FINAL TRANSCRIPT
Conference Call Transcript
SNNUF.PK - Smith & Nephew Analyst Meeting at the American Academy of
Orthopaedic Surgeons (AAOS)
Event Date/Time: Mar. 05. 2008 / 4:00PM UKT
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Mar. 05. 2008 / 4:00PM UKT, SNNUF.PK - Smith & Nephew Analyst Meeting at the American Academy of Orthopaedic Surgeons
(AAOS)
CORPORATE PARTICIPANTS
Dave Illingworth
Smith & Nephew - CEO
Mike Frazette
Smith & Nephew - President - Endoscopy
Dr. Nikhil Verma
Rush University Medical Center - Assistant Professor - Orthopedic Surgery
Mark Augusti
Smith & Nephew - President - Orthopedic Trauma & Clinical Therapies
Dr. Cory Collinge
Orthopedic Specialty Associates - Orthopedic Trauma Surgeon
Joe DeVivo
Smith & Nephew - President - Orthopedic Reconstruction
Dr. Michael Solomon
Prince of Wales Hospital - Physician
Dr. James Bresch
Orthopedic Surgery Specialists - Orthopedic Surgeon
CONFERENCE CALL PARTICIPANTS
Jason Wittes
Leerink Swann - Analyst
Mike Matson
Wachovia Capital Markets - Analyst
Ilan Chaitowitz
Redburn Partners - Analyst
Raj Denhoy
Piper Jaffray - Analyst
PRESENTATION
Dave Illingworth - Smith & Nephew - CEO
Good morning. We're going to try to get started. We've had some logistics challenges this morning, so bear with us, but I think we've got it pretty
much under control.
First of all, good morning, everyone, and welcome to this year's Academy analyst meeting. We have a great session lined up for you this
morning. I hope you have all had the opportunity to spend a little time at our product fair next door. I also want to thank the team of people that
put the hard work in putting that together and it gives you an opportunity to see our products up close and personal.
Well, I trust you've all read the notice that there could be some forward-looking statements here this morning, and I advise of the normal and
customary disclaimers.
Smith & Nephew comes to this Academy meeting with great confidence, confidence in our ability to bring innovative solutions to the
marketplace, confidence in our very strong lineup of products and confidence in our people. We continue to change and adapt within our
Company, so we are recognized as the market leaders in the segments that we compete in.
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Mar. 05. 2008 / 4:00PM UKT, SNNUF.PK - Smith & Nephew Analyst Meeting at the American Academy of Orthopaedic Surgeons
(AAOS)
First, we've changed our emphasis to be even more externally focused on the customer. We have a singular goal of being recognized as the
market leader in every segment that we compete in. Second, there is a major change this year in the way that we are going to present ourselves to
our customers.
This year, all three of our orthopedic businesses are under one roof, and we're going to be demonstrating how we can work together across these
businesses. This year, we're talking not about seer business interests, but strong knee solutions, the strongest set of hip solutions in the industry
and integrated approaches to shoulder repair.
We have the relevant continuum of care for our orthopedic customers, and we are committed to working closer together so that we may better
serve our customers and so that they can better serve their patients. On the platform with me today are the Presidents of our three orthopedic
businesses, as well as some surgeon customers, and a patient, who knows firsthand the value of what we are doing.
Before I hand it over to Mike Frazette, I'd like to say a few more words about the power of the continuum of care and why believe Smith &
Nephew is so uniquely positioned to take advantage of this, and also touch on our strategy for continued value growth. We believe our customers
are not most interested in products, per se, but they see each patient as an opportunity to apply a unique clinical solution to repair, restore or
rebuild a patient's normal and natural function. We believe Smith & Nephew's position across this continuum of care is unparalleled in the
industry today.
We are recognized as a leader in internal fixation and we license much of our IM nail technology across the industry. We have pioneered the use
of circular fixators, and we are the market leader in bone healing with our Exogen products.
In the area of joint fluid therapy, we have gained large chunks of market share and we're now the number-two company in the world. We are the
leader in sports medicine and remain the number-one company globally in arthroscopy. No company anywhere has a wider range of advanced
bearing surfaces than Smith & Nephew, and we continue to challenge ourselves to widen the gap between us and the competition in being
recognized as the company turn to in addressing the younger, more active, high-demand patients.
We believe that bringing world-class solutions across all three of our orthopedic businesses to our surgeon customers will better align us to our
customer needs. It will allow us to better understand the surgeon's challenges to address a disease state from the earliest intervention to the later
stages of disease progression.
Looking at our world through the eyes of the customer, leadership positions across a broad set of market segments is just another first in a long
list of Smith & Nephew firsts. Now, to remind the group about Smith & Nephew's value proposition, we have structured our business to allow
focus on distinct customer segments and we're successfully addressing the expanding active patient segment.
We continue to be active in searching for value-enhancing acquisitions, and we have real opportunity for earnings growth through margin
expansion and above-market growth rates. At this time, I'm pleased to welcome Mike Frazette to the podium to kick us off with sports medicine.
Mike?
Mike Frazette - Smith & Nephew - President - Endoscopy
Okay, thank you, Dave. Good morning, everybody. I know what you're thinking, Frazette, Augusti, DeVivo. The last time three Italians
controlled this much business was Godfather II.
It's a pleasure to be here with all of you in San Francisco to talk a little bit about 2007 and the success we had, but really to look forward in 2008
and what we're excited about. As many of you know, 2007 was my first full year as President of Smith & Nephew Endoscopy. And our main
objective last year was really to get focused around our core businesses, what we do best, and that's arthroscopy and sports medicine.
And, as many of you heard last month, our efforts in 2007 did in fact pay off, as for the first time in five years, Smith & Nephew Endoscopy
posted double-digit growth, and we're all very proud of that. So this morning I'm going to quickly review some of the products and initiatives that
helped deliver that, especially those that are still pertinent in 2008, and then turn our attention to the future, the products, the techniques, and the
innovation and the customer opportunities that will drive market share and profitable growth going forward.
This morning, we're also very fortunate to have Dr. Nik Verma, and I will introduce Dr. Verma in just a little bit and he's going to talk to us about
the opportunity in our shoulder market, and what's developing there, as we believe that this will be a significant factor for us in 2008.
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Mar. 05. 2008 / 4:00PM UKT, SNNUF.PK - Smith & Nephew Analyst Meeting at the American Academy of Orthopaedic Surgeons
(AAOS)
And then, finally, if you showed up a little late and you weren't able to join us for the innovation period, I'd encourage all of you to come by the
booth and meet some of our sales, marketing, and development people. You get a real good idea of the innovation and the customer intensity that
takes place whenever we have these types of events.
So our business starts with a vision. And our vision is all about making life better for millions of people. From elite athletes to working-class
people, people who depend on working joints, knees, hips, shoulders, small joints, ankles, fingers, for work and for play, and that includes really
everybody in here, improving lives through innovative arthroscopy. So everything we do as a business supports this vision. It defines the value
that we deliver to the marketplace and it also defines the value we deliver to Smith & Nephew in terms of the continuum of care that Dave spoke
to.
We see Smith & Nephew Endoscopy as the gateway to our orthopedic platform. In addition to sports-related injuries, most of our patients present
themselves with some form of osteoarthritis in many cases, and they're looking for early intervention. And what arthroscopy provides them is
minimally invasive solutions with lower cost, lower morbidity and, in many cases, the desirable outcomes that they're looking for. So a constant
focus on improving lives through innovative arthroscopy.
We believe that we can deliver upon value to Smith & Nephew, to our customers, to our employees and to our shareholders alike. Now, you
heard Dave speak to the continuum of care, and I made a couple of comments there, and as you'll see when you visit our booth, a large majority
of our customers do see us really as one Smith & Nephew, one company. However, internally, we still have to remain vigilant and focused on our
respective businesses, so that we can win in the marketplace.
So now I'm going to turn and specifically address Endoscopy and our portfolio there and some of the key drivers that are helping drive our
business this past year. 2007 was a busy year for our arthroscopic repair business. We launched over 150 new sports medicine products. We also
upgraded some of our gold standards, such as EndoButton Direct and Ultra FAST-FIX both market leaders in knee repair.
We also launched several products to support the anatomical ACL technique, a fast-growing technique. Two key ones were the Acufex drill and
guide system, which helps improve accuracy and placement of anatomical ACL grafts, and the Clancy Flexible Drive, which in fact is the only
flexible guided drill system available on the market for double ACL.
With respect to hip, we continue to lead in this emerging hip arthroscopy market. We launched the new 2.3 BIORAPTOR peak suture anchor this
past year and it's performing very well.
Looking at shoulder, we added several new products in 2007, including a new elite instrumentation line. We also developed a new KINSA Suture
Anchor for rotator cuff repair, which now complements our KINSA anchor for shoulder and stability. Both products provide low-profile repair
with a unique adjustable tension mechanism.
In our visualization business, demand continues for our HD camera system. The surgical image that our HD camera system has the color and the
clarity and the detail that surgeons want to see during minimally invasive surgery, and in fact this camera can be used in all types of minimally
invasive surgeries, which is a big plus for us, especially as our customers are looking to consolidate or rationalize suppliers.
In access, we've expanded our line of CLEAR-TRAC COMPLETE cannula, to include a flexible, as well as a rigid version. We've redesigned the
cap to include suture management, as well as make it leak proof, and our docs love them, because they use the suture management piece, and they
don't leak. All in all, 2007 was a very good year for Smith & Nephew Endoscopy. We grew double digits in profits, in revenue and profits. We
also managed to add two points to our operating margin, not an easy thing to do, but that success has positioned us for an ambitious 2008, as well.
So let's talk about 2008. First, on the capital side, what you'll see at the booth is we'll continue to focus on recent product launches. Our Lateral
Hip Distractor and our HD video system. The distractor is important because a good majority of surgeons worldwide use, or want to use the
Lateral Hip Distractor because they prefer to do hip arthroscopy with a patient lying on their side. And I've already discussed the HD video
platform. The demand for our system, which maintains true end-to-end HD video integrity, we're selling as many of these as we can build and we
continue to launch the peripheral accessories to meet our customer needs.
Finally, what you won't see at the booth but what we're excited about, we will actively be engaged in conversations with surgeons and key
opinion leaders regarding our next-generation power source, Dyonics 2, or D2, for short.
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Mar. 05. 2008 / 4:00PM UKT, SNNUF.PK - Smith & Nephew Analyst Meeting at the American Academy of Orthopaedic Surgeons
(AAOS)
We're just beginning the pilot programs and we're gearing up for a European launch later this spring, U.S. to follow. We're the clear market leader
in this area, and for those of you unfamiliar with it, Dyonics Power, that's the power box that supports our resection business. We're the clear
market leader. We've got great brand identity. We have a terrific net promoter score there and we think the D2 product will help us extend our
lead against the other guys.
On the sports medicine side, or the repair side, anatomical repair, the ACL will still lead the way. We've worked with our key opinion leaders to
develop specialized devices, such as the Acufex ACL Guide System and the EndoButton CL Ultra that will make the procedure easier for more
surgeons so that more patients can benefit from this procedure.
I mentioned the hip distractor jus at moment ago. We continue to lead in the hip arthroscopy marketplace, not only with the distractor product,
but we're working with key opinion leaders to build out that entire line.
You'll see a new [AthoGuard] hip cannula, which has blunt-tip edges to reduce the incidence of trauma, make it less traumatic to the tissues
surrounding the joint, our [Cross-Track Hip Guide], our BIORAPTOR 2.3 suture anchor, as well as some other resection probes to round out our
hip line.
The shoulder is a big impact for us in 2008, and the shoulder area -- in the shoulder area, we've developed a new product that we've got high
expectations, and early product evaluations, we're convinced we've got an important new anchor for rotator cuff repair. It's schedule for launch
later this month, actually, pending 510(k) clearance, our new TwinFix Footprint PK suture anchor, provides a simple answer to footprint
problems, or a simple solution to footprint repair, I should say.
Now, there's been some lay articles -- the Wall Street Journal had an article a few weeks ago about footprint repair in rotator cuff. If you're like us
and you live in Boston, you hear a lot about Curt Schilling's shoulder and how to fix it. So footprint repair is big in the news and I think what
you'll hear from Dr. Verma is that shoulder techniques are evolving and we think that we've got a real winner in our latest iteration of the
footprint suture anchor.
Now, we do spend a lot of time on products, but equally important to those products are programs that are key business drivers for us. I want to
talk about two of those programs that you may see at the booth today. We believe that Inventures provides us with a win-win opportunity for
accompanying the surgeon instances. This is a unique program that Smith & Nephew started many, many years ago. We've repackaged it and
relaunched it for this academy.
We benefit from the expertise and the ideas of our surgeon customers. The surgeons benefit from the expertise and commitment of our R&D
folks and our marketing folks. But, most importantly, the ultimate beneficiary is the patient, whose lives will be enhanced by the innovation that
results from these types of partnerships. Sometimes, these interactions result in products with commercial vitality and when that's the case we
work with the surgeon to develop the device and develop an educational program to launch it worldwide.
From a med-ed standpoint, you'll see some of this going on at the booth as well. We need to continue to invest in surgeon-to-surgeon connections.
Our reputation with new and potential surgeon customers often hinges on what other surgeons tell them about us and, like I said, we have a very
high brand loyalty index and a very high net promoter index for our Dyonics business, so we look to leverage that across our sports medicine
business.
This week, we're hosting five key surgeon discussions at our booth. Several will address the concepts and the products that we just talked about.
This is a small part of our global education effort. These types of education programs organic on every single day, all across the world.
So these two areas, listening to our surgeon customers, continuing to innovate based on their input and ensuring that surgeons have training to
properly use the tools and techniques will help reinforce our leadership in the arthroscopy arena. So that's what you're going to see in the booth,
but extending our leadership in arthroscopy and outperforming the market and having a successful 2008 not only means that we've got to deliver
upon those three, but there are two other areas that we'll focus on in 2008 and those are on this chart here.
The first one is talent. Obviously, we need to continue to attract, retain and develop the best talent in the business. I'm a big believer in that. When
I got to Smith & Nephew, I felt really good about the management team in Endoscopy. I feel even better today. We've added some what I would
call rock star or A talent to our U.S. and our international commercial businesses, our business development organization and our innovation
teams. And I would encourage you to come by today, if you haven't already talked to some of them next door, come by and meet them today and
I think you'll be impressed.
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Mar. 05. 2008 / 4:00PM UKT, SNNUF.PK - Smith & Nephew Analyst Meeting at the American Academy of Orthopaedic Surgeons
(AAOS)
The next three are things that I just talked about. we need to execute on those, and then, finally operational excellence. Last but not least, we need
to continue to focus on what we do well. For us, operational excellence is knowing who we are, knowing what we do well, knowing what drives
value for the organization and working to become world class at it.
We don't spend a lot of time trying to get good at something that we're not good at, because I don't think that that adds a whole lot of value at the
end of the day. But we do spend an awful lot of time identifying key business drivers and applying our resources to those drivers so we can create
more distance between us and the other guys.
So if we're successful in these areas, then next year at this time I'll stand up and be able to tell you we had another good year in 2008 and here's
where we're going for 2009. I think this year, next year and beyond, arthroscopy will remain a very attractive, high-growth space and a significant
point of service in our continuum of care. Thank you.
Now I'm pleased to introduce Dr. Nik Verma. As I said, Dr. Verma is Assistant Professor of Orthopedic Surgery, Rush University Medical
Center, and at Midwest Orthopedics at Rush in Chicago, Illinois.
Dr. Verma graduated from the University of Pennsylvania School of Medicine, did his orthopedic residency at Rush in Chicago and his sports
and shoulder fellowship at the Hospital for Special Surgery, HSS, in New York. So in addition to being a very likable person and a terrific
surgeon, he is also very well pedigreed. Ladies and gentlemen, Dr. Nik Verma.
Dr. Nikhil Verma - Rush University Medical Center - Assistant Professor - Orthopedic Surgery
Thanks, Mike. I'd like to start by just thanking my colleagues at Smith & Nephew for the opportunity to speak today. It's certainly been a unique
experience, preparing to talk to this audience versus groups of healthcare professionals and other surgeons that we're usually talking with.
I thought what I'd do today is cover a little bit about what I think is the state of the science with shoulder arthroscopy and kind of focus on
arthroscopic rotator cuff repair techniques. I thought I'd give you a little bit of my background, just so you understand the perspective from which
I'm speaking and, as Mike indicated, I went to the University of Pennsylvania School of Medicine for medical school and then went on to do my
residency at the Rush University Medical Center in Chicago.
From there, I did a fellowship in sports medicine and shoulder surgery at the Hospital for Special Surgery and was fortunate enough to be invited
back to join the attending staff at Rush, where I currently practice. My practice at this point is about 95% sports medicine. I take care of all types
of problems involving the knee, the elbow and the shoulder.
It's an academic practice. We do have a fellowship training program. We have four fellows per year that we train in sports medicine and shoulder
surgery, as well as an active residency program with 25 residents. We do have a very active research department that publishes both
biomechanical basic science, as well as clinical outcome studies on all aspects of sports medicine.
Personally, I do about 450 procedures per year and probably about 70% of those are arthroscopic. I thought what I'd cover for you today is kind
of a sense of where we've been with shoulder arthroscopy, where I think we are today and then finally a little bit of my insight in terms of where I
think the field I headed.
But I think it's important that before we start we really understand what is the "scope" of the problem. So this is U.S. procedural data from 2004
to 2006 and certainly no surprise, the knee is the most common joint that undergoes arthroscopy, but what you see is there's really been a fairly
significant increase over those three years in terms of the number of shoulder arthroscopies that are being performed.
And what I think is even more interesting is there has always been almost a corresponding decrease in the number of open shoulder procedures
that are being performed. And I think what we're seeing here is that as surgeons become more proficient with shoulder arthroscopy, as they
become better trained in shoulder arthroscopy, many of those open procedures are now moving over into the arthroscopy bucket and I think it's a
trend that we'll see continue in the future.
Now, where have we been? Well, traditionally, open surgery has been used to address a variety of shoulder conditions, including problems like
instability, rotator cuff disease, shoulder arthritis with shoulder replacement and certainly there's no question that open surgery works well. It's
got a long track record with good clinical results, supported in the literature, but there are some downsides with open surgery.
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Mar. 05. 2008 / 4:00PM UKT, SNNUF.PK - Smith & Nephew Analyst Meeting at the American Academy of Orthopaedic Surgeons
(AAOS)
There's increased pain associated with open approaches. There's what I like to call collateral damage that occurs any time you do open surgery, so
if you have to make an open incision, you have to do a dissection to access the structure that you want to repair and in doing so there's some
damage to normal tissue that occurs.
There are slightly increased complication rates associated with open surgery, most commonly stiffness, also injuries to nerves and vessels. And
certainly as patients become more attuned to arthroscopic approaches being available, the patient preference is switching that way. Now, shoulder
arthroscopy was initially described in the 1930s, but really didn't become popular until the 1980s and go into common use until the 1980s.
And initially, it was used primarily as a diagnostic measure to allow us to look inside the shoulder joint and understand what's going on, and it
really was a fairly significant step forward in terms of us understanding the pathology that occurs within the shoulder joint. I think an excellent
example of that is the SLAP lesion, or the superior labral tear that was described first by Jimmy Andrews in 1985, and this was a completely new
pathologic entity that we didn't even know existed because we weren't able to see it during open surgery.
Now, there are certainly some advantages of doing an arthroscopic procedure versus an open approach. They include decreased morbidity,
decreased collateral damage, as we talked about earlier, identification of coexisting pathology, so things like labral terrors or biceps tendon
pathology, and then certainly, again, patients tend to prefer this type of approach.
Now, the next major step forward in terms of the progression of shoulder arthroscopy came with the advent of suture anchors. This was first
introduced in 1986 and really allowed us to move forward from simply looking inside the joint and performing simple debridements and moving
into the arthroscopic repair techniques.
We started off initially with metal anchors and we've now moved into the bio-absorbable realm, and I think there are some unique advantages of
bio-absorbable or plastic materials in that they're radio lucent so we're able to obtain postoperative imaging, as necessary. Hopefully, over time,
these materials reconstitute bone and certainly either plastic or bio-absorbable materials are much easier to revise in revision situations. So where
are we now?
Again, if you look at kind of the three buckets of common pathology that we see within the shoulder, instability, rotator cuff problems, including
subacromial decompression, distal clavicle excision and then finally, shoulder arthroplasty, within the top two categories, I think we've evolved to
the point that we're able to tackle probably 95% of all patients that present to our office with these conditions using an arthroscopic technique.
Shoulder arthroplasty remains the one technique that still does require routinely an open incision.
Now, in terms of rotator cuff repair, if you look specifically at this pathologic entity, I think it kind of gives you a good sense of how we've
evolved with shoulder arthroscopy. There are numerous clinical studies that have demonstrated excellent clinical outcomes following
arthroscopic rotator cuff repair, but if we look more closely at our outcomes, we need to separate them from clinical outcomes -- so how patients
are doing after the surgery -- and then finally our radiographic outcomes. So if we look specifically at our ability to get the tendon to heal,
unfortunately there's still a disconnect that exists.
So if you look specifically at our outcomes in terms of rotator cuff healing, structural failure of the rotator cuff remains the most frequent
complication, following either open or arthroscopic rotator cuff repair, occurring in anywhere between 13% and 90% of patients when you look
at follow-up time periods between six months and five years.
It's important to recognize that this occurs again with both open and arthroscopic techniques, looking specifically at the data with arthroscopic
techniques, anywhere between 30% of one and two tendon tears, up to 60% to 90% of massive tears, will have recurrent tearing or recurrent
defects in the rotator cuff at follow-up.
Again, the results are comparable between open and arthroscopic techniques and are dependent on a number of factors, the most important of
which is the size of the tear, but also secondary factors that indicate chronicity of the tear, such as fatty infiltration or atrophy of the muscle. And
then host factors are very important as well, the most significant of which is patient smoking.
So what's the problem? Why do we have such a hard time getting these rotator cuffs to heal? Well, unfortunately, it's the biology. We're working
in a very poor biologic environment for soft tissue to bone healing to occur. We're working with poor-quality tendons. The tendon has a very poor
blood supply, and all of these factors contribute to the low healing rates that we see.
Now, there are some things that we've done to try to improve our structural integrity of our rotator cuff repairs. Most of these have been on the
mechanical side. We currently use sutures of much higher strength, such as the ULTRABRAID Suture, which you may have seen earlier today.
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Mar. 05. 2008 / 4:00PM UKT, SNNUF.PK - Smith & Nephew Analyst Meeting at the American Academy of Orthopaedic Surgeons
(AAOS)
We use multiple sutures, loaded within a single anchor. We use different suture configurations, which allow us to grip poor-quality tendon tissue,
and, finally, suture anchors have evolved to the point where they're no longer a common failure mechanism in rotator cuff surgery.
On the biologic side, unfortunately, we've been less aggressive or less successful in determining new techniques to try to augment tendon to bone
healing. So one thing that we do routinely is to prepare the bone footprint, so we like to prepare the bone so we get a nice bleeding surface, which
we think will improve our healing results.
In the future, I think you're going to hear a lot about biologic aspects, or biologic use of growth factors to augment tendon to bone healing, but
unfortunately we're probably still five to seven years away from these being used routinely in clinical practice. Most recently, there's been a lot of
talk about double-row or transosseus techniques to improve our rotator cuff healing rates. Certainly there are advantages on the mechanical
standpoint from using these techniques, but we think there's a major advantage on the biologic standpoint as well, in that we're able to maximize
the contact area between the tissue and the bone.
Now, why is this important? Well, again, the name of the game is trying to get that tendon to heal back down to the bony insertion site, and we
think that if we maximize the amount of tissue that's in contact with the bone, this in turn will translate into better results with healing. There have
certainly been a number of biomechanical studies looking at these newer transosseus or double-row techniques compared to traditional single-row
techniques, and clearly the repairs are much stronger if you look at time equals zero biomechanical data.
We do a much better job of recreating the normal anatomy of the rotator cuff so-called footprint or the rotator cuff insertion site, and, finally, we
minimize the gap that forms between the tendon and the bone as we move these patients early, as is required with an early postoperative
rehabilitation program.
Now, there are a couple of new anchors that Mike touched on that are important in helping us to perform these transosseus equivalent repair
techniques on the Smith & Nephew front. We have the TwinFix fully threaded anchor, which is used primarily in the medial row. It's an anchor
that's designed to maximize pullout strength by achieving both cortical and cancellous bone fixation.
It provides easy, single-step reproducible insertions and there's less suture abrasion that occurs across the suture eyelet. The TwinFix footprint
anchor is going to be used for a transosseus repair technique on the lateral side. It's a very unique anchor in that it allows you to independently
place the anchor and then come back and tension the sutures as necessary and, finally, provides a very easy and reproducible insertion technique
with no mechanical deployment-type devices which are necessary.
So how do we do these repairs? Just to give you a quick example, this is the torn rotator cuff. Here's the tuberosity that we want to repair it to.
You can see here we are, facing the new TwinFix FT medial row anchor. It just gets screwed into place. We're then going to pass these sutures
through the torn rotator cuff tissue.
Here we're using the ELITE PASS device to do that. You can see the suture is being punched up through the suture is being punched up through
the tissue. It's going to be retrieved here through an accessory portal site.
Once all of these sutures are passed, we're then going to go ahead and tie our medial row, maintaining two of the sutures so that we can integrate
them into the lateral repair. Here we are preparing a pilot hole for our new footprint anchor. You can see it's a single-step tap that gets punched
into place. And then those medial sutures are now being integrated into the footprint anchor, so they get loaded into the eyelet of the anchor
outside of the shoulder. The anchor gets passed down and then it's very easily inserted into the pilot hole with a simple [press-kit] technique.
So you can see here that we're just simply tapping the anchor into place until it sits flush with the cortical margin of the bone. And now is where I
think it's a really unique aspect of this anchor. This anchor now allows us to independently tension each of those sutures and dial in the tension
that we think is appropriate.
So we simply maintain pressure on the anchor insertion handle and we pull up on each of these sutures until we're happy with the tension that we
see inside the shoulder joint. So here you can see as we go back inside the shoulder you'll see that each of these sutures gets tensioned
independently and we can really dial in the degree of tension that we want. We don't have to worry about pushing the anchor further or worry
about over-tensioning the sutures.
Once we're happy with that, we simply turn the knob on the insertion handle to lock the sutures into place. The insertion handle gets removed
and, finally, the sutures are cut and the anchor insertion is complete. We can move on to the next anchor, as required by the size of the tear.
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Mar. 05. 2008 / 4:00PM UKT, SNNUF.PK - Smith & Nephew Analyst Meeting at the American Academy of Orthopaedic Surgeons
(AAOS)
Here's what the tear looks like when we're competed the repair. You can see that we've really reproduced the normal anatomy of the rotator cuff.
You can see that we've got excellent contact between the tissue and the bone and we've got excellent compression between the tissue and the
bone, all of which are things that we think are going to improve our ability to get this tendon to heal.
Now, just to speak to the ease of the technique, when we made this video, it was the first time that I'd ever seen the instrumentation, the first time
that I'd ever used it, and you can really get a sense that there's a minimal learning curve that's required to use this anchor in clinical practice.
From a surgeon's standpoint, I think there are some significant benefits of the new footprint anchor and footprint repair technique, that we
certainly maximize the repair strength. We maximize the contact area, again, all things which are designed to maximize our ability to get this
tendon to heal.
From a technique standpoint it's very fast, easy and reproducible to do, and, again, there's no mechanical deployment. It has a unique ability to
allow us to separate anchor insertion from suture tensioning, something that's unique to the marketplace. On the patient side, I think it does have
benefits. Again, the name of the game is rotator cuff healing and if we do that we're going to maximize our outcome from our patients, we're
going to minimize morbidity with an arthroscopic technique and, again, patients come into the office, they want their rotator cuffs required in this
manner.
There are a limited number of clinical studies looking at double-row transosseus techniques in terms of outcomes and there have certainly been
some promising data regarding improved healing rates compared to single-row technique, anywhere between 83% and 89%.
Finally, where do I think we're going with shoulder arthroscopy in the future, I think the future is going to be all about the biology, so we're going
to use chemicals to control the healing cascade. We're going to use biologic augmentation of bone to soft tissue healing, but, again, we're
probably five to seven years from seeing this in routine clinical practice. What are some of the hurdles that we still need to overcome? Well, there
are still a lot of questions that remain to be answered, and these include which factors do we use, when are they important within the initial
healing phase to be integrated, and how do we get them there?
So we need to develop a technique that allows us to reproducibly bring the factors into the repair site, and we need to be able to keep them there
for the initial four to six weeks during which soft tissue healing is occurring. So I think you will hear more and more about biology in the future,
but currently there's been a lot of excitement and press about double-row techniques and I think you'll continue to see this evolving over the next
one to two years. Thanks.
Mike Frazette - Smith & Nephew - President - Endoscopy
Thank you, Dr. Verma. That was fantastic. And now I'd like to introduce the President of Orthopedic Trauma and Clinical Therapies, Mark
Augusti.
Mark Augusti - Smith & Nephew - President - Orthopedic Trauma & Clinical Therapies
Thanks, Mike. I appreciate it. Good morning, everybody. Once again, I'm happy and pleased to be in front of you to talk about trauma and
clinical therapies business. Keeping with the Godfather theme, nobody really wants our products unless he gets a hold of you, but talking about
the continuum. It's a pretty impressive story, because we deal with patients across all age groups and across their life journey, and that came home
to me.
Last week, I spent some time in New England, and one patient was a 79-year-old osteoporotic female, who had a periprosthetic fracture,
benefited from our locked plating technology and the same surgeons the next case had to deal with a nine-year-old young boy who had a
fractured tibia and they were worried about the growth plate. And, again, our product portfolio was able -- allowed them to handle that case well.
So I'm really proud of what we do and it's important to remember how we affect patients' lives. So I think many of you are familiar with the story.
We've talked about it in the past, is we frame kind of the opportunity and the space we're in and the key drivers around OA, active lifestyles, the
aging population and increasing rates of osteoporosis.
And how are we going to play that, what's our response to it? I've talked about these in the past. You'll hear more about our innovative products
that we're going to be showing here at the Academy. I'll talk to those. Continued investment in R&D. I think you've seen our percentages around
R&D and the increases we've made there.
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Mar. 05. 2008 / 4:00PM UKT, SNNUF.PK - Smith & Nephew Analyst Meeting at the American Academy of Orthopaedic Surgeons
(AAOS)
As well, we're very pleased with the performance we had in '07, as far as our margin improvement and we'll continue on with this focus on the
specialization in the trauma and clinical therapies channel.
So, real quickly, last year I talked about INTERTAN. I just want to give a brief update there. We've had terrific successes launching that product
across the globe. In Germany, we'll be publishing shortly the follow-up on 200 patients out of our initial center there, as well as we've started a
multi-center randomized trial in Norway on the INTERTAN system, so we're very excited about this product innovation and you'll see that Toney
Russell, who spoke last year, will be talking again about this at the Academy.
In your packet, there is information on this CAPTION system that you can refer to. We have a release on that. We've just launched this product.
This is the first fully developed internal biologic product. This is going after the platelet concentrate market. We estimate that market to be a $30
million to $50 million market. This is considerably more easy to use than a centrifuge system. It's a self-contained sterile kit. You can get about
from 60 CCs of whole blood you can get platelet-rich concentrate in about 10 minutes. So we're excited about the opportunity here, beyond
trauma centers, but to take it out into the community as well.
We've talked a lot about PERI-LOC. This has been an incredible source of growth for us since 2005 when we launched it. In 2007, we estimate
that we were significantly above the market growth rate on internal fixation in the plate and screw segment, considerably based on the success of
this product. It's a full range, from lower extremity to upper extremity that has allowed us to convert many accounts.
On top of that, we'll be launching the VLP system, we're going to talk in detail a little bit about here, but that adds eight plates to our PERI-LOC
system and, again, the feedback on that has been incredible. It's some of the best feedback we've ever had on a clinical evaluation and trial of that
system, and we expect this will continue to feed our growth in this segment of the market.
With that, I'd like to introduce Dr. Cory Collinge, with Orthopedic Specialty Associates out of Harris Methodist Hospital in Fort Worth, Texas, to
talk a little bit more about the specifics of the VLP system and the opportunity it represents.
Dr. Cory Collinge - Orthopedic Specialty Associates - Orthopedic Trauma Surgeon
Thanks, Mark. Thanks to Smith & Nephew for having me, and thanks for listening. I'm an orthopedic trauma surgeon. My patients are hit by
cars, they're in car wrecks, they fall off the roof, and increasingly so they're patients with osteoporotic fractures that most other orthopedic
surgeons don't want to deal with because failure is a real possibility nobody wants to fail.
I was originally involved in the development and startup of the PERI-LOC system because I'm busy and I had some very good training, and the
natural evolution of this very good plating system is to fill in some of the holes in the system. So today I want to talk to you about the VLP
system, or the variable angled lock plating system, which does fill in some of the holes in the initial PERI-LOC. And I want to talk to you about
why that's important.
First, to do that, I need to talk to you about a little bit of definition of fracture patterns. So if you go over to the pictures on the right, there are
three categories of injury around a joint, A types, B types and C-type injuries. A types are complete injuries that are transversely oriented and
they separate the joint from the rest of the bone.
The B types are more vertical and they're usually shearing injuries of just a portion of the joint, so some of the joint is still attached to the rest of
the bone and only a portion is sheared off. And then the C types are a complete disruption of the joint itself and the transverse injury, so it's a
vertical and transverse component.
So the A's and the C's, the joint is completely detached from the rest of the bone and that's pretty important for the rest of the talk, and we're
going to spend some time talking about these B injuries, which are the sheer injuries where some of the joint is still attached to the bone, and
these are the injuries that haven't been adequately treated in the past.
And this is a typical B type injury, where this side of the joint, the medial side of the tibial plateau is still intact, but the lateral side has been
sheared off and some of the joint's been pushed down or crushed into the joint below it.
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Mar. 05. 2008 / 4:00PM UKT, SNNUF.PK - Smith & Nephew Analyst Meeting at the American Academy of Orthopaedic Surgeons
(AAOS)
Okay, five years ago, when the PERI-LOC system was being developed, we really had to develop a system that was all encompassing and try to
treat the A's, the B's, the C's, all with one plating system, and that's what PERI-LOC does. It's a thicker plate. The plate width is either 3.5 or 4.5
millimeters in width, so it's a fairly thick plate, and it has to be thick to maintain the axial strength of a fracture repair.
So here's the fracture. This plate demonstrates screw fixation into the lower segment and the top segment and when the bone is loaded, you really
need a thick plate to resist breakage of the plate or failure of this construct at this point. So under the system I talked to you about before, the A's
and the C's, this is optimal, a thicker plate to get maximal strength and prevent failure.
Well, with B type injuries, or these shearing injuries, where the fracture line is more obliquely oriented, these plates aren't absolutely necessary
and you don't need a big, thick plate. This is a partial injury of the joint where you actually can build the fractured fragment back to a nice
foundation, so you don't need a big, thick, strong plate. And in some areas you'd prefer a thinner plate, because there are problems with implant
prominence and pain and soft tissue problems with a thicker plate.
And one area, if you want to feel real quickly beneath your kneecap and just to the outside, there's a big thick knob on the front of your leg. This
is an area where a tibia plateau plate would go and I think you can appreciate that if you put a big, thick, five, six-millimeter plate on that area, it's
going to be prominent and cause problems and maybe need to come out later.
So the B-plate project, or the VLP project, really was born to fill in these holes, which helped treat these B-type fractures. And I think here is a
nice demonstration of how a thin plate may work. It's a little bit under-bent, so when you apply the screws above the fracture line, it creates a
spring effect and it compresses the fractured fragment into the more normal bone and it really builds to this foundation to create strength and
prevent the shearing forces that may cause this to fail.
So how many of these fractures are B types? How many have we not been treating optimally historically? Well, quite a few, and if you go to the
tibial plateau or the proximal tibia, just below the knee, about two-thirds or 60% of these injuries are B types. And if you go down to a much
more common injury, and among the most common fractures in the lower extremity is ankle fractures. And about two-thirds of ankle fracture are
B-type injuries. So these plates are relevant to a large number of patients and I think can help optimize treatment for these people.
So what are the advantages of the VLP? Well, the design is for it to be first low profile, and I think this is that area just below the kneecap and on
the outside that I was talking about, and if you have a big, thick plate, it's really going to be a problem, and I think you can see in this X-ray
below how thick some of these older plates have been.
So the VLP plate's two millimeters or perhaps slightly less than two millimeters thick, instead of 4.5 millimeters, and I think you can appreciate
that that's a very thin plate. But, again, the mechanics of this repair are different than on the A's and C's.
These plates are also anatomically contoured, which has become a very good trend in orthopedic trauma implants lately. It provides for a perfect
fit, so in that same place, on the lower-outside part of your knee, if you get an anatomic contour and it fits nicely, capping that knob, it's going to
be less prominent and create less problems. The other thing is, by anatomically contouring these plates, you can design where you want each
screw path to be designated. So you can help the surgeon to put the screws in the right place.
Historically, plates weren't anatomically contoured and the surgeon had to blend the plates in surgery, and this is an old case from about 10 or 15
years ago, and you can see these plates aren't contoured exactly and they're not necessarily designed for this area. It takes more time in surgery,
leads to some surgeon frustration if you have to take it out and put it back in and bend it some more and take it out and put it back in and bend it
some more. And if it's not anatomically contoured or perfectly contoured, it can actually lead to mal-alignment or poor alignment across the
fracture.
I think the final big advantage of the VLP system is that it's got locking plate technology, which is all the rage right now. Lock plates create a
fixed-angle construct, where the plate and the screw are fixed together at a certain angle, so the traditional implant failure mode of the screws
toggling relative to the plate is taken out of the equation and it's a very strong, mechanically sound construct.
And the VLP plate, even though it's very thin, has some new technology that allows the screw to lock to the plate and provide for a
biomechanically sound construct. And this is probably most important for patients with osteoporosis or very complicated fractures that have
historically been very, very difficult to treat and have a high failure rate.
So, in summary, I think the VLP system is low profile. It's anatomically contoured and it has locking screw options and there is no other plating
system on the market that has these three components. And that's why I think the VLP system is a great advantage.
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Mar. 05. 2008 / 4:00PM UKT, SNNUF.PK - Smith & Nephew Analyst Meeting at the American Academy of Orthopaedic Surgeons
(AAOS)
Let me show you a quick case. This is I think a typical VLP case. It's a [last-name] case, a lateral tibial plateau fracture. Some of the joints then
depress down as the femoral condyle is impacted into the bone below. And I think this is a very typical case that a community orthopedic surgeon
would see.
So step one is to get in there and restore the lateral contour of the proximal tibia. You can see that joint fragment is still impacted. That joint
fragment's then lifted up and some K-wires are applied for provisional fixation, and here's the VLP plate, with a buttressing screw, which is
pasting that plate up and pushing that spring to kick the vertical fracture line into compression. More screws are added and here's what you end up
with. So that plate is buttressing up that fragment and resisting the shear forces that are the worry in terms of failure.
This is a more extreme case, and this is not an everyday case, but it makes some really good points that I think are advantages for the VLP
system. This is a great big diabetic man with bad skin, bad everything. He's a horrible host and he's suffered this unstable ankle fracture and
dislocated the bottom part of the ankle out from underneath the tibia.
So the came in one night, the emergency room doctor said he reduced the fracture, or realigned the fracture, and splinted him. So I show up the
next morning expecting a splinted leg and everything to look pretty good, and this is the post-reduction X-ray. And you can see the ankle is still
completely dislocated and I don't think the emergency room doctor did he or the patient much of a service.
So I take a peak at the leg, and here's what it looks like. And I think under the best of circumstances, this is a big, thick leg with all kinds of
vascular problems, and this guy's got horrible peripheral vascular disease, and this bruising is from this dislocated ankle and the skin is extremely
unhappy and probably unsafe to operate through.
So he goes into an external fixator for a period of time. We got things pretty well realigned and now we're going to let the soft tissues calm down
and wait, wait, wait until the swelling is down and the risks are down for Reconstruction. Okay, so two weeks later his skin's back to its usual
miserable state. He's still got all these vascular problems and I'm still not very excited about operating through them.
But now I've got another tool. I've got this anatomically contoured, thin plate that I can use to my advantage. So small incision instead of opening
up the whole thing, and we're going to try to use some of the minimally invasive techniques and prevent collateral damage, like Dr. Verma was
talking about.
So I slid the plate in through this hole, slide the plate up, put some fixation screws distally and this short segment here has all kinds of locking
screw options that we took advantage of, pulled the bone out to length, using a little hook through the plate to restore the alignment of the fibula
and then started putting in some screws proximally and used some of these screw options, the traditional screw options, to help push that plate
over.
So I think as you can see as you go across, this distal segment gets pushed over further and further and further medially and, at the end, you have
a very nicely aligned distal fibula with plenty of fixation in it. So some of these are lock screws, some of these are traditional standard screws.
We've optimized our options.
And there's what we end up with, and most importantly, probably, is here's what we did it through. We did it through one small incision to put the
plate in, two little poke holes to put three or four screws in, and his skin has not really suffered from the collateral damage that we already spoke
to.
And there he is, closed up with a couple little stitches. So is that an everyday case? Absolutely not. But I think it demonstrates the importance of
an anatomically contoured plate that you can apply to help do some of the work for you, having screw options and a low-profile plate. Thank you.
Mark Augusti - Smith & Nephew - President - Orthopedic Trauma & Clinical Therapies
Thank you, Cory. In the interest of time, I know we want to make sure we get a chance to do everything for Recon and leave a lot of time for you
guys to ask BHR questions. So I'm going to skip the next three slides. We can ask questions about those later. I want to touch not his briefly.
We talked a little about CAPTION, but we do have a growing focus on biologics. You've seen some announcements about some of the business
development activity we've even doing. I'm very excited about the opportunity here. You'll hear more about that in the future and feel free to talk
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Mar. 05. 2008 / 4:00PM UKT, SNNUF.PK - Smith & Nephew Analyst Meeting at the American Academy of Orthopaedic Surgeons
(AAOS)
to us during the Academy on some of those deals. This is our product lineup. Again, next door you'll see those products and certainly feel free to
talk to people at the both about them.
Thank you again, and with that I'd like to introduce our President of the Reconstructive business unit, Mr. Joe DeVivo.
Joe DeVivo - Smith & Nephew - President - Orthopedic Reconstruction
Thanks, Mark. I'll go through some slides quickly, as well, because we have some great guests with us who will be able to inform you and then
we'll get to a good question session.
Now, just to finish off with the jokes, I guess the three Italians up here give a whole new name to the Smith & Nephew family. Okay, all right.
So, for Orthopedic Reconstruction, our mission for our division is to partner with healthcare professionals in a tireless pursuit of innovation to
help patients restore their right to an active lifestyle, and that's how we look at our business and that's how we look at how we wish to operate
moving forward.
Now, you've seen a discussion on the continuum of care, and we of course from Orthopedic Reconstruction, we sit on the end of that care
continuum and you see in this slide a lesion revision knee. But within the continuum, we're doing everything possible as an organization to go
earlier and earlier to match up with our sister divisions to help patients provide all different -- or to allow our customers to provide all different
types of solutions for patients on the progression of osteoarthritic disease.
And it is our tireless effort to identify proprietary ways, proprietary bearings, in order to create these advantages for our customers, for them to
deliver to their patients. We're serious about our focus on the active market. We think if you take a good look at our entire product portfolio,
through our bearing technologies to our BHR in DEUCE to what we are doing with our JOURNEY knees in lesion, that we have options and
opportunities to allow surgeons to build practices based on early intervention, to take the next lead from sports medicine and not have to have that
gap of years before they get that traditional implant.
We believe that this is the fastest-growing segment in the Orthopedic Reconstruction area. It's the most lucrative area, where we have the best
reimbursement, and it's an area that we are going to help our customers build their practices on, as well as deal with the normal progression of
osteoarthritic disease and be able to treat patients above 65. But this is an area where we believe Smith & Nephew has a competitive advantage
and we intend to exploit it.
So what I'm going to talk to you about, we'll go through this very quickly. Last year, we talked about BHR. I'm sure you have some questions on
BHR, and we'll talk about that in just a moment. We also launched for you the JOURNEY DEUCE system and we have some guests here in order
to tell you how we've done throughout 2007 with these two products.
We believe those two products are the tip of the spear that allow us access into competitive hospitals and we'll talk about that in just a second.
Then I'm just going to go through four of the new product launches we have here at the Academy, because everyone wants to know what's new,
what's new, what's new. I can talk for hours on all of our products. You can go to the booth and you can see them for yourself, and we can talk
about that in a moment.
Let me just give you a couple comments on BHR. A you know, we don't give procedural numbers and break it out as an individual product, but
what I could tell you is 2007 was a great year for Smith & Nephew. As you know, we spent the first half of the year making a substantial
investment in this market.
We deployed our sellers, our training resources to make sure that while we had this as a virtual monopoly in the U.S. that we capitalize on that,
that we went to competitive accounts, that we built new relationships, that we brought this therapy to our existing customers and we developed a
footprint.
As you know, in the first half of the year, that level of focus and commitment waned some of our core business. As we developed those footholds,
we went quite aggressively in, motivated our organization to sell the hole bag. And I'm very proud to say that we exited the year in a very
balanced approach. We have the market position we built on BHR. We are now growing our knee business at least at market rate and we intend to
accelerate that in 2008.
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Mar. 05. 2008 / 4:00PM UKT, SNNUF.PK - Smith & Nephew Analyst Meeting at the American Academy of Orthopaedic Surgeons
(AAOS)
Our desire going forward is now that we've built so many wonderful relationships in so many competitive accounts is to drive our core business,
our core hip business, our knee business, through those competitive accounts, and I'll tell you what's happening and we have a lot of reason to be
excited about 2008.
The main competitive advantage that we have with BHR is our clinical results. And while we just launched in the U.S. and are experiencing
wonderful uptake, we have been competing for years in the international markets. And, as you know, there's multiple people in the market with
products but there's only one that stands the test of time with good clinical results, and one that we believe will allow us to sustain our leadership
position for a period of time to come.
So, with that, what I'd like to do is introduce Dr. Michael Solomon from Prince of Wales Hospital in Sydney, Australia, who is going to give you
a little more detail on BHR and our clinical success. Dr. Solomon?
Dr. Michael Solomon - Prince of Wales Hospital - Physician
Thanks, Joe. I'm very pleased to be here and thanks again to Smith & Nephew. Apologies, but my slides weren't been able to be uploaded, so
you'll just have to listen to me, and hopefully I'll impart some knowledge.
We've been using the hip resurfacing -- Birmingham Hip Resurfacing for the last eight years in Australia. It came out initially in the UK and then
came to Australia. As you probably well know, this is certainly a very different technique from standard hip replacement surgery. There is a
learning curve. It needs to be taught properly. The surgeons need to understand who can actually use these implants in terms of both from a
surgeon's perspective and which patients are likely to benefit.
And there's a clear advantage in the younger patients. Now, one of the big advantages that e have in Australia is a joint registry, and the joint
registry analyzes every single joint implant that is put in the country. Every hospital has to submit forms, so it's 100% uptake. It's independent, it's
run by the Australian Orthopedic Association. It's not company driven. It's a very independent registry, so I'd like to believe that the results
certainly stand the test of time, because they're credible.
Now, when Birmingham introduced the BHR when it was still MMT eight years ago. The uptake from the surgeons was cautious, but most
importantly we had a superb training system put in place, which is what's needed. Now, I understand a similar system is now being used in the
United States. The advantage that the United States has over Australia and Britain and the rest of the world is that whilst you have come in a little
bit late with this very exciting technology, you've learned from our mistakes.
And our mistakes are clearly put out there in the registry, and we've learned ourselves from our mistakes. So the U.S. market has a very much
shorter learning curve than we've had in Australia, because they've been able to build up on our results.
Now, in Australia, probably about 8.2% of all hip replacements that are done in Australia are resurfacing hips and it's probably plateauing around
about that level, between 8.2% and 8.5%. We're a country of 20 million people, so you can probably extrapolate our results and multiply it by 10
or 10 to 12 times if you want to try to project ahead from a U.S. perspective.
The Birmingham Hip is undoubtedly the number one seller in Australia, one, because it was the first one introduced and for a number of years
was the only resurfacing there. There are now 12 different types of resurfacing -- in fact, probably a bit more. There are probably about 15
resurfacings on the market in Australia, but 12 that the registry has been able to critically analyze.
And when you look at the registry results, you can clearly see the advantage of the Birmingham Hip compared to its competitors. The
Birmingham Hip now has been around for 10 years and the results are well published and the registry data verifies these published results.
Probably the failure rate is about 1.8% in Birmingham Hip Resurfacings, and when you look at the registry, you can see that the two competitors
of note, mainly the Durom and ASR from Zimmer and DePuy, the registry which reports, as I said, totally independently, has shown that both
these implants are failing at a much higher rate than the hip resurfacing implant that Birmingham produced over 10 years ago.
I think this sort of emphasized the fact that the Birmingham Hip has been the same implant used for 10 years. There has been nothing changed on
that, so one's really been able to analyze the data very clearly, knowing that the actual product has remained the same. So it's very comforting to
see, certainly from a surgeon's perspective, because I started using hip resurfacing when it came out in Australia over eight years, ago, that I've
stuck with an implant that has really proven the test of time and is without doubt now quoted as the gold standard when it comes to hip
resurfacing replacements.
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Mar. 05. 2008 / 4:00PM UKT, SNNUF.PK - Smith & Nephew Analyst Meeting at the American Academy of Orthopaedic Surgeons
(AAOS)
I think the key messages that one needs to take home from a hip resurfacing perspective is, one, the surgeon has to be competent in what they're
doing. Two, they have to choose the correct patients. And, three, they clearly have to choose the correct implant, and if you look at an
independent report such as our registry, as well as perhaps looking at the [Osifsri] registry, which an independent registry held in Britain, the
Osifsri report really just analyzes a small section. It's not as comprehensive as our Australian registry in that we have analyzed everything.
But if you look at these independent reports, the Birmingham Hip has come out way in front of its competitors, and that's something very
comforting from a surgeon's perspective, because you can actually look back at results and not be swayed by marketing, but rather be taught by
the true analysis of what's going on with independent registries.
So I'll make the talk brief, as my slides didn't come out, but I certainly from a surgeon's perspective commend the Birmingham Hip because it
really has stood the test of time. It is an excellent prosthesis for a younger patient. It's bone preserving. It allows younger people pretty much to
get on with their normal, routine lives and sporting lives. There are a lot of young patients who are actually running on hip resurfacing, certainly
getting back to cycling. There was a famous American cyclist who had his hip resurfaced. So it's definitely the young operation and one that I
think is going to last possibly a lifetime in terms of their patient's lifetime.
Just a final point, which is also very interesting, since resurfacing came out in Australia, the larger-head metal-on-metal technology, which is
essentially what a resurfacing is -- it's a large metal head in an acetabulum. But these larger heads are now available to put on standard stems. If
you look at resurfacings across the board, over 50% of the failures occur because the femoral neck factures, so resurfacing is just capping the
head, and if you look at failure rates of those that failed, over have occurred because of fracture.
So if a surgeon is a bit worried that this may in fact occur, he can still put a standard stem down and put a large femoral head on it. And the
technology of large femoral head, which is essentially the Birmingham Hip metal-on-metal technology is being used now quite significantly and
certainly I know the growth in the last year has been over 80% in terms of large metal-on-metal heads being placed on stems.
So it's a two-fold attack, if one could call it that way. I think we have the advantage of bone-preserving surgery in a young patient with a
resurfacing. And we've also got the advantage now of using these large femoral heads in the older patients, where you're worried about femoral
neck fracture. So that's just a brief synopsis. It's been very successful in Australia.
The Birmingham Hip is clearly the market leader and I think will remain so because independent results have proven its worth. Thank you.
Joe DeVivo - Smith & Nephew - President - Orthopedic Reconstruction
Let's just go back one slide, just to make one quick comment. I did gloss over -- go back another one. You see there as well, in this 3D CAD
drawing and in your books, the Birmingham mid-head resection device. We are starting some clinical work with a modified BMHR where it has
a much more robust stem for those who have increased disease on the femoral neck. And we believe ultimately -- this product is being tested
internationally. We're about three years away from it in the U.S., but we believe it will open up the overall opportunity for BHR by allowing us to
treat more patients.
So, with that, let's just talk briefly about the next technology that we're very excited about, which is our JOURNEY DEUCE, which is our next
area of early intervention. And, with that, I'll introduce Dr. James Bresch.
Dr. James Bresch - Orthopedic Surgery Specialists - Orthopedic Surgeon
Good morning and, again, thanks for having me, Smith & Nephew, to talk about this exciting option. A little bit about my background. I'm sports
fellowship trained. My practice is limited to the care and treatment of shoulders and knees. My knee practice runs the spectrum. I take care of
simple knee arthroscopy. I do meniscal transplants, cartilage transplants, unis, now the DEUCE, totals and revisions.
And it's nice as we continue to go forward, as our patient demands push us and as our desires to improve function continue to grow, that we
continue to have options to try to provide specific surgeries or procedures that are unique to the patient needs. And this is a unique product that
allows us to do that.
The JOURNEY DEUCE is a unique product. Many of the different things that you look at today as analysts, you're able to compare this product
with that company's product. There is no other product that addresses the pathology of the medial compartment and the anterior compartment.
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Mar. 05. 2008 / 4:00PM UKT, SNNUF.PK - Smith & Nephew Analyst Meeting at the American Academy of Orthopaedic Surgeons
(AAOS)
If you look at the statistics, radiographic criteria of knee arthritis, approximately 70% of patients have arthritis that is a combination of the median
and anterior compartment. A smaller portion are isolated lateral and an even smaller portion are isolated to just the front or the anterior
component.
So in addressing this -- excuse me, I apologize for my voice. So in addressing this, what has been developed is a procedure that uses many of the
same concepts of the surgical technique of inputting a total knee, so it's very familiar to the surgeon. There's not a big learning curve in this type
of surgery.
Why do something less than a total? Totals historically have been very successful. Patient satisfaction is high, if we look at reduction in pain.
Patient satisfaction in improving function has not been very good.
When a conventional total knee is done and the JOURNEY total knee is different, and that's a different talk, but we're able to restore motion, but
not kinematics. And why is that? Conventional total knee, unfortunately, the cruciate ligaments are sacrificed, always the ACL and very
commonly the PCL, depending on the system that we use. Losing those ligaments, we lose the normal motion, of the driving and the stability of
the knee.
So on a conventional total knee, we use the parts to give us stability. Here, we're using the patient's natural ligaments. We're also retaining
proprioception. Proprioception is your sense of what the joint is able to do. It's something that you're not aware of, but if you close your eyes, you
know where your knee is in space. You know where you're at. And to be able to return to sports and athletics, it's very important.
To be able to shoot baskets from the free throw line, don't need it too much. To be able to drive the line or to do something different or get back
to playing, ice skating or playing tennis, you need that sense of where your joint is. So retaining those cruciates is critical in doing that.
We're also seeing that our patients are younger, post-traumatic injuries from sports, when you're an adolescent, now evolved into arthritis at an
earlier age. These people are working and they need that command.
One of the problems is that we anticipate unfortunately that things may wear out, so if you take somebody who's 45 or 50, if you suspect that it
may only last 20, 25 years. What we want to do is have something that we're preserving more bone, so when we go back to do a revision, we have
more to work with and w may not have to go back to a revision knee system. We may, if we have to revise, go into a traditional total knee.
The DEUCE knee system was designed to be within the envelope of a total knee. So if I have to revise one of my DEUCE patients, theoretically,
I can put my jigs on and make my cuts and do a total knee within that same envelope, again, a big advantage to the patient down the road.
Excuse me. Another thing that's nice about this product is we're able to utilize the best materials for tissue wear -- sorry, for material wear, able to
implement Oxinium. Right now, the DEUCE knee is only available in Oxinium. For lower-demand patients, it may be available. In the future, I
think it is projected to also be available in cobalt chrome at a little bit of a lower cost.
How do I go forward on this? Again, this is a new product to treat a very common problem. Looking at our X-rays up here, this is a very typical
total knee scenario. For those of you who aren't used to looking at anatomy, I'll point out a couple of things. This is the end of the thigh bone.
This is the medial femoral condyle and this is where the thigh bone runs against the shin bone and this is denuded cartilage. This is exposed bone,
so you can imagine, a very painful process if you were to try to walk or bend or do anything on this.
If we look at where the kneecap runs against the thigh bone, the kneecap runs in this groove called the trochlear groove. And with normal arthritis
of the medial component -- I'm sorry, the medial compartment, the front of the knee wears out as well. So we see that this cartilage wears out and
we're in a situation where now we have exposed bone.
If you look at the outside, these are the cruciate ligaments. This the ACL, this is the lateral condyle. We don't expose the lateral meniscus on our
exposure, so I don't have a picture of it, but it's normal. So we have this entire 50% of the knee is normal. This is abnormal -- back side of the
kneecap, again, worn out, cartilage is worn away. And this is an interoperative photograph of what our material looks like. It's a nice black
material, Oxinium, approximately 4,000 times smoother than cobalt chrome. Obviously, less friction.
This is a postoperative X-ray, looking at our components in place, and again, you can see much less bone resection. I've got the normal landmarks
if I have to revise this in the future and we're able to get our joint alignment back. You can see a relatively little incision where you're able to do
this without exposing or having to dissect the extensor mechanism.
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Mar. 05. 2008 / 4:00PM UKT, SNNUF.PK - Smith & Nephew Analyst Meeting at the American Academy of Orthopaedic Surgeons
(AAOS)
Also we talk about MIS, minimally invasive surgery. We tell our patients it's not about the size of the skin incision, it's about what less we do to
the joint. They were talking on the Endoscopy side, obviously, the less dissection, if I don't have to cut into the quadriceps, that muscle is going to
work better, have less likelihood of stiffness.
But also a major interest is that by having this much smaller tibial component like a uni, I do not have to translate the tibia forward. We're not
kinking the blood vessels in the back of the knee. To date, in my experience, and in all of the design surgeons that have put these in, we have not
had one DVT in our postoperative process and we have not had to do one blood transfusion.
Because of the MIS, these patients are getting up, they're moving much faster and they're out of the hospital sooner. Even our elderly patients
who don't necessarily need that immediate demand to get back to work, it's a big advantage that they don't have to go to an extended-care facility.
They're going to be able to get straight from the hospital, usually in two days, back into their home environment, less pain, less pain medicine,
less pain medicine, fewer other complications, and it's a much quicker recovery.
The other surgeons brought intraoperative video and they brought nice post-op X-rays, but we were nice enough to have Chris come, and she's
our ultimate multimedia presentation. She's a patient who actually had a DEUCE implanted, and I'll let here share her experience with you. Thank
you very much.
Unidentified Speaker
Good morning. Who am I, and how did I arrive here? First of all, I am not a super-athlete. I'm your everyday person, mid-40s, active, just not
ready to give up and call it quits yet. My knee saga goes back to probably the mid-'90s with some skiing that I was doing and took a couple really
bad tumbles and did some good twisting on it, followed it up in the later '90s by playing softball and completely blowing out my ACL, so I did
have an ACL replacement done.
And was doing well, back to things, but it wasn't just quite right. Ended up coming to Dr. Bresch who scoped me out and did some minor repairs,
went back to my life and way of doing things and found, once again, things just weren't right again, and by the energy the arthritis had started to
set in.
I ended up with another scope and was eventually in an unloading brace, which allowed me to still do all of the things that I wanted to do, and my
goal was to do as little as possible to keep me doing as much as possible. So lived with the brace for probably three years or so and eventually
started having pain in the brace and I knew, uh oh, this isn't good.
So with my husband in tow we went to see Dr. Bresch once again and it was kind of the day of reckoning and I really thought I was coming in for
the big consult in what's involved in a cartilage transplant. To my surprise, he greeted me with, no, it's going to be a knee replacement. And I said,
whoa, I'm 45 years old, I am not ready for this. That means I have to give everything up. I don't think so. I'm not on this train.
And he said, no, Chris, let me tell you about something new. And he spent 45 minutes explaining this new technology and this new part to my
husband and I. And if any of you have ever gone to an orthopedic surgeon, you don't get 45 minutes with your doctor in any venue. So we felt we
were totally educated on the product and at the end we kind of looked at each other and said, well, why wouldn't I do this? It allows for more
flexibility down the road. I am young. It just kept options open.
But I still wasn't ready for surgery and I said, okay, thanks, I'll think about it, and went on my happy old way. The pain was excruciating at that
point. I was living on bottles of Aleve and he had mentioned I could try Supartz injection, which in December I said, all right, let's try these and
see if I get anywhere with this. And I did.
I had complete pain relief, for about two weeks. But that two weeks showed me what it was like to live without pain and how much pain I was
actually living with, not just for doing activity, but just in my daily life, getting out of bed in the morning and realizing, oh, I can put my foot
down and I don't have that pain.
So once it wore off, I said, all right, sign me up, I'm ready to go. I had surgery on April 10th, which was a Tuesday, and I could have come on
Thursday. I came home on Friday. He told me I'd come home with just a cane and that I wouldn't have crutches or a walker, and I didn't believe
him.
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Mar. 05. 2008 / 4:00PM UKT, SNNUF.PK - Smith & Nephew Analyst Meeting at the American Academy of Orthopaedic Surgeons
(AAOS)
I came home with a cane. I really didn't even need the cane. It was more just for a safety crutch and to keep me stable and to keep the kids away
from me. I live in a house with four flights of stairs. I maneuvered all four flights. I should have played that one out better because I probably
could have gotten more sympathy from the kids and my husband, but I really was able to do the four flights of stairs.
As I said, my surgery was April 10th. I'm an avid bowler. My bowling met on the first Saturday in May. I went. I bowled. I didn't bowl all three
games. I think I bowled two. I have a 127 average and that first game out of the box I bowled a 177. My teammates told me go get the other one
done. But all that joking aside, bowling without pain is incredibly different.
And this season, in my regular league of bowling, I really have gone from a 127 average to a 143 and it's still getting better, and we're almost
done, so I'm hoping to get that up to about a 145. So it's amazing what you can do differently when there's no pain in your life. That being said,
it's also the simple things we take for granted. I can now kneel on the wood floor. I can kneel in my garden and plant my flowers. I can sit crosslegged again. It's not all about sports.
Some of the other highlights, though, that I've done along the way. Biking was part of my rehab and as a result, I had to bike a lot over the
summer, so we picked that up as a couple bonding experience and so it allows you to try new things. I did have to give up running. I was not an
avid runner, but I did enjoy running, so I traded that in for an elliptical machine, and it's not the same but it works and does the job.
We had a major trip planned to Europe in July for vacation and a family wedding and my husband was very concerned that I was going to have
the surgery done in April and what was I thinking? And I said, well, I'm in such pain, it doesn't matter. I really need to get this done. And I recall
in early June, I looked at him one morning and I said, I have to be honest with you, I have less pain now, still in the rehab process, than before I
had the surgery, so this was a really good thing.
So we tromped around Europe for a couple of weeks and lots of hills and cobblestone streets and the knee held up great. The eight-hour flights
were fine. It was great. Also did a little bit of some light rock climbing in September on a corporate outing. I polkaed at the Oktoberfest this year
and, like I said, I'm still working out. And we just came back from Mexico, where I was doing some bodysurfing and I can vouch for the stability
of this thing, because I was standing with six-foot waves crashing on me, and it was just a lot of fun.
Joe DeVivo - Smith & Nephew - President - Orthopedic Reconstruction
Thank you, Chris, and Chris will be here after as well, if there's any questions. So I'm going to move to the end of the presentation and just do a
quick review of the technologies. You'll see at our booth this year, it's an incredible booth, one of the first times I guess we have all of our
divisions, Mike, Mark and my division, all in one large village, virtually. It shows you the breadth of the Smith & Nephew reach in the
orthopedics business.
For Recon, you'll find that there are four key product launched, the [R3] acetabular cup, which gives you three different liner options in the same
system, with the same instrument set, and also a [stick type] coating which is unbelievable. We're very excited about this product.
We have a new VERILAST cross-linked [poly] with Oxinium. We'll show you that at the booth and all the new products that you'll see here. So
you have it in your book. We can do a Q&A afterwards, if you wish. We're also very excited about our core products and where we are from
Recon.
But from a purpose of time, I really appreciate how many of you stayed a little bit over schedule, and I think it'd be more valuable at this point to
go to an open Q&A session. So, with that, I'll turn it over to Dave.
Dave Illingworth - Smith & Nephew - CEO
Hello, is that on? No? Is it on now? Okay, good. Well, first of all, thank you very much, all the speakers this morning, all the surgeons who gave
us their time to give this group their message, and also especially best of luck to Chris. It's always inspiring to have patients join us, because I
think it really brings home to us what we're really doing.
And I think this especially so -- I've been in dozens of meetings over the last couple of weeks since our results for the year. and we talk a lot
about the active patient space and many times I feel like there's a little bit of a glazed look around the table when we start talking about why we're
doing what we're doing in this active patient space.
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Mar. 05. 2008 / 4:00PM UKT, SNNUF.PK - Smith & Nephew Analyst Meeting at the American Academy of Orthopaedic Surgeons
(AAOS)
And I think that this really drives the message home about the challenges of the innovation, how this actually pushes the envelope for us on being
innovative in this area, because these are challenging technological innovations that we need to come up with in order to satisfy these highdemand patients. And the only thing I can say is, Chris, remind me never to bowl you for any money -- yes, on a good night, right.
We ran about 10 minutes over, but we do still have about 15 or 20 minutes that we can dedicate to some Q&A, so I will moderate the questions
here. The only thing I would ask is if we could just keep it relevant. I'd rather not take any wound care questions in this meeting. If you want to
access us on the floor and pepper us with questions about BlueSky or whatever, you're welcome to do that, although you probably know what the
answer is. But if we could just keep it relevant to the guests that we have, that would be terrific. Yes, Jason.
QUESTION AND ANSWER
Jason Wittes - Leerink Swann - Analyst
Hi, can you hear me? It's Jason Wittes from Leerink Swann. The first one is you just rattled off a bunch of new products for orthopedics for hips
and knees, one being VERILAST. I guess can we anticipate that these are all somewhat premium-priced products and really VERILAST, which
is sort of a new twist on Oxinium, and are these all available right now, or is this a rollout which is going to progress as the year goes on?
Joe DeVivo - Smith & Nephew - President - Orthopedic Reconstruction
Yes, I'm sorry I had to gloss over VERILAST, but I think the Q&A is important. I will go through it for a moment. What VERILAST is, it is a
bearing option, and what that allows us to be the only company on the market that has a dual high-performance metal coupling together to reduce
wear. It uses Oxinium, which you know is our proprietary material that, for example, in our knees would be on the femoral.
And in our tibia base plate, we have a new cross-linked poly, so when you see in the chart, the chart shows our competitors' cobalt chrome
offering. That's all they have on the femoral side for, for example, in the knee, with a cross-linked poly, showing impressive reduction in overall
wear. When you couple Oxinium with cross-linked poly, you have a two-punch high-performance material, and the wear is almost discernible.
We reduce wear by 94%, and the indications for this -- you see both charts. You have a pristine environment and a roughened environment. And
you see the two different dramatic areas. The roughened environment is, for example, if there's bone debris or bone cement in the joint. It's not
uncommon, and you see both of those pictures are [explants], 30 months out and show what in a clinical setting the surface looks like.
So what's incredible is that in a clinical setting, by reducing wear to that level, we actually believe that to the extent people have revision due to
wear, this -- any knee that has VERILAST in it might be the last knee you put into a patient.
Jason Wittes - Leerink Swann - Analyst
(inaudible question -- microphone inaccessible).
Joe DeVivo - Smith & Nephew - President - Orthopedic Reconstruction
The launch, right now the first product that will have VERILAST is our [LEGION] Primary Knee System, and that is available today and is at
our booth now, and as we evolve we will be bringing VERILAST technology into our other knee products.
Jason Wittes - Leerink Swann - Analyst
(inaudible question -- microphone inaccessible) on the peri-locking plates. You didn't really compare and contrast to some of the other locking
and [pressure] plates out there. I'm not sure if you're a user of other plates, but do you care to give a few differences between the PERI-LOC and
some of the other offerings out there?
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Mar. 05. 2008 / 4:00PM UKT, SNNUF.PK - Smith & Nephew Analyst Meeting at the American Academy of Orthopaedic Surgeons
(AAOS)
Dr. Cory Collinge - Orthopedic Specialty Associates - Orthopedic Trauma Surgeon
Sure. There's probably some benefit to being not necessarily the first, but the third or fourth person coming to market with a product like this,
because some of the options and some of the user-friendly features are maximized with PERI-LOC and I think it's a much more user-friendly
system than, say, the [list] system or the first-generation systems that I think is sort of dying out as we speak.
So I think PERI-LOC's user friendly and I think, again, because we have the advantage of seeing how things have gone before, we didn't hit some
of the other stumbling blocks that affected, say, the number two and three products to the market. So I think it's a user-friendly system, it's got
great lock plating technology that is not surpassed by anybody else, and I think it's really the market leader at this time for lock plating.
Dave Illingworth - Smith & Nephew - CEO
It's hard for me to see who has their hands up. I've got the lights in my face here, Michael, so it's hard to see.
Unidentified Audience Member
Great. I have three questions. Firstly, with the Plus acquisition you've gained access into the Chinese market. I'm just curious how important the
Chinese market is for you over the next five years in terms of orthopedic growth.
Secondly, we're seeing government healthcare bodies, particularly in Europe, gaining traction, such as NICE. I'm just curious how you convinced
these organizations, particularly Europe, where you have a socialist healthcare system, to pay for more expensive products such as a VERILAST.
And, thirdly, your growth rates in the fast-growing small joint segment is perhaps below market. I'm just curious what you'll do to maximize on
that opportunity. Thank you.
Dave Illingworth - Smith & Nephew - CEO
All right, thanks. I'm not sure what the second question was. I didn't get it, but let me try a couple of these quickly. On the China market, I think
the Chinese market is going to be very important to us. We're putting a significant investment in infrastructure into that country. I think that we
have to do it in a smart way, Michael.
I don't think the country is ready yet for the Western orthopedic companies to come in and do a significant commercialization in that country.
Right now, it's a country that is dominated by the low-cost offerings and the locally manufactured low-cost, what we might pejoratively say, lowquality offerings.
And our strength quite simply is to establish ourselves with the appropriate infrastructure to do low-cost manufacturing in country, which will
allow us to get some people there, build some expertise, build the relationships with the appropriate powerful people in country in terms of
whether it be the government officials or the surgeons themselves and then when the country does allow itself to be commercialized with
Western-type products, we'll have the ability to hopefully manufacture products in China to exploit that market.
That is kind of the very, very high-level grand strategy for how we're going to go after China. And the reason we're doing it that way is I have
some very firm opinions about what works and what doesn't work. I put businesses into China. As you probably know, I think we may have
talked about this in the past, I put together the first equity investment for GE in Mainland China 20 years ago, and there was a lot of learning there
and I think that that market's changed significantly. So that's our plan, right or wrong.
We'll continue to sell bits and pieces along the way, products. Joe and his team are going to be working on making sure that we have the right
Recon offering. I know that Mark is thinking about what kind of properties can they manufacture in country and then possibly exploit in terms of
selling into China. But, right now, our strategy is to manufacture there first, develop our capabilities and then be ready when the market's ready.
The last question you asked, and just for being expedient here with time, let me try to answer that. I think it was with the pricing pressures in the
healthcare systems around the world, how can we expect to get a pricing premium for some of these products. Is that what you were asking?
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Mar. 05. 2008 / 4:00PM UKT, SNNUF.PK - Smith & Nephew Analyst Meeting at the American Academy of Orthopaedic Surgeons
(AAOS)
Michael, I feel like the -- first of all, in my 30 years in medical devices, the pricing environment has always been the same. There's always been
pressure. The difference is there are some companies who bring out innovations that have compelling value propositions associated with them,
and I think that's the only way we're going to be able to get a price uplift.
The fact of the matter is that Chris was able to get her life back and lead a productive lifestyle. And if you look at the difference between her
being able to get back on her feet, it's hard to not understand that there's a real economic impact there, to be able to give that individual an ability
to get back to a productive lifestyle. So I think we have to make sure.
We can't just push price into the market. We have to demonstrate that there's real economic value there. Did anybody catch Michael's middle. Do
you want to take that, Mark?
Mark Augusti - Smith & Nephew - President - Orthopedic Trauma & Clinical Therapies
The D2s I spoke of that we're launching for Dyonics Power, that will help us address the small joint marketplace from a repair standpoint. We've
also got several iterations f sports medicine products from small joint that are either launched today that will be at the booth or we're developing.
You said it's a fast-growing market, that's true.
It's still a very small market in many respects, on the sports medicine side of the business, much like our hip arthroscopy market. So we are
addressing it. We've got products that are in queue or have been launched from the arthroscopy standpoint.
Mike Matson - Wachovia Capital Markets - Analyst
Hi, Mike Matson from Wachovia. Given your sort of clear market segmentation strategy, I was wondering if you've seen any benefit from the
MS-DRGs that were established I think beginning in October of last year.
Dave Illingworth - Smith & Nephew - CEO
Yes, I don't understand the question, Mike.
Mike Matson - Wachovia Capital Markets - Analyst
The DRG system, they broke the codes out into subcategories, based on complications that come, morbidities. I was just wondering with higher
payments patients that are more sick, I was just wondering if you had seen any benefit from that by targeting sort of the higher-end products to
the sicker patients.
Dave Illingworth - Smith & Nephew - CEO
No, not specifically, is the answer, unless anybody on the panel here has an opinion on that. No.
Mike Matson - Wachovia Capital Markets - Analyst
All right. And then just one other question. I notice a lot of the other companies have porous metal products. I was wondering if you guys were
working on that and just what your thoughts were on that technology.
Dave Illingworth - Smith & Nephew - CEO
The easy answer to that is we are working on it. Joe, if you don't mind, I'd just make a couple of comments. There's not a lot we can talk about at
this point. You know that we did have a porous in-growth surface that we had in the past. We had some issues with it. Thank goodness we're well
away from that, but we did have to sort of start over with some of our development activities in that area, so we are doing some work in that area
but we're not going to be talking about that at this year's Academy.
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Mar. 05. 2008 / 4:00PM UKT, SNNUF.PK - Smith & Nephew Analyst Meeting at the American Academy of Orthopaedic Surgeons
(AAOS)
Joe DeVivo - Smith & Nephew - President - Orthopedic Reconstruction
But we are actively working on it and it's not something that's too far in the future.
Dave Illingworth - Smith & Nephew - CEO
Right, like I said, we're not going to be talking about it at this Academy. Yes.
Unidentified Audience Member
Hi, just one question on the BHR data. I think there's no doubt that the registry data does look very good for BHR. But I just wonder if you could
qualify it in a couple of ways. The first is that there were strong surgeon practice effects and also vintage effects in implant failure, that implants
tend to fail in their first year and they tend to fail when they're put in by inexperienced surgeons.
The BHR data in the Australian registry has longer vintage and may have been put in by more experienced surgeons. So that's the first thing, I
wanted to know if you think that relates to it. Secondly, why do you think it is better? Apart from that, do you think there's something about the
implant itself, or do you think it's something about the training program, or is it something about both?
Dave Illingworth - Smith & Nephew - CEO
I've got to tell you, could you understand the question, because it's very difficult to hear the questions.
Dr. Michael Solomon - Prince of Wales Hospital - Physician
I got the second part, but just repeat the first part.
Unidentified Audience Member
(inaudible question -- microphone inaccessible).
Dave Illingworth - Smith & Nephew - CEO
Yes, do it without the microphone.
Unidentified Audience Member
(inaudible question -- microphone inaccessible).
Dr. Michael Solomon - Prince of Wales Hospital - Physician
I'll answer it by initially saying that when resurfacing was introduced into Australia, it was only BHR. It was introduced in a very controlled
manner, where as surgeons we were trained, which I believe in a very good fashion on how to put these in and what the pitfalls are in terms of the
actual technique, because it's very much a technique-dependent procedure.
Now, when the competitors started coming out on the market, the very surgeons that were trained in BHR went over and started doing the
competitors' products. So these are surgeons who've been around for five, six years, doing BHR, suddenly doing the different products.
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FINAL TRANSCRIPT
Mar. 05. 2008 / 4:00PM UKT, SNNUF.PK - Smith & Nephew Analyst Meeting at the American Academy of Orthopaedic Surgeons
(AAOS)
When you look at the joint registry data, the joint registry data, particularly on the failures, is really reflecting clearly experienced surgeons
who've been around for a long time. So that, from my perspective, I believe comes down to the implant and the instruments putting the implants
in.
There is no question, and I've been using BHR as the only resurfacing since it came out. So I'm not sure the kind of training that the competitors
have been giving to their surgeons, but I can tell you that the initial results, which are now reflected in the registry of the competitors, are being
done, or were done, by surgeons who were trained in BHR. So there's clearly got to be a -- there's a learning curve with everything, but there's got
to be instrument problems and there's got to be instrument problems and there's got to be the actual resurfacing itself.
Now, one can analyze the actual materials, which are different, the clearance rates, which are different. And I think time will sort of bear this out,
but the BHR is the same implant that's been around 10 years, with the technology that's been around for 40 years with the original [Niki Fera].
The newer implants that have been out there on the market, they've changed clearances, they've changed tolerances. They've changed the way
they treated the metal and I think the registry is starting to reflect this with these early results that are coming out which have statistically shown
that the BHR is by far the best one to use when you look at the statistics.
And the registry only reports statistically on implants that at least have 500 put in. They might comment other implants that have had a higher
failure rate, but they will specifically say, look, this is not statistically significant at the moment because we don't have enough numbers. But the
ASR and the Durom all have enough numbers and their revision rates are twice that of the BHR.
Dave Illingworth - Smith & Nephew - CEO
Yes.
Ilan Chaitowitz - Redburn Partners - Analyst
Hi, this is Ilan Chaitowitz from Redburn Partners in London.
Dave Illingworth - Smith & Nephew - CEO
You know what? We're going to have to not use the microphones. We can't understand a single word that's coming through that thing.
Unidentified Audience Member
(inaudible question -- microphone inaccessible).
Dave Illingworth - Smith & Nephew - CEO
Well, I don't think it's especially helpful for us to be predictive about that. I think really that's your job as analysts. Take the data that you know is
correct in Australia, take the data in the UK, figure out what the dynamics are in the U.S. and pick a number. It's probably going to be somewhere
north of 8%, I guess, in terms of the total number of hips.
I get asked this all the time. I wish I knew. I guess it's going to be whatever it should be, and it looks like right now it's being well accepted. We're
doing a very nice job of penetrating the total hip market in the U.S. We've still got a long way to go, regardless of how much it ultimately is. We
still have a significant way to go. We're only at, in the best of cases, a third of the way there on the penetration. So I wish I knew. I mean, I really
wish I knew.
Dr. Michael Solomon - Prince of Wales Hospital - Physician
To make a comment from a clinical perspective, what we've learned in Australia is that males under 65 and females under 55 due well with this
implant. Initially, we started putting them in everybody and now we've learned which is the group to put them in, so perhaps you should be
looking at the group.
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FINAL TRANSCRIPT
Mar. 05. 2008 / 4:00PM UKT, SNNUF.PK - Smith & Nephew Analyst Meeting at the American Academy of Orthopaedic Surgeons
(AAOS)
If you take the American surgeon, I suspect who's going to be fairly cautious in terms of who he's putting them in, but you look at the number of
patients in this age group now under the age of 65 in males, and under the age of 55, who have arthritic hips, just like in Chris's case, who had an
arthritic knee, that younger patient group, that's the group that it's skyrocketing in and that's the group where over 90% of the implants used in
that young patient is a resurfacing [plant].
Dave Illingworth - Smith & Nephew - CEO
Thank you. Raj, we have a microphone -- or I guess we're not using the microphone, are we? You're going to have to yell.
Raj Denhoy - Piper Jaffray - Analyst
(inaudible question -- microphone inaccessible).
Dave Illingworth - Smith & Nephew - CEO
Okay, well, I might as well take from an overarching point of view. We don't see a big change in our business practices or our marketing
practices, Raj. The thing that we are experiencing is that it's a bit more laborious. I mean, we have a higher burden of proof in order to put the
right type of programs together, in order to drive the type of innovation that we want in our business in terms of consulting agreements or design
agreements, et cetera.
We sort of have to do it upfront, so it makes it a little bit more difficult for us to work through that. There is a process that's put in place for all the
companies that makes it -- it's a tougher, more robust process, but it really hasn't changed our practices all that much. In fact, I think we were
probably the first company to get our needs assessment approved by our monitor and moved forward and start getting on with it.
So we're actually kind of pleased that we've figured out the code here a little bit and we're moving forward. Because, ultimately, that's what drives
us. That's what gets us excited, is being able to work with -- whether it be really bright scientists or really great engineers or really great design
surgeons to help us to bring some really cool technology to the marketplace.
And a lot of what you've seen today that we're introducing that the -- if not most of what you've seen today and will see at the booth was done in
partnership with people who are giving us real, practical ways to bring great products to the marketplace. So really not a lot there, Raj. You asked
the second part as far as the --?
Raj Denhoy - Piper Jaffray - Analyst
(inaudible question -- microphone inaccessible).
Dave Illingworth - Smith & Nephew - CEO
Well, I would hope that we benefit from it. I guess that remains to be seen. We're trying to embrace this process to the extent that if it really is
meant to have a level playing field, maybe we're kind of self-centered in the way we're looking at this, but we think that we should be able to
benefit from it. So we're looking forward to it. We're looking forward to get through the process and I think the intentions in this are just fine and
we need to make sure that we hold ourself to a very high standard moving forward. Yes.
Unidentified Audience Member
(inaudible question -- microphone inaccessible).
Dave Illingworth - Smith & Nephew - CEO
Mike, why don't you take the first part. We'll try to figure out who's going to do the second part.
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FINAL TRANSCRIPT
Mar. 05. 2008 / 4:00PM UKT, SNNUF.PK - Smith & Nephew Analyst Meeting at the American Academy of Orthopaedic Surgeons
(AAOS)
Mike Frazette - Smith & Nephew - President - Endoscopy
Well, the first question was do we see any changes in hospital capital purchasing, and the short answer is no. The second question was how does
sports medicine, how does that parlay into our arthroplasty business and we come in --?
Unidentified Audience Member
(inaudible question -- microphone inaccessible).
Mike Frazette - Smith & Nephew - President - Endoscopy
Well, I can give you my perspective and Joe can speak to his. We run global businesses here, so while in the U.S. the folks you're seeing up here
are very specialized, in many other parts of the world, the person who does the knee arthroscopy is also the person who does the knee
arthroplasty.
Now, they do a portion of their business -- I know Dr. Verma does some total shoulders as well, but we see more of that in Europe, for instance.
In many cases, our marketing efforts pay us great dividends, or we have a robust program with a specific surgeon or a specific hospital in sports
medicine, that does help us on the total joint side of the business, as well. It still boils down to quality products, though, and clinical efficacy.
Dave Illingworth - Smith & Nephew - CEO
Yes, not every place in the world is UCSF or Rush or Mayo Clinic or Cleveland Clinic or whatever. There are small community hospitals, there
are orthopedic surgeons, not only in the U.S., but around the world, who are doing arthroplasty and Tuesday and Wednesday and scoping on
Thursday and every other weekend they're taking trauma calls. And our feeling is that we're trying to be the company that these folks are looking
to in terms of solutions across a very wide spectrum of product categories. The only way we're going to do that is to have leadership positions in
the areas that we compete in and are important to them. And that's why we're focused on this.
And we do have that today, but we've been very separate in the way that we've brought these three businesses to the marketplace. In fact, we've,
in my opinion, my observation, in my short time here, is that we've gone out of our way to make ourselves different in our three orthopedic
businesses. We would come to the Academy meeting and we'd have the Endoscopy booth and the Orthopedic booth side by side and you
wouldn't even know it's the same company because they have gone out of their way to make one look like a spaceship and the other look like
something else.
We don't need to be working so hard to try to make people think we're different. We actually have some real value in collaborating here, because
there are gray areas. You take shoulder repair or restoring function in the shoulder. Sometimes it comes from his business and sometimes it
comes from his business. And we feel like the more that we can work together to really understand the challenges through the eyes of the surgeon
and what he deals with with that patient, the better off we're going to be.
Unidentified Audience Member
(inaudible question -- microphone inaccessible).
Dave Illingworth - Smith & Nephew - CEO
No, not really.
Joe DeVivo - Smith & Nephew - President - Orthopedic Reconstruction
Hey Dave, can I just make one other comment? I think Chris down here is a great example, a great answer to your question. Here's a patient and
her surgeon had started out with sports medicine, early intervention repair, to joint fluid therapy to joint replacement.
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FINAL TRANSCRIPT
Mar. 05. 2008 / 4:00PM UKT, SNNUF.PK - Smith & Nephew Analyst Meeting at the American Academy of Orthopaedic Surgeons
(AAOS)
Dave Illingworth - Smith & Nephew - CEO
Exactly. Exactly. Hopefully you got Supartz. I don't really want to know the answer to that.
Dr. James Bresch - Orthopedic Surgery Specialists - Orthopedic Surgeon
(inaudible) fellowships in sport medicine in total joint. So you're going to see more surgeons following in that trend, and that's because of a
lifestyle difference. Some of it's because of economics and the different practice backgrounds. But traditionally, you would see only surgeons that
did fellowship training in joints do 90% of the total joints. That's not the case anymore. You're seeing more surgeons that are jumping into the
total joint environment through unis and now the DEUCE.
We're seeing as we train surgeons, more surgeons that don't do very many joints at all starting to embrace this through the arthroscopy side of the
business, are coming into the joint side because of these new products and these kind of bridging or spanning insights.
Dave Illingworth - Smith & Nephew - CEO
All right, look, we are going to have to wrap this up. First of all, let me thank all of you for coming. This is clearly the largest group we've ever
had attend, and I have to take that as a very good sign. I appreciate the attendance and I especially appreciate the hard work of all of our speakers
in joining us. And, please, we have some commitments over at the booth, so if you come by, I'm sure you can pull us off to the side and we can
continue the discussion. Thank you very much.
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