Sports medicine and wound management have been strong growth areas for Smith & Nephew, which has also seen its orthopedics business gain momentum since the end of 2022. With COVID behind them and patients and their physicians returning to elective procedures, the company is seeing strong market revenue growth in 2022, according to CEO Deepak Nath, who spoke during its first quarter trading update.
“We’re working hard on productivity, including completing the detailed planning for the cost actions we announced with our full year results progress,” said Nath.
Revenue was $1.4 billion with a 6.9 percent underlying growth from all the franchises. This contributed to growth and maintained their good momentum from the end of 2022, said CFO Anne-Francoise Nesmes. That performance growth was driven by an established market with its U.S. business growing at 11.8 percent and other established markets growing at 7 percent. A significant factor, she said, was that healthcare systems across the Americas, Europe, and much of Asia Pacific was stronger with elective procedures volume being greater than anticipated.
Launch of CORI Digital Tensioner
The CORI Digital Tensioner produces a surgeon-defined, quantifiable force to distract the knee joint, apply consistent tension to the ligaments, and provide objective gap data for procedure planning and execution. A small clinical case series showed that the digital tensioner reduced variability of tensioning by 64 percent when compared to a manual technique.
CORI was driven by accelerating at the adoption of robotics. The company also reached a development milestone in March 2023 with the first surgical procedure using the digital tensioner. This device is the first in a series planned for CORI.
The U.S. market is already showing what this portfolio is capable of, said Nesmes. It has had high single-digit growth, helping to build a portfolio in orthopedics around “best in class” and differentiate the company from its competitors.
“We believe this will be a significant work for the segment. This is the most visible with cementless [implants] and CORI’s revision capability and will be more evident in hips and trauma and extremities over time,” she said.
Advancing procedural innovation in robotic-assisted surgery, the CORI Digital Tensioner is a differentiated technology that helps solve challenges for surgeons. It is the first and only ligament tensioning device in robotic-assisted surgery to assess joint laxity in the native knee before performing bony resection. It provides automatic collection of gap data at a specified force through the full range of movement. The device uses a software interface that allows surgeons to choose their preferred target force value.
Smith & Nephew’s ENT franchise grew 10 percent in the first quarter despite some ongoing external supply-chain challenges and the impact of the COVID wave in China, said Nesmes. Joint repair grew 7.3 percent with strong performance across all procedure types. Developing new market segments and the steady stream of innovation have been key components of long-term growth in sports medicine.
In biologics, the company’s REGE-NETEN Bioinductive Implant added further growth as a driver in knee repair, demonstrating new solutions for ligament reconstruction. The implant is redefining biological healing. It supports the body’s natural healing response to facilitate new tendon-like tissue growth and changes the course of rotator cuff disease progression. Comprised of type 1 collagen, the system is designed to address biological tendon regeneration for everything from partial thickness to massive rotator cuff tears. It stimulates the body’s natural healing response to support new tendon growth and disrupt disease progression. Derived from highly purified bovine Achilles tendon, it creates an environment that is conducive to healing.
Arthroscopic enabling technologies, for example, grew 9.1 percent in the first quarter. Its Core COBLATION and the ongoing ramp-up of FASTSEAL were the major contributors, along with a soft prior year comparator from supply constraints in 2022.
Smith & Nephew expects moderation of the growth rate during 2023 as end markets approach more normalized levels. However, ENT is an attractive growth area as the market recovers, despite facing some ongoing supply challenges. ENT growth of 30.8 percent also reflects post-COVID recovery in tonsil and adenoid procedures.
Advanced Wound Management
Despite also facing ongoing supply challenges, advanced wound management grew 7.9 percent. As in previous quarters, Nesmes said that advanced wound care delivered solid performance across most major regions, with underlying growth of 1 percent, compared with the prior year. Bioactives grew 15.2 percent, with the primary driver being double-digit growth in skin substitutes.
Nesmes pointed to the acquisition of Osiris Therapeutics, Inc. as a good example of the company’s tuck-in M&A strategy, because it both added to the growth of the franchise and delivered attractive financial returns. Osiris develops regenerative medicine products including skin, bone graft, and articular cartilage substitutes. The acquisition was expected to accelerate growth from Smith & Nephew’s advanced wound management franchise.
A growth of 12.9 percent for advanced wound devices reflects a similar pattern to the company’s previous quarter, with double-digit growth for the company’s single-use product PICO and a significant contribution from its traditional platform, RENASYS. Suitable for use in a hospital or home care setting, the PICO single-use negative pressure wound therapy system also features a gentle silicone dressing adhesive that helps minimize trauma and pain in the peri-wound area. The RENASYS GO System is suitable for a variety of wound types, enabling a seamless transition from acute to postacute or home care settings.
The company is on track to target underlying revenue growth of 5–6 percent with above-market growth expected in sports medicine and advanced wound management and improved orthopedics performance. Nesmes said that the company will continue to improve commercial execution as well as growth from new products. She noted that growth in the first quarter is an encouraging start, and the recent growth headwinds in China orthopedics will ease as the year progresses. The first quarter also benefited from higher-than-expected surgery levels in established markets, which are 85 percent of Smith & Nephew’s business.
The company has developed a 12-point plan to position itself for sustainably higher growth and to improve its competitive edge. Smith & Nephew has new products in both robotics and in its sports medicine pipeline. The plan centers on fixing orthopedics, improving productivity throughout the value chain; and further accelerating sports medicine and advanced wound management. The plan, said Nath, is central to how the company will deliver its midterm targets. It will continue to drive these initiatives each quarter. The company has made progress in areas around logistics, sales force delivery, robotics, and productivity, Nath said.
It’s first five initiatives fall under “fixing orthopedics.” These include rewiring orthopedics commercial delivery through rebuilding demand, winning market share through expansion and new launches, and streamlining its portfolio through focusing on key brands. The second set of five initiatives focus on honing productivity through improving its value, optimizing procurement, and optimizing manufacturing.
The final two initiatives are aimed at accelerating its foray into sports medicine and advanced wound management. The company plans to scale its negative pressure wound therapy product offerings and drive cross selling through a number of incentives and deals. For more details, see Figure 1.
“Last-mile logistics is another important part of rewiring our commercial delivery for both better growth and greater asset efficiency,” said Nath. “Our project team has been working with our local distribution centers to standardize processes around fulfillment, inventory, and asset management, and we are seeing some early wins.”
One example, he said, is kit cycle time, which is the time taken to process a set post-surgery and make it available for another procedure. Smith & Nephew has reduced that time by 40 percent in just a few months, which means better availability of sets to customers and better asset turns by reducing downtime. The company has also identified and reconstituted incomplete sets that were previously not turning at all.
In sales force delivery, Smith & Nephew is moving its field force to a new digital platform that supports the full range of a rep’s activity from training and sales targeting to case scheduling and deal processing. Importantly, he said, the company has rolled out new sales incentive structures in the first quarter, shifting from a historical emphasis that rewarded retention to growth. Finally, in orthopedics, the company has continued to invest in its robotics platform and commercial approach, including the launch of the Digital Tensioner.
In terms of improving productivity, Smith & Nephew finalized the associated cost of its manufacturing network and go-to-market optimization work stream. The plan is to deliver at least $200 million in annual cost savings by 2025.
Returns on R&D investments are one of the building blocks of Smith & Nephew’s growth targets, and the company expects a “higher cadence of launches than in the past.” The CORI Digital Tensioner for soft tissue balancing and knee replacement, for example, is the only tensioner for robotic-assisted surgery that can take measurements to inform the procedure plan before the surgeon starts cutting bone. The current standard practice uses less reliable methods like manual or mechanical tools, Nath said, and case series data shows a 64 percent reduction in variability when using the CORI Tensioner instead. This adds another point of differentiation for robotics platform at a point when all major players are marketing devices.
In sports medicine, the company’s focus has been on delivering a steady stream of innovation across procedures. New devices for ACL reconstruction are part of that approach. ACL reconstruction is one of the established major categories in knee repair. And a new guide system for graft harvesting, together with the expanded ULTRABUTTON adjustable fixation device family, supports an increasingly surgical preference for the quadriceps and tendons.
Smith & Nephew has now launched high-growth products across shoulder repair, meniscus repair, ACL, and biologics. Nath emphasized that innovation is a central element of the company’s growth model. More than 60 percent of revenue growth in 2022 came from products launched in the previous five years, and he said he expects the proportion to remain at least at 50 percent in 2023.
Nath said the company is pleased to have started 2023 with a solid first quarter of growth.
“We were able to take better advantage of higher elective surgery volumes, particularly early in the quarter, but we are also accumulating evidence of more sustainable progress in our 12-point improvement plan. We remain focused on driving that transformation through the 12-point plan.”