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Product / Company Performance

Smith & Nephew Reports 3Q18 Orthopaedic Revenue of $808.7MM, +2.0% vs. 3Q17 -

By Mike Evers, ORTHOWORLD

 

Smith & Nephew reported 3Q18 orthopaedic revenue of US $808.7MM, +2.0% vs. 3Q17. The company drove sales growth while reengineering the organization from a regional sales structure to a global franchise model.

 

Growth in All Segments

Leadership called out joint reconstruction as a quarter highlight and noted that they took market share. Knees experienced growth despite competition offset in the U.S. from Zimmer Biomet. Smith & Nephew picked up traditional Zimmer Biomet customers when it purchased the ZUK unicompartmental knee in 2015, and is now seeing those surgeons return to Zimmer Biomet with the launch of its own Uni Knee. Smith & Nephew’s JOURNEY II, LEGION Revision and ANTHEM knee systems all posted double-digit growth in the quarter and are expected to be key contributors into 2019. Hips, a segment where leadership believes that the company has better technology than their market share indicates, grew 1.4 % supported by POLAR3 and the REDAPT revision system.

Trauma revenue was driven by U.S. sales, the only market with access to the new EVOS SMALL plating system. CEO and Executive Director Namal Nawana commented that the company has always had outstanding intramedullary nails, but has lagged in their plating systems. EVOS fills that portfolio gap, and will further contribute to growth as the launch broadens to international markets in 2019.

Arthroscopy and Soft Tissue Repair saw solid performance in sports medicine joint repair products, offset by a 4% decline in arthroscopic enabling technology products. The launch of the FLOW90 Wand is expected to enable the company to leverage the WEREWOLF COBLATION system for shoulder repair in 1H19.

ORTHOWORLD projects 2018 Smith & Nephew orthopaedic revenue of $3,449.8MM, +2.9% vs. 2017.

ORTHOWORLD estimates 3Q18 and YTD segment sales and growth on an as-reported basis, as follows.

  3Q18 3Q17 $ Change % Change
Joint Reconstruction $395.9 $389.3 $6.6 1.7%
Knees $240.7 $236.2 $4.5 1.9%
Hips $142.0 $140.0 $2.0 1.4%
Extremities $13.2 $13.1 $0.1 0.7%
Trauma $108.8 $106.9 $1.9 1.8%
Arthroscopy/Soft Tissue Repair $304.0 $297.0 $7.0 2.4%
Total  $808.7 $793.2 $15.5 2.0%

 

  YTD18 YTD17 $ Change % Change
Joint Reconstruction $1,267.4 $1,224.1 $43.3 3.5%
Knees $774.6 $742.1 $32.5 4.4%
Hips $453.0 $442.0 $11.0 2.5%
Extremities $39.8 $40.0 -$0.2 -0.5%
Trauma $325.5 $327.0 -$1.5 -0.5%
Arthroscopy/Soft Tissue Repair $952.0 $903.0 $49.0 5.4%
Total  $2,544.8 $2,454.1 $90.7 3.7%

 

3Q18 Revenue by Geographic Region

While U.S. sales performed well, international sales were held back by a weak European market, particularly in Germany and the U.K. The company does not expect the U.K.’s withdrawal from the E.U. to impact its long-term ability to conduct business, but it is preparing for various scenarios. Headwinds in Germany are expected to be ongoing for multiple quarters. Emerging markets growth was led by China.

ORTHOWORLD estimates Smith & Nephew’s orthopaedic revenue by geographic region as follows.

Geographic Region 3Q18 3Q17 $ Change % Change
US $393.6 $375.3 $18.4 4.9%
Ex-US $415.1 $418.0 -$2.9 -0.7%
Total  $808.7 $793.2 $15.5 2.0%

 

Divide and Conquer

Smith & Nephew has undergone significant changes in its organizational structure, pursuing a strategy of “divide and conquer.” Per Nawana, “We’re moving from a regional selling model with traditionally two leaders represented on the Executive Committee to a global franchise structure, with dedicated presidents of Orthopaedics, Sports Medicine and ENT and Wound Management, all represented on the Executive Committee.” Additionally, two ex-U.S. regions will be represented on the executive team with EMEA and Asia Pacific both getting presidents.

This reorganization removes several layers of management and gets leadership closer to their customers. Two of three franchise presidents are now in place, with Brad Cannon leading Sports Medicine and ENT and Skip Kiil—formerly Executive Vice President of Global Commercial at NuVasive—just announced as President of Orthopaedics. Leadership expects to be fully transitioned to the new structure and tracking results starting January 1, 2019.

Smith & Nephew also plans to be more active in M&A to manage its portfolio and is currently evaluating “numerous” bolt-on acquisitions. These are expected to enhance the company’s portfolio with some near-term technologies.

 

Sources: Smith & Nephew; ORTHOWORLD estimates. All revenue figures presented in USD $MM.

Mike Evers is ORTHOWORLD’s Market Analyst. He can be reached by email.

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