Smith & Nephew Medical Devices Company Intelligence Report

SUMMARY

Smith & Nephew develops, manufactures and markets orthopaedic, endoscopy and wound care products. This report provides a full review of the company's activities.

Smith & Nephew (S&N), headquartered in London, UK, is a global medical device company engaged in the development, manufacture and marketing of orthopaedic, endoscopy and advanced wound care products. The company operates within four divisions, as follows:-

Reconstruction - orthopaedic hip, knee, shoulder and extremity implants, instruments, bone cement and accessories. Products include the Birmingham Hip Resurfacing (BHR) system, the first hip resurfacing product available in the US. The division is the largest of S&N's segments, accounting for 33% of total revenue in 2006. It is managed from Memphis, Tennessee, USA. Manufacturing takes place in Memphis, Germany and the UK.

Trauma & Clinical Therapies - trauma products include fixation devices and orthobiologics, and clinical therapies include bone growth stimulation and joint fluid therapy. In addition, S&N's out-patient spinal products, including IDET IntraDiscal ElectroThermal Therapy and discography, were transferred from the endoscopy unit to clinical therapies at the beginning of 2007. The division represented 18% of S&N's total sales in 2006. The business is managed from Memphis, Tennessee, USA, and manufacturing takes place in Memphis and Germany.

Endoscopy - mainly arthroscopy products. Includes fluid management and insufflation; digital video and image capture; visualisation; resection; and instruments and fixation materials to repair damaged tissue. The unit was expanded in July 2006 with the acquisition OsteoBiologics Inc, a manufacturer of bioabsorbable bone graft substitutes marketed in Europe and Canada for repairing cartilage defects in the knee. In the US, the material is marketed as a bone void filler. The segment accounted for 24% of S&N's revenue in 2006. It is based in Andover, Massachusetts, USA, and manufacturing is currently located in Andover and Mansfield, Massachusetts; Oklahoma City, Oklahoma; and San Antonio, Texas. The Andover facility will close later in 2007.

Advanced Wound Management - wound care products used from initial wound bed preparation to full wound closure, and mainly targeted at chronic wounds, burns and complex surgical wounds. It previously also offered Dermagraft and TransCyte tissue engineering products but, in October 2005, S&N announced it would exit these operations due to delays in the products achieving economic viability. In May 2006, the products were sold to Advanced BioHealing. The division generated 25% of S&N's total sales in 2006. It is headquartered in Hull, UK, with manufacturing in Hull and Gilberdyke, UK; and Largo, Florida, USA; as well as by third-party manufacturers.

For several years, S&N has looked at bolstering its position in the highly competitive and dynamic orthopaedics market through major acquisitions. In March 2003, the company agreed to buy Swiss orthopaedic company, Centerpulse, in a transaction which would have made it the world's third-largest orthopaedics company. However, in August 2003, Centerpulse rejected S&N's proposal and instead accepted a higher bid from US-based Zimmer, making Zimmer the market leader in reconstructive products. In March 2004, S&N acquired Midland Medical Technologies which, although a relatively small company, was the world's leading metal-on-metal hip resurfacing manufacturer, providing S&N with the BHR system and a solid position in this fast-growing area.

In March 2007, S&N formed an agreement to purchase Plus Orthopedics Holding AG, a private Swiss orthopaedic company, for SFr 1.09 billion (US$889 million) in cash, including assumed debt. Plus was founded in 1991 and has its origins in European-designed cementless hip systems. The company has worked with European surgeons to develop a range of orthopaedic implants, primarily hips and knees, as well as small joint and shoulder products. The product range is complementary to S&N's and includes threaded acetabular cups and revision products for hips, hinged fixed and mobile bearing designs for knees. The company reported revenue of SFr 367 million (US$300 million) in 2006, an increase of 16% over the previous year, and profit before interest and tax of SFr 44 million (US$36 million), an increase of 33% over 2005. S&N believes the acquisition will increase its share of the global orthopaedic reconstruction market to around 12%, taking S&N to the global number four position. It will also double S&N's share of the European orthopaedic reconstruction market.

TABLE OF CONTENTS

• EXECUTIVE SUMMARY
• OVERVIEW
• Recent Key Events
• Financial Results
• Revenue by Division, 2004-2006 (US$ million)
• Fig.1: Percentage of Revenue by Division, 2006
• STRATEGIC FOCUS
• Reconstruction
• Plus Orthopedics Holding Acquisition
• Trauma & Clinical Therapies
• Endoscopy
• Advanced Wound Management
• PRODUCT PORTFOLIO AND R&D
• Fig.2: Global Orthopaedic Market Shares, 2006
• RECONSTRUCTION PRODUCTS
• Operating Results - Reconstruction Division, 2005-2006 (US$ million)
• Fig.3: Reconstruction Division - Sales by Product Type, 2006
• Fig.4: Reconstruction Division - Sales by Region, 2006
• Market Dynamics
• Fig.5: Global Reconstruction Market Shares, 2006
• Fig.6: Global Reconstruction Market by Product, 2006
• Key Products and Technologies
• Recent Product Approvals
• Computer-Assisted Surgery
• AchieveCAS
• BrainLAB Products
• iON IntraOperative Navigation System
• Knee Products
• Journey Deuce Knee
• Journey Bi-Cruciate Stabilized Knee System
• Legion Revision Knee System
• Genesis II Knee System
• Profix Total Knee System
• Hip Implant Products
• Birmingham Hip Resurfacing System
• BHR Survivorship Results*
• Emperion Modular Hip System
• Anthology Hip Stem
• Synergy Hip System
• Spectron Total Hip System
• Reflection Ceramic Acetabular System
• Shoulder Systems
• Cements and Accessories
• TRAUMA AND CLINICAL THERAPIES DIVISION
• Operating Results - Trauma & Clinical Therapies, 2005-2006 (US$ million)
• Fig.7: Trauma & Clinical Therapies - Sales by Product, 2006
• Fig.8: Trauma & Clinical Therapies - Sales by Region, 2006
• Fig.9: Trauma & Clinical Therapies Market, US$4.6 billion, 2006*
• Recent Product Approvals
• Trauma Products
• Fig.10: Global Fixation Market, 2006*
• Internal Fixation Products
• TriGen Intramedullary Nail System
• Peri-Loc Periarticular Locked Plating System
• Intramedullary Hip Screw (IMHS)
• IMHS CP
• Asian IMHS
• External Fixation
• JET-X Unilateral Fixator
• Taylor Spatial Frame Fixator
• Ilizarov External Fixator
• Osteobiologics
• Clinical Therapies
• Joint Fluid Therapy Products
• Durolane
• Supartz Joint Fluid Therapy
• Bone Repair Stimulation Market
• Exogen Bone Healing System
• Spine Products
• Intradiscal ElectroThermal (IDET) Procedure and the SpineCATH Catheter
• Controlled Disc Stimulation (CDS) System
• Electrothermal 20S Spine System
• Acutherm Decompression Catheter
• ENDOSCOPY
• Operating Results - Endoscopy Division, 2005-2006 (US$ million)
• Fig.11: Endoscopy Division - Sales by Region, 2006
• Fig.12: Endoscopy Division - Sales by Product Type, 2006
• Recent Product Approvals
• Key Arthroscopy Products
• Fig.13: Global Arthroscopy Market (US$2 billion), 2006*
• Acufex Hand-Held Instrumentation
• Dyonics Arthropak Procedure Kits
• Bioraptor Suture Anchor
• Hip Products
• Lateral Hip Distractor
• Hip Positioning System
• Knee Products
• OsteoBiologics' TruFit Products
• Calaxo Osteoconductive Interference Screw
• GTS System
• FasT-Fix Meniscal Repair System
• Shoulder Arthroscopy
• Kinsa Suture Anchor
• Accu-Pass Suture Shuttle
• Radiofrequency Devices
• S&N ElectroThermal Arthroscopy System
• Dyonics Series 9000 ElectroBlade Resector
• Dyonics Powered Instruments
• Access/Fluid Management Systems
• Vascular Products
• TriVex System
• Visualisation/Image Management
• Digital OR and the Condor Control System
• 660HD Image Management System
• SV420 Camera Series
• ADVANCED WOUND MANAGEMENT
• Operating Results - Advanced Wound Management, 2005-2006 (US$ million)
• Fig.14: Advanced Wound Management Sales by Region, 2006
• Fig.15: Advanced Wound Management Sales by Product, 2006
• Wound Care Market
• Fig.16: Global Wound Care Market, 2005-2006 (US$ billion)*
• Wound Care Market by Product, 2005-2011 (US$ million)*
• Leading Advanced Wound Care Manufacturers' Sales and Market Shares, 2006
• Fig.17: Global Advanced Wound Care Market (US$4.1 billion), 2006*
• Key Products
• Recent Product Approvals
• Biobrane Biosynthetic Wound Dressing
• VersaJet Hydrosurgery System
• Allevyn Hydrocellular (Foam) Dressings
• Allevyn Non-Adhesive
• Allevyn Adhesive and Allevyn Sacrum
• Iodosorb/Iodoflex Infection Management Products
• Cadesorb PH-Modulating Ointment
• Acticoat Antimicrobial Dressings
• Melolin Low Adherent Dressings
• IV3000 IV Dressings
• Primapore
• Catrix Wound Dressing
• RESEARCH AND DEVELOPMENT
• Research Establishments
• S&N Research Centre
• Research Projects
• Cross-Business Research Programmes
• Biomaterials
• Cell-based Therapies
• Orthopaedics Research Programme
• Endoscopy Research Programmes
• Advanced Wound Management
• Research Agreements
• Q-Med
• Alexandria Research Technologies
• Helix BioMedix
• GE Healthcare
• INTERNATIONAL ACTIVITIES
• Revenue by Location of Customer, 2004-2006 (US$ million)
• Revenue by Geographic Origin, 2004-2006 (US$ million)
• Assets by Geographic Region, 2004-2006 (US$ million)
• Fig.18: Percentage of Revenue by Location of Customer, 2006
• Fig.19: Percentage of Revenue by Geographic Origin, 2006*
• Fig.20: Percentage of Assets by Geographic Region, 2006*
• Fig.21: S&N and Plus Orthopedics - Combined Pro Forma Sales by Region, 2006*
• UNITED KINGDOM
• UNITED STATES
• Endoscopy
• Reconstruction and Trauma & Clinical Therapies
• Wound Management
• CONTINENTAL EUROPE
• Spain
• Switzerland
• ASIA
• Japan
• Major Manufacturing Locations
• APPENDICES
• APPENDIX 1 - FINANCIAL INDICATORS
• APPENDIX 2 - KEY CORPORATE EVENTS
• APPENDIX 3 - MERGERS AND ACQUISITIONS
• Key Mergers & Acquisitions
• Plus Orthopedics Holding
• OsteoBiologics
• Leading Medical
• Midland Medical Technologies
• Reed Medical Designs
• Versajet Surgical Debridement Product
• Advanced Tissue Sciences' Assets
• Oratec Interventions
• Instrument Makar
• Westaim Biomedical's Burns Dressing Business
• Beiersdorf's Advanced Woundcare Business
• Orthopaedic Biosystems
• 3M's Orthopaedic Implant Business
• Exogen
• Exu-Dry
• Perstorp Wound Care Products
• Medizintechnik Konrad Ludi
• Acufex Microsurgical's American Home Products
• Basel SpA
• APPENDIX 4 - DIVESTITURES
• Tissue Engineering Products
• BSN Medical
• AbilityOne Products
• Rehabilitation Business
• ENT Business
• Female Hygiene and Toiletries Division
• First Aid Dressings Business
• Bracing and Support Systems Business
• Spinal Product Line
• Perry
• Southalls Hygiene Washroom Servicing Operations
• Ditropan Incontinence Drug
• Ioptex Research
• Nivea Toiletries
• SoloPak
• Equipment and Plastics Divisions
• APPENDIX 5 - AGREEMENTS
• Key Agreements
• Covalon Technologies
• UDL Laboratories
• Movianto Deutschland
• Nexa Orthopedics
• Lescarden
• Q-Med
• Derma Sciences
• ArthroCare
• PhDx Systems
• Orthocrat
• ORTHOsoft
• Tenet Medical Engineering
• Osteotech
• Finsbury Orthopaedics
• Lumitex
• BrainLAB
• Medtronic
• IsoTis
• Nucryst Pharmaceuticals (Westaim Biomedical)
• BTG
• Seikagaku
• Kurgan All Union Scientific Centre for Restorative Traumatology and Orthopaedics
• Advanced Medical Solutions
• Supply Agreements
• Novation
• Kaiser Permanente
• Amerinet
• Termination of Agreement
• HealthPoint
• APPENDIX 6 - LITIGATION
• Synthes
• US Subpoenas
• Arthrotek
• Arthronet GmbH & Co KG
• ArthroCare
• Macrotextured Oxinium Femoral Knee Components

Index of Tables

• Recent Key Events
• Revenue by Division, 2004-2006 (US$ million)
• Operating Results - Reconstruction Division, 2005-2006 (US$ million)
• Recent Product Approvals
• BHR Survivorship Results*
• Operating Results - Trauma & Clinical Therapies, 2005-2006 (US$ million)
• Recent Product Approvals
• Operating Results - Endoscopy Division, 2005-2006 (US$ million)
• Recent Product Approvals
• Operating Results - Advanced Wound Management, 2005-2006 (US$ million)
• Wound Care Market by Product, 2005-2011 (US$ million)*
• Leading Advanced Wound Care Manufacturers' Sales and Market Shares, 2006
• Recent Product Approvals
• Revenue by Location of Customer, 2004-2006 (US$ million)
• Revenue by Geographic Origin, 2004-2006 (US$ million)
• Assets by Geographic Region, 2004-2006 (US$ million)
• Major Manufacturing Locations
• Key Mergers & Acquisitions
• Key Agreements

Index of Charts

• Fig.1: Percentage of Revenue by Division, 2006
• Fig.2: Global Orthopaedic Market Shares, 2006
• Fig.3: Reconstruction Division - Sales by Product Type, 2006
• Fig.4: Reconstruction Division - Sales by Region, 2006
• Fig.5: Global Reconstruction Market Shares, 2006
• Fig.6: Global Reconstruction Market by Product, 2006
• Fig.7: Trauma & Clinical Therapies - Sales by Product, 2006
• Fig.8: Trauma & Clinical Therapies - Sales by Region, 2006
• Fig.9: Trauma & Clinical Therapies Market, US$4.6 billion, 2006*
• Fig.10: Global Fixation Market, 2006*
• Fig.11: Endoscopy Division - Sales by Region, 2006
• Fig.12: Endoscopy Division - Sales by Product Type, 2006
• Fig.13: Global Arthroscopy Market (US$2 billion), 2006*
• Fig.14: Advanced Wound Management Sales by Region, 2006
• Fig.15: Advanced Wound Management Sales by Product, 2006
• Fig.16: Global Wound Care Market, 2005-2006 (US$ billion)*
• Fig.17: Global Advanced Wound Care Market (US$4.1 billion), 2006*
• Fig.18: Percentage of Revenue by Location of Customer, 2006
• Fig.19: Percentage of Revenue by Geographic Origin, 2006*
• Fig.20: Percentage of Assets by Geographic Region, 2006*
• Fig.21: S&N and Plus Orthopedics - Combined Pro Forma Sales by Region, 2006*