“One of the most exciting companies that no one knows anything about” is how Paul Moraviec describes ConvaTec, the medical products company he has run since 2014.
As chief executive Mr Moraviec tells it, demography is destiny for ConvaTec. Ten years ago, “all people were talking about really were stents and pacemakers and orthopaedic joints. Most of those markets are pretty mature now with growth rates that are slowing.”
In contrast, ConvaTec’s products — which include colostomy bags, catheters and parts for diabetes pumps — offer “a $10bn-$12bn market opportunity growing at 4 per cent to 6 per cent per annum”.
Yet the company is under continued pressure from customers to cut prices, he says. In any given year “we will see a government — it could be France, Japan, the UK or somewhere in the US — reduce prices of a particular category of products that we sell.”
Typically, this amounts to “about a 1 per cent negative price impact and it’s been that way for a number of years”.
This did not stop ConvaTec from rocketing into the FTSE 100 last year after raising just under £1.5bn to become the year’s biggest London IPO. Its shares have risen more than 20 per cent since the start of the year.
For the industry as a whole, Mr Moraviec says, direct links with consumers will be ever more important. Over the next 10 years, “device companies are going to rapidly move towards being service companies . . . the extent to which we’re communicating directly with patients is going to become the basis for competition.”
ConvaTec already offers support to its customers, principally via call centres in the US and UK, staffed by nurses. These are now being expanded across Europe, he says.
There is a broad trend for hospitals around the world, he says, “to move patients out of the hospital much faster than ever before . . . And, so, you’re seeing a lot more patients have their surgery and then they’re straight out, basically, into the community”.
The company may be low profile, but its emergence from the chrysalis of private equity ownership brought notoriety when it went public with an all-male board.
Campaigners pointed out that the last FTSE 100 company with an all-male board had rectified the situation three years earlier.
Describing the pressure ConvaTec came under as “totally appropriate”, Mr Moraviec says: “When you’re running through an IPO, there’s a heck of a lot going on and we knew that that was something that needed to be addressed.”
“We tried to fix it at the time and we weren’t able to get a female candidate for the roles that we were looking for.”
Two months ago the company announced it had hired Ros Rivaz as a non-executive director and two more female non-executives were announced this month.
This aside, the company’s initial few months went well. Its first set of results — published at the start of March — reported earnings of $508m, beating expectations. The share price soared.
Some of the gloss came off this month when it reported a 7 per cent fall in profits in the first half of the year. Mr Moraviec insists: “We’ve always said that our sales would be weighted to the second half, and we gave very, very clear explanations to the markets and the investors as to why that would be.”
Product launches were also weighted towards the second half of the year, he says: “In essence we’re doing everything that we said we would.”
Some are sceptical. Christoph Gretler, a Credit Suisse analyst, queries ConvaTec’s ability to build market share against rivals including Danish company Coloplast and Hollister US, an employee-owned specialist provider. “Having lagged for so long, it is not a home run for ConvaTec,” he says.
In wound care — another ConvaTec specialism — the company faces less formidable competition, Mr Gretler says, “but you still need to have some confidence to believe ConvaTec’s growth case,” which envisages full-year growth of 4 per cent — the figure it achieved in 2016.
Given growth was 1.5 per cent in the first half of the year, meeting this target will require at least six per cent growth in the second half, he pointed out.
However, the company’s projected savings from reducing its plants from 11 to eight and moving more production to lower-cost countries, are “reasonably credible”, he says.
David Cox, of stockbroker Panmure Gordon, suggests the business is “perhaps a bit overvalued”, but he too sees a bright spot in the cost-cutting plans. Coloplast improved margins by simplifying its business structure and consolidating sites, he says. But “These processes are . . . notorious for causing disruption in the near-term.”
Research focuses on improving wound care
At ConvaTec’s R&D centre in North Wales, scientists and technicians show off a better lubricated catheter; a tighter sealant for an “ostomy” bag used to collect colostomy waste; and an agent that, when applied to an infected wound, changes colour according to the severity of infection to allow more rapid treatment.
A particular focus for the 60-plus scientists is on penetrating the “biofilm” that bacteria can secrete and which can stop silver, normally effective in treating wounds, and some antibiotics from killing the bugs.
“What our scientists have done is created a patented formula which breaks down that biofilm, allowing the silver to get into the wound and then to heal it,” says Mr Moraviec. ConvaTec already has a 30 per cent share of the global market for this sort of anti-microbial technology, he says.
Scientists are also working on “negative pressure” devices, which Mr Moraviec defines as “essentially a pump connected to a dressing. It applies a vacuum to a wound which effectively closes it and takes the excess away from it”.
He adds: “That’s a $1.7bn market opportunity, globally, and we were not in it. We’ve just entered it and . . . taking market share with innovation in that [is] incremental to our underlying growth.”