Smith & Nephew
) recently extended its well-regarded Legion Total Knee System
with Legion Narrow Femoral Components containing Oxinium Oxidized
Zirconium. This new addition is the only narrow component that
offers the company's proprietary Verilast technology.
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The latest component of the Legion Total Knee System is narrower
in the medial/lateral dimension. It thus provides better fit and
wear performance by enabling surgeons to closely fit the Legion
Narrow Femoral Component to a patient's natural anatomy.
Clinical studies also support the construction of the Legion
Narrow Femoral Component as the implant of a wide femoral
component can result in overhang of the femoral component in
patients with smaller femurs. Studies reveal that improving
implant fit can reduce distress and increase satisfaction among
total knee replacement patients.
Considering that wear performance and fit are the major concerns
associated with any total knee replacement, Smith & Nephew
should gain competitive edge on the back of its latest extension.
The company is currently the third largest player in the $5
billion market for knee implants. Smith & Nephew's focus on
innovation should further improve its market position.
With challenging conditions in the company's established markets
- primarily Europe, underlying sales growth continue to clamber.
Smith & Nephew reported revenue of $952 million, up 1% on an
underlying basis, (after considering currency translation) in the
Revenues from the knee implant franchise decreased 1% year over
year compared with an estimated market growth of 2%. Ongoing
softness in the European market, where the company's revenue base
is larger compared with the U.S. market and the position of the
new product cycle led to decline in revenues.
Management is banking on new products such as the Legion Hinge
Knee System (European launch expected in 2013) and the Journey II
System (under clinical evaluation) to revive growth in the knee
implant franchise. The extension of the Legion Total Knee System
also reflects strategic measures to overcome macro level
We also note Smith & Nephew's increasing focus on the
Advanced Wound Management division, away from the clouded
orthopedic space. Its recent acquisition of Healthpoint
Biotherapeutics is a strategic fit and an important step toward
creating a strong position in bioactives, the fastest growing
area in advanced wound management.
However, Smith & Nephew faces stiff competition from players
Johnson & Johnson
) DePuy. We currently have a long-term 'Neutral' recommendation
on Smith & Nephew which carries a short-term Zacks #3 Rank
(Hold). Medical devices stock carrying a Zacks #1 Rank (Strong