Advanced Medical in good nick

11th Mar 2011 09:26

Results from Advanced Medical Solutions (AMS) were so well received by the market on Tuesday that the company was trying to manage down expectations for its LiquiBand wound closure product, which enjoyed a better than expected launch in the USA.Group revenue in 2010 rose 32% to £31.9m from £24.1m the year before, while profit from operations before exceptional items was up 31% to £5.3m from £4.1m the year before. Once exceptional items are factored in, profit before tax rose to £4.3m from £3.4m in 2009.Revenue from the group's advanced woundcare product range rose 30%, with sales of the silver alginate product range up 19%, while the ActivHeal brand grew 21%.Sales of foam-based treatments rose by 270%, reflecting the benefits of a number of new product launches in 2010 following the successful integration of Corpura, the Dutch company it bought out in September 2009.Cutbacks in the National Health Service (NHS) do not seem to have held the company back and if anything "are playing to our strength", AMS chief executive Chris Meredith told Sharecast. "We sell our ActivHeal product direct to the NHS. It saves them up to 10% on their wound care budget. We expect this market to be a strong driver of growth for us," Meredith said.The launch of LiquiBand in the US has gone even better than the company had expected. The US topical skin adhesive market is worth an estimated $220m and is dominated by the Dermabond product made by Ethicon, a subsidiary of US healthcare giant Johnson & Johnson.Dermabond has a 95% share of the market so the chances to make inroads into this are exciting, especially as AMS believes it has a superior product."The key differentiator for us is that Dermabond requires two applications and takes about two minutes to provide a layer of protection over a wound, whereas LiquiBand only requires one application and gets it done in 20 seconds," Meredith explained.On top of that, LiquiBand is cheaper than Dermabond. Despite that, the company is under no illusions about the task that faces it in the US. "They have a big company behind them and they are sure to defend their share fiercely," he said.Invited to make himself a hostage to fortune and name the market share the group is aiming for in the US with LiquiBand, Meredith adeptly answered the question without committing to an actual figure."In the European market, we normally achieve around a 20% share over a five year period with a new product. It would be great if we could replicate that in the US," he said.Group finance director Mary Taverner explained that it is common for new products to endure a "second year slump" even after successful launches. The first year often sees a build up of stocks and orders from customers keen to evaluate the new product, and it may not be until the third year of availability that genuine sales trends can be determined.The company, as promised as its annual general meeting last year, has paid a maiden final dividend. The divi has been set at 0.38p, ahead of the 0.32p that Singer Capital Markets was expecting. "Cash generation has been very strong, particularly in the second half of 2010," Taverner said. "Net funds at the end of the year were £3.9m, twice the level they were the year before and with the maturity of the product line we thought it was time to introduce a dividend payment," she added.The divi payment still leaves plenty of funds available to invest in marketing of the company's brands, beef up the research and development pipeline and, "if acquisition opportunities come our way", bolt on one or two new parts to the company.Brokers generally gave the results the thumbs up, with Singer Capital Markets saying the figures were broadly in line with recently raised expectations."Performance was helped by the better than expected launch of the LiquiBand tissue adhesive range in to the US during 2010. Management are cautious as to repeating this performance this year as clinicians continue to evaluate the product, though they have seen some take up in Q1. Integuseal, however, performed poorly - management plan to address this issue this year especially as AMS received FDA [US Food and Drug Administration] approval of its tissue sealant recently. The move into the operating room in the next year will be key to performance of this part of the business over the medium term," Singer said."In light of this performance, we have put our target price and recommendation under review, and may consider making some small adjustments to fiscal 2011 forecasts," Singer said.Matrix Group said revenues were ahead of consensus and expects earnings forecast upgrades to follow. "AMS is dealing effectively with the age of austerity, in our view, through its better clinical outcome message on ActivHeal, which is priced very competitively in the market, allowing substantial savings for healthcare providers," Matrix said. "We retain our BUY rating and target price of 83p, based on a comparables model," said Matrix analyst Navid Malik.