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ORTHOWORLD estimates Smith & Nephew (SNN) 4Q17 orthopaedic revenue of US $899.3MM, +5.2% from 4Q16, and 2017 revenue of $3,353.4MM, +3.2% vs. 2016. Not only did SNN review its quarterly and annual revenue, but also announced APEX: a cost review initiative. I’ll recap segment performance, then delve into APEX.
ORTHOWORLD estimates for segment growth follow.
| 4Q17 | 4Q16 | $ Change | % Change | |
| Joint Reconstruction | $445.3 | $421.1 | $24.2 | 5.8% |
| Hip | $157.0 | $153.0 | $4.0 | 2.6% |
| Knee | $274.3 | $254.9 | $19.5 | 7.6% |
| Extremities | $14.0 | $13.2 | $0.8 | 5.7% |
| Trauma | $114.0 | $106.8 | $7.2 | 6.8% |
| Arthroscopy/Soft Tissue | $340.0 | $327.0 | $13.0 | 4.0% |
| Total | $899.3 | $854.9 | $44.5 | 5.2% |
| 2017 | 2016 | $ Change | % Change | |
| Joint Reconstruction | $1,669.4 | $1,609.8 | $59.6 | 3.7% |
| Hip | $599.0 | $597.0 | $2.0 | 0.3% |
| Knee | $1,016.4 | $960.5 | $55.9 | 5.8% |
| Extremities | $54.0 | $52.3 | $1.7 | 3.3% |
| Trauma | $441.0 | $422.8 | $18.3 | 4.3% |
| Arthroscopy/Soft Tissue | $1,243.0 | $1,218.0 | $25.0 | 2.1% |
| Total | $3,353.4 | $3,250.5 | $102.9 | 3.2% |
Joint Reconstruction
4Q was an outstanding quarter for knees, with a reported return to double-digit growth in Emerging Markets. Contributors to growth included JOURNEY II, LEGION Revision, launch of the NAVIO robotics-assisted bone prep application for total knee, and expansion of the ANTHEM total knee and ORTHOMATCH instrumentation platform to markets like Russia and Saudi Arabia.
A highlight in the quarter was completion of the first robotics-assisted bi-cruciate-retaining TKA with the new JOURNEY II XR implant. A combination of XR and NAVIO will be showcased at AAOS in March 2018, and full U.S. commercial launch of JOURNEY II XR is a focus for this year. Leadership noted that >500 surgeons were trained on NAVIO in the U.S. during 2017.
Further, CEO Bohuon mentioned development of a next-gen uncemented knee for future roll-out—not in 2018.
Hips posted a second sequential quarter of positive growth, continuing to benefit from the cementless POLARSTEM and rollout of the gap-filling REDAPT revision system.
Of note, after the quarter’s close, SNN announced observation of a 97.3% decrease in hospital readmissions following total joint arthroplasties conducted under its eCAP Episode of Care Assurance Program. Specifically, over 14 months, 1,380 TJAs were conducted with program partner Provider PPI, with only two readmissions—a rate of 0.145%, vs. rates of 5.3% or more published in 2013.
Trauma
The TRIGEN INTERTAN hip fracture nail was called out for reaccelerted performance, supported by new clinical evidence. Leadership also mentioned recent launch of an ATLAS nail.
Arthroscopy/Soft Tissue Repair
This is the first quarter of revenue that includes a contribution from the acquisition of Rotation Medical, which contributed to a 9% YoY increase in revenue in the company’s Sports Medicine Joint Repair reporting segment. Arthroscopic Enabling Technologies, which posted a -3% drop YoY, is expected to benefit throughout 2018 from full market launch of new WEREWOLF COBLATION and LENS camera systems. (Recall from my 3Q17 revenue review that we add Sports Medicine Joint Repair and AET to arrive at SNN’s arthroscopy/soft tissue repair number.)
Accelerating Performance and Execution Programme: APEX
In pursuit of efficiency and a strong competitive position, and on top of improvements already made, this program is expected to deliver an annualized benefit of $160MM off its operating budget by 2022—with about 75% of that expected by 2020—for a one-time cash cost of up to $240MM. (Of this, ~$100MM will be paid in 2018.) Of note, APEX will not affect the commercial organization or top-line growth.
APEX will focus on:
Manufacturing, Warehousing and Distribution
Today, SNN has a global manufacturing footprint of 20 facilities, twelve of which are under 100,000 sq. ft. The company will invest in larger sites that will support increased volume and scale, supported by specialty facilities where needed. The supply chain will be streamlined through 100+ projects intended to reduce freight costs, cut down the number of supplier partners, centralize routine functions, reduce complexity at the borders, etc.
General and Administrative Expenses
Transactional services (payroll, invoicing, tech support, etc.) will be standardized and localized to three hubs in Costa Rica, Poland and India. Legacy IT systems will be rationalized and a cloud-first approach implemented.
Commercial Effectiveness
This will focus on improved productivity and top line growth through increased sales/marketing effectiveness (e.g. new incentive schemes, move to a disease-based sales emphasis, whole portfolio sales, reduce non-selling tasks), response to customers’ changing service level demands and more accurate demand forecasting.
Finally, for 2018, revenue is guided to increase by 7% to 8% on a reported basis, supported by currency tailwinds and the Rotation Medical acquisition.
What exciting times.
Sources: Smith & Nephew plc; ORTHOWORLD Inc. estimates
ORTHOWORLD estimates Smith & Nephew (SNN) 4Q17 orthopaedic revenue of US $899.3MM, +5.2% from 4Q16, and 2017 revenue of $3,353.4MM, +3.2% vs. 2016. Not only did SNN review its quarterly and annual revenue, but also announced APEX: a cost review initiative. I’ll recap segment performance, then delve into APEX.
ORTHOWORLD estimates for...
ORTHOWORLD estimates Smith & Nephew (SNN) 4Q17 orthopaedic revenue of US $899.3MM, +5.2% from 4Q16, and 2017 revenue of $3,353.4MM, +3.2% vs. 2016. Not only did SNN review its quarterly and annual revenue, but also announced APEX: a cost review initiative. I’ll recap segment performance, then delve into APEX.
ORTHOWORLD estimates for segment growth follow.
| 4Q17 | 4Q16 | $ Change | % Change | |
| Joint Reconstruction | $445.3 | $421.1 | $24.2 | 5.8% |
| Hip | $157.0 | $153.0 | $4.0 | 2.6% |
| Knee | $274.3 | $254.9 | $19.5 | 7.6% |
| Extremities | $14.0 | $13.2 | $0.8 | 5.7% |
| Trauma | $114.0 | $106.8 | $7.2 | 6.8% |
| Arthroscopy/Soft Tissue | $340.0 | $327.0 | $13.0 | 4.0% |
| Total | $899.3 | $854.9 | $44.5 | 5.2% |
| 2017 | 2016 | $ Change | % Change | |
| Joint Reconstruction | $1,669.4 | $1,609.8 | $59.6 | 3.7% |
| Hip | $599.0 | $597.0 | $2.0 | 0.3% |
| Knee | $1,016.4 | $960.5 | $55.9 | 5.8% |
| Extremities | $54.0 | $52.3 | $1.7 | 3.3% |
| Trauma | $441.0 | $422.8 | $18.3 | 4.3% |
| Arthroscopy/Soft Tissue | $1,243.0 | $1,218.0 | $25.0 | 2.1% |
| Total | $3,353.4 | $3,250.5 | $102.9 | 3.2% |
Joint Reconstruction
4Q was an outstanding quarter for knees, with a reported return to double-digit growth in Emerging Markets. Contributors to growth included JOURNEY II, LEGION Revision, launch of the NAVIO robotics-assisted bone prep application for total knee, and expansion of the ANTHEM total knee and ORTHOMATCH instrumentation platform to markets like Russia and Saudi Arabia.
A highlight in the quarter was completion of the first robotics-assisted bi-cruciate-retaining TKA with the new JOURNEY II XR implant. A combination of XR and NAVIO will be showcased at AAOS in March 2018, and full U.S. commercial launch of JOURNEY II XR is a focus for this year. Leadership noted that >500 surgeons were trained on NAVIO in the U.S. during 2017.
Further, CEO Bohuon mentioned development of a next-gen uncemented knee for future roll-out—not in 2018.
Hips posted a second sequential quarter of positive growth, continuing to benefit from the cementless POLARSTEM and rollout of the gap-filling REDAPT revision system.
Of note, after the quarter’s close, SNN announced observation of a 97.3% decrease in hospital readmissions following total joint arthroplasties conducted under its eCAP Episode of Care Assurance Program. Specifically, over 14 months, 1,380 TJAs were conducted with program partner Provider PPI, with only two readmissions—a rate of 0.145%, vs. rates of 5.3% or more published in 2013.
Trauma
The TRIGEN INTERTAN hip fracture nail was called out for reaccelerted performance, supported by new clinical evidence. Leadership also mentioned recent launch of an ATLAS nail.
Arthroscopy/Soft Tissue Repair
This is the first quarter of revenue that includes a contribution from the acquisition of Rotation Medical, which contributed to a 9% YoY increase in revenue in the company’s Sports Medicine Joint Repair reporting segment. Arthroscopic Enabling Technologies, which posted a -3% drop YoY, is expected to benefit throughout 2018 from full market launch of new WEREWOLF COBLATION and LENS camera systems. (Recall from my 3Q17 revenue review that we add Sports Medicine Joint Repair and AET to arrive at SNN’s arthroscopy/soft tissue repair number.)
Accelerating Performance and Execution Programme: APEX
In pursuit of efficiency and a strong competitive position, and on top of improvements already made, this program is expected to deliver an annualized benefit of $160MM off its operating budget by 2022—with about 75% of that expected by 2020—for a one-time cash cost of up to $240MM. (Of this, ~$100MM will be paid in 2018.) Of note, APEX will not affect the commercial organization or top-line growth.
APEX will focus on:
Manufacturing, Warehousing and Distribution
Today, SNN has a global manufacturing footprint of 20 facilities, twelve of which are under 100,000 sq. ft. The company will invest in larger sites that will support increased volume and scale, supported by specialty facilities where needed. The supply chain will be streamlined through 100+ projects intended to reduce freight costs, cut down the number of supplier partners, centralize routine functions, reduce complexity at the borders, etc.
General and Administrative Expenses
Transactional services (payroll, invoicing, tech support, etc.) will be standardized and localized to three hubs in Costa Rica, Poland and India. Legacy IT systems will be rationalized and a cloud-first approach implemented.
Commercial Effectiveness
This will focus on improved productivity and top line growth through increased sales/marketing effectiveness (e.g. new incentive schemes, move to a disease-based sales emphasis, whole portfolio sales, reduce non-selling tasks), response to customers’ changing service level demands and more accurate demand forecasting.
Finally, for 2018, revenue is guided to increase by 7% to 8% on a reported basis, supported by currency tailwinds and the Rotation Medical acquisition.
What exciting times.
Sources: Smith & Nephew plc; ORTHOWORLD Inc. estimates
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Julie Vetalice is ORTHOWORLD's Editorial Assistant. She has covered the orthopedic industry for over 20 years, having joined the company in 1999.
