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S&N looks to new knee product to regain market share

By Paul Sandle

LONDON (Reuters) - Artificial knee and hip maker Smith & Nephew Plc sees new products backed by a television ad campaign boosting its reconstructive surgery business after a weak second quarter for the unit.

The British company, which competes with Johnson & Johnson, Zimmer Holdings Inc and Stryker Corp, has been losing market share in knee and hip implants in established markets like the United States and Europe, where demand has been poor for the last five years or so.

But Chief Executive Olivier Bohuon said the launch of the company's Journey II knee replacement could help reverse the trend.

"We start to see the results of the launch of Journey II this year, which is very important in the knee business," Bohuon said.

"We started to launch in May in the U.S. (and) we are now launching the product into more geographies," Bohuon said. "This is a key product for us, we believe there is a lot of strength in this product."

The CEO added that S&N had been getting "very good" feedback from orthopedic surgeons and was advertising its 30-year wear claim for its Verilast technology, used in Journey II, on television. "We expect to see good results in the second half linked to the campaign," he said.

Elsewhere the company's strategy invest in faster-growing emerging regions and in advanced wound care management helped it meet expectations in the second quarter and stick to its outlook for the full year.

BETTER HALF

"We generated stand-out contributions from our areas of focused investment in the emerging and international markets and Negative Pressure Wound Therapy," Bohuon said. "As expected Orthopaedic Reconstruction had a slow quarter and we anticipate a better second half."

The group reported trading profit of $232 million in the first half, up 1 percent on an underlying basis, on revenue of $1.07 billion. Adjusted earnings per share reached 18 cents, meeting market expectations.

Revenue in the knee franchise fell 1 percent, against a 2 percent rise in the market, while hips were also down 1 percent versus a 3 percent market growth.

Analyst Ingeborg Oie at brokerage Jefferies said she had expected a weak quarter due to product cycle development, but the results were reassuringly in line with consensus.

"As expected it was a tough quarter in orthopedics, probably the trough, in our view," she said in a note. "However, Advanced Surgical Devices profits beat consensus and wound care made up for the shortfall on sales with a stellar quarter."

S&N shares, which have risen by 7 percent in the last month, reached an all-time high of 799 pence in early deals on Thursday, before giving up the gains. They were trading down 1.2 percent at 775.5 pence by 0905 GMT.

(Editing by Rhys Jones and David Holmes)

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