A new report out by independent market research firm Roots Analysis highlights the market potential of a new but fast-growing class of medical devices called bolus (or as I prefer to call it) wearable injectors. As Roots suggests in their press release announcing the report, this sector for wearable injectors represents "The Next Billion Dollar Opportunity". But what is a wearable injector? How much will they sell for? What drugs will they be used with? How large is the market going to be? And most importantly from an investment perspective, what device companies are best positioned to capitalize upon the opportunity. Having obtained a copy of the Roots report and examined the technology of many key players within the wearable injector market including Becton Dickinson (NYSE:BDX), West (NYSE:WST), Insulet (NASDAQ:PODD) and Unilife (NASDAQ:UNIS), I have prepared this article to share my findings.
What is a Wearable Injector?
Wearable injectors represent a new class for injectable drug delivery systems. In essence, a wearable injector is a system that can be worn on the body of a patient while it delivers the drug into the body. Unlike an insulin pump, they are designed for single use. After an injection, the patient peels off the device and throws it away. The patient does not need any special training to use the device, as it's already been preset by the pharmaceutical company to deliver a precise amount of drug to the body over a controlled period of time.
Wearable injectors are needed to deliver biologic drugs that can't be administered by a patient using a standard handheld device. Typically, these drugs are too viscous to be formulated into a dose of up to 1mL that would typically be used with a prefilled syringe or an auto-injector. Instead, they need to be diluted into doses of 3mL to 15mL for injection into the body over minutes or hours. An example might be the injection of 3mL of drug over two or three minutes, or the injection of 10mL of drug over one to two hours.
The benefit of a wearable injector lies in its simplicity and convenience of use. The patient does not need to go into a doctor's office or specialty care clinic to get hooked up to an IV line for a course of treatment. They are designed to be worn by the patient during the course of their normal daily life. At home. At work. At the restaurant. Or at the movies.
Conclusion: Wearable injectors are poised to rapidly become one of the most important methods to self-administer complex biologics into the body over the next ten years, dramatically improving patient quality of life and therapy compliance whilst reducing healthcare costs.
How much will they sell for?
A fully electronic reusable insulin pump can sell for thousands of dollars. A prefilled syringe or auto-injector might sell for between $1 and $10. Roots Analysis says that average price of a wearable injector will be between $20 and $30, with a median unit price of $25.
Conclusion: With biologics costing hundreds or more typically thousands of dollars per dose and a wearable injector being critical to the approval and commercial lifecycle of the drug, the opportunity to secure attractive price premiums is apparent. More important factors than pricing for a pharmaceutical company are how the device is filled with the drug, how it is packaged ready for use, and how easy it is for the patient to safely and reliably delivery the dose.
What drugs will they be used with?
Wearable injectors are being targeted by more than 100 pharmaceutical companies according to Roots. The report identifies 250 drugs in total, ranging from approved products to early stage molecules. The majority of these drugs designed for use with wearable injectors are in late-phase (II to III) clinical trials. The Roots report says that more than 50% of wearable injectors will be used to treat cancer and related conditions with "other prominent target disease conditions likely to be auto-immune disorders, blood disorders and genetic disorders".
Conclusion: Many of the most important pipeline drugs in the portfolios of pharmaceutical companies are going to be launched in wearable injectors. Even if all don't get approved, many will. The more shots on goal available for a wearable injector business, the lower the risk. Bottom line, if you are investing in a biologic drug, then you should be also investing in the wearable injector that will deliver it.
How large is the market going to be?
From a current base of virtually zero and estimating what proportion of pipeline drug will receive approval, Roots Analysis predicts that more than 350 million wearable injectors will be used every year by 2024. The first wave of biologics launched in a wearable injector will appear in 2015-2016. Within five years, between 50 and 100 million wearable injectors will be required per year before quickly ramping to 350 million. With an average price of $25 each, Roots Analysis predicts that annual sales will exceed $8 billion by 2024.
Wearable injectors are poised to go from nowhere today to become the largest and arguably fastest growing sector of the $12 billion market for injectable drug delivery systems within a decade.
Why Invest in the Wearable Injector Market Now?
For the last few years, a variety of leading pharmaceutical and biotechnology companies have been conducting due diligence to select a wearable injector technology for use with their target drugs. Dozens of medical device companies have been participating in these evaluations including Becton Dickinson, West, Insulet and Unilife. With most of these drugs being classified by regulatory agencies as Drug-Device Combination Products, pharmaceutical companies recognize that they need to select a wearable injector technology prior to phase III trials, or follow-on trials. Furthermore, device manufacturers have stated that it is a preference of the pharmaceutical company to select one technology platform whereby each wearable injector can be customized to address the specific needs of several target molecules.
Pharmaceutical companies are now deciding who to select as their preferred device partner for wearable injectors. These partnerships will be the start of a long-term relationship that may span the clinical development and commercial lifecycle of a portfolio of injectable drugs. Because of the proprietary nature of each wearable injector technology, and the obvious reluctance of a pharmaceutical company to redo clinical trials, the device company that is selected can look forward to long-term contracts that may last for 20 years or more. With each new drug launched with a wearable injector, each new contract will be incremental in nature.
Unilife has provided some information regarding a typical customer partnership, which should be consistent for any device manufacturer competing in the wearable injector space. They estimate a typical customer has an average of five drugs that will be approved requiring an average of four million device units each. At $25 per device, this amounts to $500 million in revenue per year per customer. For any device company that is selected by two or more pharmaceutical companies for wearable injectors, the potential annual revenue to be generated is therefore $1 billion or more.
Conclusion: Given the long-term nature of these supply contracts, the incremental nature of each contract and the efficiency of a B2B business model with almost no 'S' in the SG&A , each selection by a customer represent cumulative future earnings of several billion dollars to the device company with attractive margins. The Net Present Value (NPV) of such partnerships derived from such future earnings, even under the most conservative of financial models, should be significant.
What device company is best positioned to capitalize upon the opportunity?
An examination of the various technologies that have been developed within the wearable injector market identifies a number of options available to pharmaceutical companies. Leading publicly listed companies include BD, West, Insulet and Unilife. BD has developed a novel delivery system that requires something akin to a plastic bag to be slowly compressed to inject the drug into the body. West has developed a system that utilizes a special plastic polymer for a drug cartridge, which the patient then inserts into the device prior to use. Insulet has leveraged its PODD system technology currently gaining popularity for the delivery of insulin, but based on a recent conference call is more expensive than other products and may require a healthcare practitioner to activate. Unilife has developed a portfolio of products that are prefilled, pre-assembled and ready to inject, utilize standard primary containers and filling processes and require no terminal sterilization (which helps to protect the stability of the drug).
Two pharmaceutical companies have made recent announcements regarding wearable injector technologies: Amgen and MedImmmune. Amgen selected Insulet for an unspecified oncology drug where the physician must activate the device and the ASP is around $50. MedImmune has selected Unilife to use its wearable injectors for a portfolio of several target injectable drugs.
Conclusion: Given the major potential of the wearable injector market, any investor in life science and medical device companies should consider an investment in this new device sector. However a review of videos on the Unilife website and recent bullish public statements by Unilife management and the strength of the MedImmune deal make it apparent that Unilife is more advanced than some other competitors and is well positioned to secure a significant share of this future $8 billion market. Given the relatively small market cap of Unilife, the potential for rapid growth on the back of upcoming deals represents a compelling investment opportunity as we begin 2014.