Gone are the days when a simple plaster or cotton pad was used to treat wounds, such as ulcers or pressure sores. One company’s advanced dressings not only speed up healing, but also protect against infections and cost up to 25% less than competing products. This competitive price is particularly important to the NHS, as it allows it to achieve substantial savings without compromising patient care – a huge benefit in the current climate of intense cost cutting. AMS now supplies more than 20 UK hospital trusts.
Gamble of the week:Advanced Medical Solutions (AIM: AMS, 10.7p)
Advanced Medical Solutions (AMS) was founded in 1991, and since then has developed innovative technology that means it can supply the global healthcare market with sophisticated woundcare dressings and tissue adhesives.
Like-for-like sales of woundcare dressings jumped by an impressive 30% at the half year. This was largely driven by overseas orders of the company’s leading “silver alginate” products (silver is a broad spectrum anti-microbial that helps to prevent infections such as MRSA and alginate is a seaweed derivative). AMS also sells tissue adhesives (sold under the LiquiBand® brand): sales were £1.3m in the first half, with AMS already servicing around 70% of the UK market.
The LiquiBand® range is patent-protected and used for closing everything from small facial cuts up to large surgical incisions, such as for caesarean sections and hip replacements. These products are used in Accident & Emergency rooms and operating theatres throughout Europe. Approval of LiquiBand® is expected in the US and Far East next year, which should allow for plenty of new growth.
The US is especially important as it represents about 70% of the global industry for tissue adhesives, and AMS is anticipating entry in 2008, where it will be in direct competition with Tyco and J&J. AMS is confident that it
will compete effectively against these two major medical suppliers – note that it already does so successfully here in the UK. Finally, AMS’s leading technology has been endorsed by an industry heavyweight. AMS has entered into an exclusive global agreement with Kimberly-Clark for the marketing and distribution of their InteguSeal Microbial Sealant brand.
AMS is forecast to generate sales of £14.6m and earnings per share of 0.3p this year, rising to £16.5m and 0.7p in 2007. Although trading on a punchy 2007 p/e of 16, I still believe this represents good long-term value for such a science-rich company operating in a high-growth niche market. Management appears to think so as well, with five directors tucking away shares at 12p in September.
Recommendation: SPECULATIVE BUY at 10.7p (market cap £15)