Bottom Line: A case apart

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SMITH & NEPHEW'S management could be forgiven for feeling it rather unfair that the City should have lumped its shares in with the drug groups when it came to assessing the damage done by the fires of healthcare reform.

Smith's business differs greatly from that of a typical drug company and, though it is not immune from reform, the impact will probably be very different from the effect on Glaxo or Wellcome.

For a start, Smith & Nephew has a product range of about 2,500 items, not one of which contributes more than about pounds 25m to its near pounds 1bn of sales.

Its margins are also half those of drug companies at about 16 per cent. The scope for margin erosion is correspondingly less.

More important still, the entry barriers for competitors are high. Smith's products are high-tech and require considerable selling expertise. Nor does it have the destocking problems that face many drug companies. Buy on any further sector weakness.