Smith & Nephew tussles with FDA

Better sales of premium products across emerging markets drove a 6 per cent increase in underlying trading profits in the second quarter. But that followed a weaker quarter; for the first half as a whole, profits were flat at $484m (£288m).

The acquisition of US medical technology company Arthrocare in May for £1.04bn boosted the sports medicine division, as well as the overall US performance. Second-quarter figures included one month’s trading from Arthrocare, and management says the business is performing well. Operating profit took a one-off hit as a result of costs associated with the Arthrocare deal, however, falling to $134m (from $188m in 2013).

In advanced wound management, chief executive Olivier Bohuon admitted an ongoing regulatory tussle with the US Food and Drug Administration (FDA) over new hi-tech dressing product Renasys could drag the division’s full-year revenues down as much as $30m. The business has been under-performing the wider market, with flat revenues in the second quarter. Mr Bouhoun blamed management issues as well as de-stocking in the wholesale channel. A $25m provision has been made to offset related costs, and Mr Bouhoun is confident the division can return to growth in 2015.

Analysts have long considered Smith & Nephew a prime target for takeover, particularly as more US companies seek out foreign acquisitions to avoid domestic taxes. In response to the raft of mega-mergers sweeping through the healthcare industry, Mr Bouhoun told The Telegraph prior to these results that a tax-driven tie-up would not be part of Smith & Nephew’s future. Instead, the introduction of lower-priced products in the US seems to be next on the agenda, as Smith & Nephew’s customers continue to face budgetary pressures.

Brokerage Numis expects pre-tax profits of $1.04bn for the full-year, giving EPS of 82.7ȼ.