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Smith & Nephew Becomes Pharma Family Factor

Stocks in this article: BSX JNJ SYK SNN ZMH STJ

NEW YORK ( TheStreet) -- Any decent management team will tell you that turning around a struggling business is never easy. If that company happens to be in the realm of medical device technology, case studies are rampant.

Companies like Boston Scientific (BSX), Johnson & Johnson (JNJ) and Stryker (SYK) have gone through several years of "reconstructive surgery" to nurse their businesses back to health. And the Street has been anything but patient or forgiving during that span. To that end, it's a little surprising the degree to which the benefit of the doubt is being granted to Smith & Nephew (SNN).

Over the past couple of years, Smith & Nephew's growth has underperformed industry peers like Zimmer (ZMH) and Stryker. The company has steadily lost market share to (among others) Johnson & Johnson in areas like orthopedic implants for hips and knees. And this occurred as management dealt with problems related to the recalls of R3 Acetabular system linked to bone and muscle complications in patients.

Smith & Nephew has not been alone in product recalls. Johnson & Johnson, Stryker and St. Jude Medical (STJ) have dealt with similar issues. Smith & Nephew has not. Today, Smith & Nephew is regarded as one of the best medical device companies on the market.

I haven't heard anyone say this, but there's a lot of evidence pointing to management's deal for Healthpoint Biotherapeutics two years ago as the cause for this turnaround.

The $782 million all-cash deal drew a lot of criticism. Some analysts didn't believe Healthpoint, which was projected to produce $190 million in revenue, was worth the price Smith & Nephew was paying. This is even though Healthpoint was (then) growing revenue at 25% year-over-year. I disagreed.

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