One of the Most Promising Niches in the Drug Boom
By George Huang, analyst, Phase 1 Investor
August 29, 2008
How do you stop the bleeding? That's the question to ask your doctors before heading into surgery.
Bleeding comes with every surgery. But about 20% of the time, patients can experience severe bleeding, resulting in large blood loss, slow recovery, infections from donated blood, and in extreme cases, death.
For the most part, surgeons stop bleeding using techniques developed decades or even centuries ago: They can apply pressure or they can clamp, suture, staple, or burn blood vessels shut. While these methods are battle-tested, they are not perfect.
Almost all bleeds will stop if pressure is applied. But as soon as the pressure is gone, the bleeding can start up again. How long can your surgeon keep his hands in your chest? And stitches don't work well for "soft" organs. One surgeon described trying to suture in the liver as "sewing in Jell-O." Finally, all of these methods take time. When it comes to heavy bleeding, time is a precious commodity.
Every year more than 5 million surgical procedures in the U.S. are at high risk for bleeding. Severe bleeding occurs about 20% of the time. So the demand for newer hemostasis products – tools surgeons can use to stop bleeding – is strong. As baby boomers age and undergo more high-risk procedures (coronary bypasses, hip replacements, etc.), it will continue to increase. The market could be worth billions of dollars... as biotech firms and Big Pharma are well aware.
In the last decade, drug companies have learned to harness our blood's natural clotting proteins to stop severe bleeding. They purify the proteins from human or cow blood and package them into foams or spray kits. In a matter of minutes, these biological "sealants" can halt bleeding and allow the surgeon to continue his work.
In one study, patients fared better with a protein sealant compared with a range of older techniques. The average time to stop the bleeding shrank from eight minutes to five. More impressively, 91% of patients stopped bleeding within 10 minutes, compared to 70% using conventional techniques.
But surgeons are a stubborn lot. It takes years for breakthrough technologies to go from FDA approval to everyday practice. Right now, less than 10% of all high-risk surgeries use these protein sealants.
Even so, three of the largest players – Johnson & Johnson, Baxter, and King Pharmaceuticals – have rapidly expanded the hemostasis market. It ballooned from $276 million in 2002 to over $700 million last year: a 21% annual growth rate. I think growth will remain in the double digits for the next decade as more surgeons realize the technology's benefits... and more patients push them to adopt it.
Even if surgeons use sealants in only one-third of all severe bleeding cases, the potential market is still more than $2 billion.
For a safe way to invest in this trend, consider Baxter (BAX), a longtime Phase 1 Investor recommendation. Baxter dominates the blood-products market and sells a variety of biological sealants.
Readers are up 27% since Phase 1 editor Rob Fannon recommended the company last year. And I expect the stock to wallop the S&P in the next decade. At about 20 times this year's earnings, Baxter is a decent buy right now.
Good investing,
George Huang
