Morningstar | AMS Could Face More Near-Term OEM Headwinds, but Longer-Term Branded Products Remain Strong
We see two issues on the horizon for Advanced Medical Solutions that investors should be aware of, though we currently have no plans to change our fair value. We remain fans of this narrow-moat business and its strategy of shifting to higher-margin branded products mainly used in the surgical suite. On one hand, General Electric’s impending acquisition of wound care company Acelity could hurt AMS’s OEM segment. We surmise Acelity is one of AMS’s OEM clients, based on Acelity’s filings that indicate it uses one contract manufacturer in the U.K., and AMS management’s comments about the range of OEM clients it works with. If Acelity is an AMS customer and GE decides to bring all the manufacturing in-house, this could deal a blow to AMS’s OEM segment, much the same way we saw the sale of customer Hollister’s advanced wound care business to private equity translated into a lost client. We see this as a risk for AMS.On the other hand, AMS continues to make impressive progress toward gaining share with its range of branded sealants. In the end, we think this is the more important dynamic for AMS, as these branded products are higher-margin and see steadier growth driven by procedure volume. Aside from the portfolio marketed products, we’re enthusiastic about AMS’ recent acquisition of Sealantis, which is developing alginate-based surgical sealants for use in open gastrointestinal surgery and laparoscopic procedures. In these types of GI surgeries, parts of the intestinal tract may be stapled or sutured together. But there is substantial risk that there may be leakage from the resection site, which can be dangerous because of the bacteria in the intestinal tract. As a result, patients are kept in the hospital for seven to nine days to ensure there are no leaks. The Sealantis products help prevent those leaks, lowering the risk of infection and have to redo or fix the procedure, and potentially allowing patients to leave the hospital sooner, which lowers costs.
Advanced Medical Solutions is engaged in the design, development and manufacture of polymers (both natural and synthetic) for use in woundcare dressings, and distribution of medical adhesives, for closing and sealing tissue, and sutures and haemostats for sale into the global medical device market. Co.'s business units include: Branded Direct, which sells ActivHeal®, LiquiBand® and RESORBA® brands to end users in the U.K., Germany and Czech Republic; Branded Distributed, which provides LiquiBand® and RESORBA® branded products to all markets; and Original Equipment Manufacturer, which supports Co.'s business-to-business partners with a multi-product portfolio.
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