Following Successful First Quarter, Smith & Nephew Receives FDA Warning Letter for Quality Violation

Smith & Nephew plc’s fiscal year is off to a good start.

Revenue at the United Kingdom-based orthopedic device behemoth climbed 3 percent in the first quarter to $1.10 billion, driven by gains in emerging markets and sports medicine/trauma. Smith & Nephew generated $172 million from emerging markets in the first quarter (ended March 28), a 22 percent increase compared with the same period last year. Sports medicine/trauma/other sales swelled 5 percent to $454 million.

Fluctuating exchange rates impacted first-quarter proceeds by 8 percent, but the loss was offset by an 8 percent benefit from acquisitions, executives said.

The company’s sports medicine, trauma and other division outperformed its brethren, with sports medicine joint repair products propelling much of the growth. Sales from arthroscopic enabling technologies slipped 2 percent to $140 million (a 30 percent increase in reported growth), while trauma and extremities revenue remained flat at $123 million. Other surgical business sales jumped 11 percent (163 percent on a reported basis) to $47 million due mainly to spikes in ear, nose and throat as well as gynecological product sales, Smith & Nephew reported. Executives attributed the decrease in arthroscopic enabling technologies to an expected reduction in royalties for the previous generation of radiofrequency technology. Trauma and extremities products benefitted mostly from the introduction of the Evos Mini Plating System.

Reconstruction sales climbed 1 percent (but slid 6 percent on a reported basis) to $360 million compared with Q1 2014. Hip revenue was the albatross, slipping 1 percent (9 percent on a reported basis) to $151 million. Knee sales rose 2 percent (but fell 4 percent on a reported basis to $209 million. Executives attributed the increase in knee sales to 3 percent growth in the United States of the Journey II Total Knee System.

Overall advanced wound management proceeds increased 1 percent to $290 million (but fell 8 percent on a reported basis), with a 27 percent loss in advanced wound device profits offsetting any real gains in the division. The company blamed the loss on a U.S. distribution hold on its Renasys product line. Advanced wound care product sales grew 9 percent to $178 million, and advanced would bioactive revenue increased 5 percent to $75 million.

The 1 percent gain in U.S. sales ($510 million) was somewhat offset by a 2 percent decline in “other established markets” proceeds (Australia, Canada, Europe, Japan and New Zealand). Smith & Nephew posted $422 million in total sales in the latter category.

Shortly after releasing its first-quarter earnings, Smith & Nephew received a warning letter from the U.S. Food and Drug Administration (FDA) regarding quality control violations at its facility in Andover, Mass. The letter has prompted the company to suspend shipments of its Truclear Ultra Reciprocating Morcellator 4.0 as it investigates customer complaints.

The April 30 letter claims Smith & Nephew failed to establish and maintain procedures for verifying and validating corrective and preventive actions after receiving customer complaints about the loss of visualization with its Truclear Morcellator, a disposable blade that attaches to the Truclear Hysteroscope 8.0 for removing intrauterine tissue.

“For example, during the inspection eight corrective action reports were reviewed and did not contain sufficient information to ensure corrective actions were completed and verified as effective,” the letter stated.

The FDA contends the company’s corrective action report about the problem contained insufficient information to prove the issue had been resolved, and said Smith & Nephew continues to receive complaints about the problem—more than two and a half years after the issue was first raised (September 2012). The letter also accuses Smith & Nephew of removing a prior hold on the morcellator in 2012 before completing its review of the complaints, in violation of the company’s own policy.

Other findings mentioned in the letter include the incorrect translation of instructions for use of the TwinFix Ultra Preloaded Suture Anchors (used to secure sutures, or stitches, in place), failure to document required tasks following complaints of breakage of the Beaver Blade device (a disposable blade used during hip surgery), and failure to test the effect of some sterilization cycles on the Truclear Ultra Reciprocating Morcellators. The FDA also claims that some internal audits were not conducted at the facility, violating the company’s own procedure.

The FDA conducted an inspection of the Andover facility March 4 to 26. It said Smith & Nephew has hired additional employees to help with audit functions and conduct re-audits.

Smith & Nephew has not publicly addressed the warning letter.