2012 – The Numbers Are In. No Reason to Celebrate.

Smith & Nephew, plc (S&N) reported fourth-quarter sales declined 3% to $1.08 billion from $1.11 billion the previous year. The revenue decline was partially attributed to the absence of the company’s biologics and clinical therapies business, spun out last May as Bioventus LLC. In November the company announced the acquisition of Healthpoint Biotherapeutics for $782 million in cash. Underlying revenue growth was 2%.

S&N hip sales declined 2.0% on a constant currency basis. The company’s share of the hip market declined to 12.1% from 12.6%, according to BMO Capital Market analyst Joanne Wuensch, with continued headwinds in its Birmingham hip replacement franchise.

The company’s knee sales increased by 2%, while trauma growth was 7%. Advanced wound management grew by 4%.

Finding Something Positive to Say

With S&N’s results, all the large orthopedic companies have reported for the fourth quarter. “It looks like it was a good quarter for the market, ” said Wuensch, “but let’s not get too carried away, ” she added.

DePuy Synthes, Stryker and Biomet Gainers

According to Wuensch, the hip market, on a constant currency basis, was up 1.8%, including a 3.8% rise in the U.S., and knee sales were up 3.0%, with a 4.0% increase in the U.S. Wuensch said DePuySynthes Companies regained the No. 1 share position, with its share increasing to 24.3% in the quarter from 23.4% the previous year, “After battling years of metal-on-metal concerns.” Other share gainers were Stryker Corporation (22.7%; up 60 basis points) and Biomet, Inc. (11.6%; up 10 basis points). Zimmer Holdings, Inc. was the primary share contributor, with its share declining to 24.4% from 25.2%.

In knees, said Wuensch, Stryker gained the most share, benefiting from the company’s direct-to-consumer GetAroundKnee marketing campaign, and increasing its market share to 20.5% from 19.9%. DePuySynthes saw its share improve slightly to 22.7% from 22.5%, given its strongest U.S. growth rate (up 7.1%) since the first quarter of 2010. Zimmer yielded ground as its Persona Knee system begins to ramp along with two fewer selling days in Europe, the Middle East and Africa, with its share declining to 27.1% from 27.7%.

Wells Fargo analyst Larry Biegelsen said global reconstructive (hips + knees) growth of 2.0% constant currency in the quarter was stronger than the third quarter (+1.2%) driven by strong U.S. growth, offset by weak outside-of-the-U.S. (OUS) sales.

Worldwide spine growth, according to Biegelsen, improved slightly on a constant currency basis to -0.9% in the quarter, up from -1.9% in the third quarter. Extremities growth accelerated 60bps to +8.4% in the fourth quarter.

2012 Ortho Market Up 1.8%

On a full-year basis for 2012, Biegelsen estimates that the overall worldwide orthopedic market grew 1.8% on a constant currency basis, better than 2011 growth of 1.0%. He said the acceleration was largely driven by the rebound in the U.S. hip and knee market, which benefited from improved economic conditions in the U.S. in 2012.

Biegelsen’s five key observations for the orthopedic market in 2012, included:

1. The U.S. recon market improved in 2012 likely due to improving macroeconomic conditions;
2. Knee growth accelerated more than hip growth as knee procedures tend to be more elective and correlate more with the economic environment;
3. The spine market is slowly improving but contracted in 2012 and still faces challenges;
4. Extremities is the highest growth ortho segment, with consistent growth in the high single digits;
5. Overall ortho growth in 2012 was encouraging, but off of very weak 2011 comps.

There should have been smiles all around for orthopedic device makers as the year ended.