What constitutes wound care?
Wound care involves repairing superficial damages to the skin such as abrasions, lacerations, rupture injuries, and punctures as well as deeper damages that affect underlying structures such as bone, muscle, tendon, arteries and nerves. In managing wounds, measures are taken to prevent complications and preserve the function of tissues.
Wound care evolution and future growth drivers
Wound care management has evolved from traditional wound care, advanced wound care, active wound care to therapy devices. Traditional wound care consists of products such as dry dressings, bandages, and others. Advanced wound care products comprise of alginates, hydrogels, hydrocolloids and collagen. Active wound care products include skin substitutes and biological growth factors, while the therapy device market consists of NPWT (negative pressure wound therapy), HBOT, Whirlpool therapy, ultrasound therapy, ultraviolet therapy, among others.
The global wound care market is driven by increase in the aging population, rise in chronic diseases and technological advancements. In the near future the demand for wound healing devices is expected to drive the growth of the market, while in the long term, innovations in tissue-engineered products such as skin substitutes and biological growth factors are expected to grow the market.
Growth in the industry: organic and inorganic
Research firm Kalorama Information forecasts the global wound care market to rise nearly to $21 billion in 2015, from $16.8 billion in 2012. Among the products expected to proliferate the market: negative pressure wound therapy which uses special dressings (launched in January 2012 by Smith and Nephew) and vacuum technology to speed the healing process. London-based GlobalData recently forecast that market will double to $4 billion by 2018 from $2 billion last year, with an increase in the use of single-use disposable devices and portable systems that can be used in home care.
Close to seven million Americans suffer from chronic wounds and more than $25 billion is spent annually on their care, according to a 2009 study. Among the issues that are debated in wound care is the role of antibiotics, which can promote development of resistant organisms in the wounds, and the most appropriate wound dressings, which range widely in price. Expensive oxygen chambers used for hyperbaric therapy are good for some wound types, but may not be appropriate for all.
Major players in the wound care market include, Kinetic Concepts, Inc. [U.S.] (KCI), Smith and Nephew [U.K.] (SNN), ConvaTec, Inc. (Luxembourg), Molnlycke Healthcare (Sweden), and Systagenix [U.K.]. Currently, ConvaTec, Kinetic Concepts, Molnlycke and Smith & Nephew make up over 60% of the total market. ConvaTec and Smith & Nephew have made recent acquisitions (of Boston Medical and Kalypto Medical, respectively) to establish stronger footholds in the sector.
Companies that do not traditionally invest in this area have also shown interest. German pharmaceutical firm Bayer, which has a $52 billion turnover, has announced its interest in the wound care market. U.K.-based Shire Pharmaceutical made its first move into the wound care space by acquiring Advanced Biohealing in 2011 for £450 million, representing a value of 33 x EBITDA. The acquisition provides Shire Pharmaceutical with "a platform to acquire further regenerative medicine assets and potentially other complimentary (sic) wound care related assets" according to James Knott, executive at Catalyst Corporate Finance.
Due to a lack of clinical evidence regarding the efficacy and cost-effectiveness of existing treatment alternatives major players are now investing heavily in R&D to try and develop more effective treatments and meet the market needs, but alongside they are engaging in a significant amount of M&A in the wound healing area. The larger corporations are acquiring smaller, niche businesses for their technology as well as to maintain market share.
Barriers to growth and what some companies are doing about it
The U.S. constitutes the largest market for wound care products followed by Europe, Asia and ROW. The rise of chronic diseases and aging population has boosted the demand for this market as the likelihood of developing complicated wounds increases due to these factors. Pricing and reimbursement are two of the major factors hampering the growth of this market. The Asian region is expected to witness moderate growth, primarily due to lack of reimbursement, forcing physicians and patients to opt for traditional treatment. Additionally, the excessive use of antibiotics leading to the resultant problem of creating resistant strains of bacteria has increasingly been rendering antibiotic medications ineffective. The overall market is expected to witness moderate growth - relatively higher growth will be seen in advanced wound care products, tissue engineered products, and negative pressure relief devices.
To work around the problem of high cost and reimbursement, Smith and Nephew announced the introduction of a Copay Assistance Program for patients who have been prescribed their product Collagenase SANTYL Ointment and pay more than $50 out-of-pocket for their prescription. Under their program, eligible patients cover the first $50 and the company pays up to the next $150 of out-of-pocket costs per prescription. The program membership card can be used for as many as six prescriptions at a retail pharmacy, up to a $900 annual maximum. Both insured and uninsured patients may qualify for the Copay Assistance Program, except for prescription reimbursed by government healthcare programs or otherwise restricted by law.
Another new development is Oculus Innovative Sciences' (OCLS) Microcyn technology based on electrically charged oxychlorine small molecules designed to target a wide range of organisms that cause disease (pathogens). Such pathogens include viruses, fungi, spores and antibiotic-resistant strains of bacteria. This is a safe treatment and offers an alternative to using antibiotics, while being cost-effective.
The products of the Microcyn Technology are designed to treat infections and enhance healing while reducing the need for antibiotics. Microcyn is an anti-infective agent that comes as a solution and hydrogel. The product is pH neutral and similar to the hypochlorous acid that is produced by white blood cells in the body. The white blood cells respond to infection, kill bacteria and promote healing. Oculus' Microcyn technology also attempts to replicate chemicals naturally produced by the human body to defend itself from viral, bacterial and fungal infections. The company's products are used by wound care centers, hospitals, nursing homes, urgent care clinics and home healthcare.
The advanced, active and device-based wound care management areas are experiencing growth and innovation which is helping to push down the barriers to growth in this industry and creating solutions to emerging market needs. As chronic diseases rise and the recurrence of wounds become an increasing menace, the advent of technology that speeds up healing, reduces complications and treats the underlying problem is welcome. The challenge is now for clinicians to understand the merits of each type of wound healing technology and choose wisely for their patients' treatment.
Investors can watch out for companies that introduce technology which directly provide solutions to some pressing unmet market need(s). For instance, and with all due caveats to smallcap investment, Microcyn is as safe as saline and is an excellent alternative to antibiotics, which encourages speedier wound closure as well. Additionally, any other technology or drug that significantly helps reduce the cost of chronic wound care will have strong chances of market success. Incremental improvements in advanced or active wound care treatments are unlikely to create a strong impact on the market, and their market viability will be questionable especially if they cannot compete with existing treatments on the cost front. With respect to companies that have been recently acquired by larger corporations, as is the case with Biohealing, I would carefully monitor drug/product pipeline and corporate governance updates to guide my investment decisions.