Dive Brief:
- Shares in Smith & Nephew surged Monday after the orthopaedic medical device company reported the hiring of a new CEO as part of its fourth-quarter results.
- Smith & Nephew's fourth-quarter revenue fell slightly short of the analyst consensus, but shares still climbed 8% amid news that Deepak Nath, formerly the president of diagnostics at Siemens Healthineers, will take over as CEO at the start of April.
- Nath will inherit a business that is more optimistic about 2022 than some of its peers, with the targeted 4% to 6% underlying revenue growth exceeding rival Zimmer Biomet's down-to-flat outlook.
Dive Insight:
Smith & Nephew reported fourth-quarter revenue of $1.3 billion, falling $13 million short of the median forecast of nine analysts who track the company. The figure, which was up slightly on the fourth quarter of 2020, is a product of familiar positives and negatives for Smith & Nephew, which has seen growth in its sports medicine and wound management units offset by weak orthopaedic sales in multiple quarters.
In the fourth quarter, knee implant revenue fell 1.1% on an underlying basis and hip implant sales were down 6.1%. While Smith & Nephew saw growth in parts of the orthopaedic business, with sales of CORI robotic systems driving "other reconstruction" revenues up from $16 million to $25 million, they failed to offset the falling revenues in the key franchises, causing underlying orthopaedic sales to fall 2.6%.
"There was an impact from omicron outbreaks across the surgical categories particularly in hip, knee and extremity. Hip and knee sales into the channel in China continue to be slow ahead of the [volume-based procurement] tender implementation this March," outgoing CEO Roland Diggelmann said on a conference call with investors.
Smith & Nephew calculated China destocking and provisions cut revenue by about $25 million. Supply constraints created an additional $30 million headwind, similar to what happened in the third quarter, as Smith & Nephew continued to contend with internal issues that predate the external disruption faced by the broader medtech industry.
In response to its own supply problems, Smith & Nephew has switched to a specialist third-party logistics provider in Europe and plans to make the transition in Memphis this year. A Malaysian orthopaedics plant is also expected to come online this year, ahead of schedule, intended to make Smith & Nephew more resilient to disruptions at any single facility.
For now, Smith & Nephew expects internal and external supply challenges to affect growth in the first half of the year. Even so, with the guidance assuming "demand is largely unconstrained by COVID outbreaks for the rest of the year," Smith & Nephew expects to outperform its historical growth levels. The 2022 forecast assumes healthcare staffing pressures will continue.
Other orthopaedic companies have made slightly different assumptions. At the lower end of its 6% to 8% organic net sales growth target, Stryker assumes continued COVID-19-related volatility, including supply chain pressures. Zimmer's guidance of -4% to 0% sales growth assumes COVID-19 and healthcare staffing pressures continue throughout 2022, although it expects the situation to improve in the back half of the year.
Responsibility for hitting Smith & Nephew's sales target will fall on a new CEO. Nath is set to take over as CEO on April 1, having spent the past four years at Siemens Healthineers and a decade before that rising through the ranks at Abbott Laboratories. Nath's appointment brings Diggelmann's time as CEO of Smith & Nephew to an end less than three years after he joined the company, with most of his tenure dominated by the pandemic.
