Globally, an estimated 16 million patients suffer from chronic wounds that can’t be treated adequately using normal plasters and bandages. What’s more, the overall wound-care market is worth $3.2bn and growing at 6% a year. Enter Advanced Medical Solutions. The firm targets faster growing, high-end niches and grew sales at three times this rate in 2009. With just a 3% overall global market share, it has lots of headroom to expand.
Underlying growth drivers include an ageing population and the rise of diabetes and obesity. Also, fuelled by concerns over ‘super-bugs’, there is now a strong move towards the use of active ingredients (such as silver, which has anti-microbial properties) in dressings. The firm has successfully licensed various silver technologies. It has also combined them with its own seaweed-based technology, suitable for treating chronic wounds. The group estimates that it has around 20% of this fast-growing niche.
Advanced Medical Solutions’ other core business (20% of group turnover) involves manufacturing a range of external wound closure and sealant products sold primarily under the LiquiBand and InteguSeal brands. The market for tissue adhesives and sealants is estimated to be worth $230m a year and is growing at about 16% annually. It is dominated by America, which accounts for 85% of global sales.
Advanced Medical Solutions (LSE: AMS), rated a BUY by Numis Securities
Both divisions look set to benefit from a strong pipeline of product launches. According to CEO Don Evans that will open up “a lot more mileage” in the $350m silver alginate wound-care market. Following the acquisition of Corpura last year the company is now in a much stronger position to exploit the $900m global wound-care market for foam applications. In wound closure, recent distribution deals with the likes of Cardinal Health have already given Advanced Medical Solutions access to 90% of the US market. It is now targeting the much larger ‘internal’ surgical adhesives market, worth $600m a year, where its first product for hernia repair could be launched in 2012.
The firm saw a 51% increase in underlying operating profit in 2009 and is well placed for 2010. The price- to-earnings-growth ratio (PEG) is an attractive 0.44 and the forward price-to-earnings (p/e) is 13.2, with earnings per share (EPS) expected to grow by 30% in 2011. Advanced Medical Solutions is followed by seven City firms, five of which rate it a ‘Strong Buy’. Interim results to 30 June are due on 8 September.
Recommendation: BUY at 52p