The rebirth of orthopaedic devices supplier Corin is well advanced as the company's new portfolio of products gains traction in the market.

The company saw group sales rise by 10%, or 6% on a constant exchange rate (CER) basis, in 2010 to £44.8m from £40.6m the year before.

Revenue from hips rose 4% (1% on CER basis) to £19.6m from £18.8m, with sales of the company's more modern non metal-on-metal (MoM) hip portfolio up 26% (CER: 21%) on the year. What's more, sales momentum for the non-MoM portfolio is building, with second half sales up 28% year on year in constant currency terms, compared to a 15% growth rate in the first half.

Revenue from the knees portfolio dipped, however, to £9.4m from £10.6m the year before. That's a fall of 11% in absolute terms, or 13% using CER. The company's product range in this area is starting to look a bit creaky in places, and sales suffered as a result of competitive pressures in Germany and a general decline in the knee market in Germany.

"The Turkish government restructured the way they reimburse orthopaedic operations, which hit sales," Corin chief executive officer Peter Huntley said.

The group has a new total knee product in the pipeline, which the company will be rolling out for surgical evaluation in the second half of this year, with a view to launching it in 2012.

Growth from other products, principally the LARS ligament augmentation system and the Zenith mobile-bearing ankle and surgical disposable products, was sparkling, with sales up 41% (CER:32%) to £15.8m from £11.2m the year before.

Underlying profit before tax rose 9% to £1.6m from £1.5m in 2009. The company took a £1.1m charge for exceptional items (2009: £0.6m), of which only £0.3m had a cash impact.

Underlying earnings per share jumped 124% to 1.3p from 0.58p the year before, but the full year dividend stays at 1.38p and still isn't quite covered by underlying earnings yet.

Nevertheless, the market liked the figures, though the share price reaction may have been partly due to a new five year distribution agreement the group has signed with US outfit MAKO Surgical.

Corin will supply MAKO with a hip implant system for use with MAKO's RIO Robotic Arm Interactive Orthopaedic System, in a deal that Huntley said "endorses the progress we have made over the last couple of years."

"I don't think you can put the share price gain purely down to the MAKO deal," Huntley said. "I think part of it is a recognition by the market that our strategy is paying off. We can now see that reaction to the new products being rolled out is positive and this is coming through in the numbers."

The MAKO deal will give Corin a higher profile in the US, where it is not especially well known; sales in the US last year totalled £2.1m, or 4.7% of the group total.

It's obviously a market where Corin would like to grow and, as in other parts of the globe, the company is pinning its hopes on its new products rather than its legacy metal-on-metal products.

Huntley seemed particularly keen on the group's new advanced highly cross-linked polyethylene liner, ECIMA, which is a cutting edge (figuratively speaking, not surgically) product which is generating lots of interest.

"I'll spare you the full medical details," Huntley told a grateful Sharecast journalist. "I'll just say that it is one of the few vitamin E polyethylene liners on the market anywhere in the world, and is expected to give long term stability and very low wear rates."

Singer Capital Markets said the figures were broadly in line with consensus, and that the key catalyst for a re-rating of the company will be the launch of the new knee system.

"This, in our view, is key to the longevity of Corin - knees are one of the biggest and fastest growing sectors of the orthopeadics markets with favourable demographics likely to accelerate. At the same time, investors need clarity on the renewal of the distribution contract for the LARS ligament system, which now accounts for one-third of revenues," Singer said.

"While the shares have dropped [in recent weeks], and are trading towards the bottom end of the peer group, we feel that until there is more clarity on the knee and the LARS contract the shares will remain lacklustre. Therefore, we are putting our target price under review," the broker added.

House broker Numis Securities was predictably more upbeat. "The LARS ligament and non metal-on-metal (MoM) hips grew faster than we expected, the former continuing its excellent growth in Australia, and the latter continuing to demonstrate accelerating growth. This offset a faster than expected decline in knees and metal-on-metal hips," Numis said.

"Whilst the decline of MoM hips was more precipitous than we had expected, this product category now represents only around 10% of group sales," the broker added.

The broker expects the MAKO deal to start generating revenues in the second half of 2012.

"We envisage making few changes to our estimates, and continue to believe that revenue growth on the company's high fixed cost base should result in margins more than doubling over this period, on our numbers, resulting in rapid earnings growth. We reiterate our Buy rating and 70p price target," the broker concluded.

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