Smith & Nephew rides out cutbacks

S&N, Europe's largest manufacturer of replacement knees and hips, has been hit by the economic slowdown which has forced health services to cut budgets and private patients to postpone surgery.

But the group's Hull-based Advanced Wound Management division, which makes treatments for hard-to-heal wounds, reported a five per cent increase in revenues to 138m in the three months to July 3, ahead of market growth.

Endoscopy reported a nine per cent increase to 130m, but orthopaedics revenues were hit by a downturn in joint replacement parts and showed growth of only one per cent to 338m.

Chief executive David Illingworth said the United States reconstruction market, which focuses on high-performance products for younger, more active patients, is challenging.

"In reconstruction, while our US business saw stable revenue, there were was a slight increase in pricing pressure and some substitution of premium products for our more traditional products," he said.

"We don't know if it was an isolated quarter or a trend. We don't see any fundamental weakening in the market itself, the market could be down a percentage or two by the end of the year but it's too early to call."

Medical device makers are under pressure from hospitals to cut prices.

Investec analysts said the results were slightly ahead of forecasts.

"We think the shares looks oversold, with the market losing sight of the long-term fundamentals that underpin Smith & Nephew's business," they said.

S&N's younger patients, who require procedures such a knee replacement resulting from sports injury, have been reluctant to spend on surgery during the economic downturn.

"Some of the pressure on our high-performance products is still there and we'll see that play out probably for another couple of quarters," said Mr Illingworth.

The group's endoscopy and wound management businesses, which together account for 44 per cent of revenues, grew faster than the market in the quarter.

Pressure on hospital budgets resulted in a two per cent drop in like-for-like prices in the quarter.

Division leads way in treatment

S&N's Hull-based Advanced Wound Management division is pioneering an innovative treatment to help to heal chronic wounds.

Negative Pressure Wound Therapy applies suction to wounds to encourage tissue repair.

A suction pump creates a moist wound-healing environment, free from outside contamination.

The device can be used to treat open wounds such as diabetic ulcers.