development
NO. OF EMPLOYEES: 10,743
GLOBAL HEADQUARTERS: London, UK
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 such as 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 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; the move prompted the departure of Joseph M. DeVivo, who had led the Orthopaedics business segment since 2006. The company’s advanced wound management business remains a separate unit. Both divisions focus on the established markets of the United States, Canada, Europe, Japan, Australia and New Zealand.
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 Americas, 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 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.
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