Smith & Nephew's underlying sales fell 7% in the fourth quarter as the medtech company faced another period defined by reduced surgical activity as a result of the COVID-19 pandemic.
The decline meant sales at each Smith & Nephew division fell every quarter last year. In the fourth quarter, orthopaedics took the biggest hit, with sales falling 10% as a result of a steep drop in knee revenues that exceeded the declines seen at some of Smith & Nephew's competitors such as Stryker and Zimmer Biomet.
Smith & Nephew opted against providing guidance for 2021 but expects the environment to remain challenging throughout the first half of the year. Shares in the company fell following Thursday's release of the results.
Investors were expecting a hard quarter for Smith & Nephew after seeing other medtech companies, including orthopaedic rivals such as Johnson & Johnson, Stryker and Zimmer Biomet, report pressure on elective procedures. Even so, the scale of the losses at Smith & Nephew surprised investors.
Knee sales fell 16% in the fourth quarter. The figure compares unfavorably to knee results at some of Smith & Nephew's peers. J&J posted a 14% drop in knee sales and Stryker's unit suffered a 10% drop, but Zimmer's division came in down just 3%. Orthopaedic trauma offset the losses at some companies but fell 1% at Smith & Nephew.
Sales at Smith & Nephew's other divisions, which cover sports medicine, ear, nose and throat (ENT), and wound management, fell in the mid-single digits. All geographies contracted, making the 1% increase in third quarter U.S. sales the only time Smith & Nephew grew in any territory last year.
Cases of COVID-19 have fallen in countries around the world since the fourth quarter, when Smith & Nephew was negatively affected by restrictions on elective procedures and cancellations due to patients testing positive for the virus and shortages of healthcare staff. Smith & Nephew CEO Roland Diggelmann said the challenges continued into the first quarter.
"On the guidance on quarter one ... we did indeed see a continuation of some of the trends in quarter four, clearly impacted by COVID and by the ongoing or even renewed restrictions across the U.S. and some European markets," Diggelmann said in a Thursday conference call with investors. He added that recent cold weather in the U.S. will also affect first quarter results.
Some other medtech companies have provided guidance despite uncertainty over how long the crisis will last. Smith & Nephew, in contrast, opted against sharing any numbers, only stating it expects "substantial underlying revenue growth" over last year. Diggelmann justified the decision in light of the limited visibility created by COVID-19.
Smith & Nephew is looking to its CORI robotic surgical system to support growth as the crisis eases. "We came later to the market with CORI, but with a very differentiated solution and that should allow us to capture share. Again, it's a handheld solution, it's versatile, it's modular, it doesn't require a CT scan and we think it will also play very well in ASCs," Diggelmann said.
The CEO expects to start seeing the impact of CORI sales "fairly soon," despite the rollout being affected by COVID-19. Ordinarily, Smith & Nephew would meet with customers and attend events to drive adoption and support users but the pandemic has forced it to rely more on digital interactions.
Smith & Nephew will also benefit from the $240 million acquisition of Integra LifeSciences’ extremity orthopaedics business in future quarters. Having closed the takeover last month, Smith & Nephew is still hunting for additional M&A opportunities. Diggelmann expressed satisfaction with the breadth of the existing business, adding that he does not see any gaps in Smith & Nephew’s ENT or sports medicine portfolios.