Smith & Nephew, medical devices maker, have improved trading margins within segments of Orthopaedics and Wound Management as it seeks to get back on track following a federal court jury decided that its wound-therapy products infringe key patents of Kinetic Concepts.
"Smith & Nephew delivered underlying revenue growth of 9 pct for the first quarter of 2010 and our core trading profit margin improved again." said David Illingworth, Chief executive.
"The positive momentum in our business continues, and we are making good progress in all areas." he added.
The main improvement in trading margins came from a 220bps increase due to the clarification of BlueSky acquisition agreements.
The acquisition of BlueSky Medical Group in May 2007, including patents for negative pressure wound therapy, booked a $23 million credit for Smith & Nephew, this quarter.
The patents it bought in the deal are now under challenge by Kinetic Concepts, and Smith & Nephew are no longer committed to certain payments for BlueSky allowing it to book the credit.
Meanwhile, the infringement of Kinetic Concepts' negative pressure wound therapy remains under scrutiny with $500 million worth of technology made by Wake Forest University Health Sciences exclusively for Kinetic Concepts, claimed to have been copied.
KCI (Kinetic Concepts) also wants $5.4 million in lost profits along with an injunction barring Smith & Nephew from using it in the US.
"Smith & Nephew was watching this patent," Larry Macon, an attorney for San Antonio-based Kinetic, said in February. "They didn't want to spend the money, they wanted a free ride."
Analysts at Panmure Gordon believe the shares are a 'Hold' whilst JP Morgan Cazenove also warned of effects of the US patent ruling when the news came out:
"With the shares within reach of some bull's UK price targets, we believe some investors could look to lock in near term profits following the removal of what could have been a positive catalyst for the shares" said David Adlington.
Of 16 brokers surveyed however, roughly nine recommend the shares whilst eight put them on hold.