All right. Good morning, everybody, on behalf of Coloplast and Investor Relations, we are very glad to see all of you here in Minneapolis, also to attending our Capital Market Day, 2016. Unfortunately, there has been a little bit of a weather incidents around the U.S. in the last couple of days, so we're missing a couple. We have, I think it's four or five people enjoying themselves at a Holiday Inn in Washington right now. I'm not sure they're gonna be here at all. Before we start, just a few practical details. On your badge, on the other side of your badge, you will find the codes for the Wi-Fi access, if you haven't found it already.
You will also have, on your name tag, a little colored dot, which indicates your group for the site tour before lunch. When we get to the site tour, there will be some guides standing with some colored paper, and you have to go to them, and they will guide you around the tour. The tour is taking you to Coloplast Care, so you're gonna experience some of the calls, see the care facilities in function, and the tour will take you to our production facilities at the other end. There might be a couple of you that has been here in 2009, the last time we did the Capital Market Day, that will recognize part of that. The program today, you also have that in front of you.
On the back of it, you will have the outlines of the fifth floor, where we're gonna be the whole day. There will be product displays manned at the other end here of this building, in the breaks. They will be manned by the somebody from the local sales marketing teams, so please take an opportunity to talk to these guys about our products and the U.S. market in general.
The toilets and everything is also on the little map, right next to the, to the lunch area. Hopefully, the rain will clear up so we can have lunch outside on the balcony. It has been fantastic weather for the last three days, so I'll be crossing my fingers. Apa rt from that, Ellen and I will run around with the microphone, so if you have any questions, raise your hands. I think really that's it for me Lars, take over.
Thank you. Also from me, a very warm welcome to our headquarters here in Minneapolis. When I present, I'll be standing either here or on the other side, over there, and that's because if I walk in front of this screen here, you will get part of me in this picture, and our corporate color is turquoise. My head will turn turquoise, and I'll just be afraid that you think it's because I don't like the strategy, so I'll just be standing right here on the other side, right? I'll start by a status on our strategy so far, because up until three years ago, we were in a turnaround mode.
We have improved our EBIT margin significantly, and then we start to invest in further growth. Can you hear me at the back also? Okay, good. We started to invest in further growth, and we have increased our growth momentum at the top line, our organic growth, by 1 to 2 percentage points due to this. We are quite happy about our growth, which is in the level of 7% to 8%. We are quite happy about our EBIT margin expansion. And despite of us investing quite a bit, we have also been able to have some very nice cash returns.
We, we feel good about that part, and we also have a peer group that we compare ourselves to, and I'd just like to take a couple of minutes just to talk about that. Over the last many years, we've had a peer group that we compare against, because very few of our direct competitors are coming with public numbers. We could take any years to compare to, but we took this picture six years ago, where you at this side can see what is the growth. This is both organic growth and also acquired growth that you see here. For us, it's only organic growth that we look at.
At that point in time, six years ago, we had an EBIT margin of 25%, and it's quite interesting to see what have happened up till here. Of course, there is some currency effect, and there's also some companies that have been acquiring, and so on. But growth-wise, we are doing quite well, and EBIT margin-wise, we have actually gone from here to being at the top. If you look at more or less all of the other companies, which are the same companies as over here, of course, they have actually dropped. Some of it is currency effect, but it also goes to tell the story about price pressure, because this is a business where there is price pressure.
It also tells a story about a quite strong business model, whereby we are able to work with our EBIT margin despite of this price pressure. This is quite important, also to go forward. I think I would take it as another proof point that we have had a pretty solid strategy over the last few years. We have invested, as I said, DKK 1 billion. We have invested primarily in our consumer journey, the Coloplast Care, which you're going to see much more of later on today. We have invested quite a bit to get a much stronger footprint in China over the years. We have invested quite a bit here in the U.S.. Of course, you're going to listen a lot to the U.S. journey today.
We have invested maybe more than we expected to in the U.K. to bring our systems in our direct business up to date, and we have also invested quite a bit in Brazil to get a much better footprint in that part of the area. Those have been some of the very large investments that we have been doing over the last few years. We have invested in new products. We have new products across the board. Quite recently, we have finished almost finished the launch of SenSura Mio. Here we see a very strong uplift in our growth trajectory in this part of our business, and I'll also come back to that later on.
We are very satisfied with where we are with products today, but we have a bit more to add to that. Of course, we have invested to get in direct dialogue with 1 million of our consumers, as small as half of the population that are using catheters or ostomy bags. This is not just a webpage, this is also so much more than that because it is call centers, it is actually a community that people can be part of. It is a change of the DNA of the company, I'll come back to that also, and you'll hear much more about that today. If I sum it up, we have managed to get a very strong underlying momentum, much stronger than the growth in the market in our European business.
We have increased our momentum in other developed markets, but we have some way to go still, because we're not satisfied with our position, for example, here in the U.S. We have invested significantly in expanding our emerging markets position. We have made a true turnaround in Wound & Skin Care, which came from negative growth and negative EBIT margins, and to a situation now where we are committed to invest significantly more in this business. We have taken the Urology Care business from a very mediocre performance to a performance where you, both the top line and bottom line, we can compare to whoever we want to compare to in this business area. It is a very different company today than it was.
That's also why I'm very happy to introduce you to our new strategy, which is continuation of the strategy we have today. We call it LEAD20. It has four themes: a theme about how we go to markets, a theme about our innovation, a theme about our leadership development, and a theme about the machine, so to say, what is driving the underlying productivity in the company. I'll take a deeper dive in each of them. If we go into the go-to-market approach, then we are building a consumer healthcare company. That's what we've been doing for the last three to four years, it's not simple. It's not a trivial thing to do.
We have an almost 60 years heritage of being a business-to-business company, we are now building a business-to-consumer channel into that on top of what we already have. We're not giving up on the business-to-business, of course, we want to be able to create demand, we want to be able to steer demand without buying ourselves into a distributor channel. Like you could say, that's the normal way that you would do this. So this is what we're investing in, you're going to see much more about that today, you'll hear much more about that today.
We are going to shape the standard of care inside of wound care, because it is really hard to both choose products inside of wound care today, and it's very hard to use some of the products that are in there. Nikolaj will talk much more about that, how we're going to shape that with this concept, which is called the Triangle of Wound Assessment. That's our go-to-market approach, which is a new go-to-market approach inside of wound care. With regards to innovation, I think that the only thing I can say here is, you should expect more. Because we are going to launch products in the future that are very, very thoroughly founded in clinical evidence and differentiation.
Inside of Ostomy, for example, there is no history of companies coming with products that has true clinical evidence that they, for example, reduce leakage. The last products that we have launched inside of SenSura Mio, have such a clinical evidence to them. We have so much more in the pipeline in the coming years for this, and it's all about eliminating the burden of leakage. We will have the same R&D roadmap for Continence Care, where we will reduce the burden of bladder management, and we have a very, very exciting pipeline of new products coming out there also.
When it comes to wounds, we have not invested a lot in R&D over the years inside of wound care, and I'll come a little bit back to that, because we're going to change that. When it comes to Urology Care, we have actually launched quite a bit of products over the last years, and if we look at the pipeline that we have right now, it is very, very promising. I think that you can't drive a medical device company without having real edge on your products, and we have that. We also need to make sure that the machine is working. These activities that we are describing here within global operations, within innovation, and within our business support, that is what have brought us to an EBIT margin of more than 30%.
We are very aware of that. We are going to work with that quite significantly in the coming years. That's also why we are confident that we can also make an uplift on our gross margin. This is a growth strategy. We're going to be more people in the company. We think that in this period, we are going to be at least 3,000 more people in the company. That means that we are going to open up 250 new leadership positions. We have a preference for our own people. I think that a company consists of IP rights, trademarks, products, but what really sets a company apart from its competitors is the quality of leadership over time.
This is very, very important to us, and this is really where we are investing. We have a number of programs to make sure that we are building a leadership pipeline internally, but that we are also getting the best talent that we can find on board in the company. What about the future then, when it comes to investments? Well, we think that we are in a position where we can double down on our investments to grow the company. We've spent DKK 1 billion in the in the former strategy period. We're going to spend at least twice that amount in this planned period. There will be a couple of areas where we will invest. We'll invest in innovation, in Wound Care, in Consumer, and also in some of the geographies.
If I should look further into it, two of the biggest ones that we have, that would be here in the U.S. We want to challenge the market leader inside of Ostomy Care. Our end market sales is very solid as we speak, and we want to up it significantly. We want to make hydrophilic catheters the standard in the U.S., and we want to be a true consumer healthcare company. When it comes to wound care, this is a real investment in wound care that we are doing. We want to go from being a follower to be shaping the wound care strategy, or the wound care industry. We want to double our business in this planned period, and we want to become a truly global player in this planned period. This is a growth strategy.
We can't deliver value creation in the company if we don't grow. We can't create scale in the company if we don't grow. Growth is the most important driver at all in this planned period. We have taken down our top end of our guidance a little bit, and that is due to the current situation in emerging markets. It was very different just two years ago. We don't know where it is two years from now, but we think that we can grow in this interval, 7%-9%, in a market that is growing at maximum 5%. We have a very strong position in the market today, and we are confident that we can take market shares quite significantly also in this planned period.
Even though we are investing DKK 2 billion in keeping this growth momentum going, we can also expand our EBIT margin by 50- 100 basis points in the coming period. That was an introduction to our strategy. Right after me, Anders Skovgaard, he will talk about the financial impact of this, and then we pause for a Q&A. You'll have to wait for your questions for another 15 minutes, but so far, thank you for the attention.
Okay. Thank you, Lars. For those who don't know me, I'm Anders Lønning-Skovgaard , I'm the CFO of Coloplast. I've been with Coloplast since 2006 and been the CFO since 2014. What I will do now is to give you a little bit more flavor to our financials, how we see our guidance going forward. Lars just mentioned that our guidance is a growth of 7%-9% and an EBIT margin expansion of 50- 100 basis points on an annual basis. If we look a little bit further into the assumptions behind our growth guidance, we still see a very healthy market growth in the level of 4%-5%. We actually see good market growth across all our business areas, across Ostomy Care, Continence Care, Wound & Skin Care, and also Urology Care.
With the new strategy that Lars just presented, and with the plans that we will show you later on this morning, we also believe that we will continue to take market share across all our business areas and also across all our regions. That will also contribute to our growth going forward. Lars also mentioned that innovation and launching new products will also continue to be key going forward, and we also committed to invest further into this, and that will also contribute to our growth. The final one I have up here is value upgrades. We have a number of possibilities to upgrade the market from a low end or lower priced products to higher priced products. For instance, here in the U.S., and Ed Voeme will talk further to this in the afternoon.
We have also factored in the current macroeconomic environment in emerging markets. We have, over the last year or so, seen challenges, growth challenges in Brazil, in Russia, and to some extent, also Saudi Arabia. We've also factored in a negative price pressure of minus 1%. We have seen that for the last 10 years, and we also expect to have negative price pressure going forward. Finally, we have also factored in the patent expiry that we will have next year on this SpeediCath straight portfolio. Kristian Villumsen will also speak a little bit further to this in his update later on in the morning. Overall, our growth guidance is the 7%-9%.
We look at our EBIT margin guidance, besides the growth, there are a couple of things that will impact our EBIT margin development. How we look at our gross margin, how we look at our operational costs, and also our investment capacity. I will now speak to each of those three elements. As you all are aware, we have had a flat development in our gross margin over the last couple of years. The main reason for this is that we have launched new products that are produced in Denmark to a significantly higher unit cost than the products that these new products are replacing.
We have addressed that with a plan to reduce with around 300 production employees in Denmark over the next three years. We announced that last year. We expect to reduce with around 100 production employees this year, 100 next year, and then 100 again in 2017-2018. Overall, a cost saving of DKK 80 million-DKK 100 million. At the same time, we are also transferring machines to Hungary that are producing some of our newest products. That will also contribute to our gross margin development going forward. With the plans that we are having within global operations, and the plans we are having at the volume sides of becoming even more efficient and even more scalable, we also expect that that will contribute to our gross margin.
On the other side, we have over the last three to five years, increased our CapEx level, so that's also why we are expecting that the depreciations will go up going forward. We will also continue to launch new products that are produced in Denmark, therefore, we will also have transfer costs in our P&L going forward. To sum it up, our expectation is that the gross margin will improve going forward. In terms of our capacity costs, we have a very efficient setup, a very scalable setup. On the distribution line, distribution covers logistics, sales, and marketing. We are expecting going forward that we will sell more per sales representative. The scale effect we will have here, we will be able to invest into additional sales investments.
Our expectation is that the distribution ratio will be in the level of 28%-29% of revenue, also going forward. When we look at the administration ratio, it's an area that we have been working quite a lot with over the last three to five years. We have been running a number of programs in order to reduce our admin ratio, and we have established our business center in Poland that is taking care of many of our back office processes within finance, IT, HR, and a number of other areas. Recently, we have also moved back office processes related to our commercial organization into our Polish setup.
We are now also handling trade orders in Poland. We are handling leads in Poland, and it's basically demonstrating that we are having a pretty efficient and scalable setup in our Polish business center, and that is something that we will also leverage on going forward. We have the R&D ratio. We have invested more into R&D over the years. The ratio has been in the level of 3% of revenue. As Lars mentioned, we are now committed to increase our investments into R&D. Our view on the ratio going forward is an R&D ratio in the level of 3%-4% of revenue. The third element I will speak to is our investment capacity.
With a growth of 7%-9%, our scalable business model will mean that we will be able to invest up to DKK 2 billion over the next five years. Lars has mentioned some of the cases that we will invest in, so U.K., U.S., Wound Care, Consumer, etc. Basically, the bank is open for all good investments. We have also been focusing on strengthening our investment framework over the last couple of years in order for us to have a good transparency around the business cases that we are evaluating, that we are evaluating the business cases on the same parameters in order for us to be even better in our decision-making processes. We're also using our investment framework to evaluate ongoing investments, whether we should scale up or scale down.
We have actually, over the last year or so, decided to scale down in Brazil and Russia, because of the macroeconomic challenges. This is something we are spending quite a lot time on, also because the investment level that we are working with is rather big. That's the main drivers behind our growth guidance and our EBIT margin expansion guidance. Now I'll move in and talk a little bit about the factors that will impact our balance sheet and our cash flow development. One of the things that will impact our balance sheet going forward, that is the mesh litigations. As you all are aware, we have made a provision to handle the mesh litigations of DKK 4.5 billion. We included that in our 2013, 2014, and 2014, 2015 financials in the P&L.
What is going on right now is that the mesh litigation is impacting our balance sheet, and you can follow that on the liability side, on how the provision and how other payables are developing. We are updating these figures in our note in each of our quarterly statements. You can also follow how our settlement progress is going on the restricted cash account. The restricted cash account is describing when we have settled with a plaintiff, then we are transferring amounts into an escrow account. That means it will go up. When the plaintiffs are able to meet the terms we have agreed upon, then we will transfer the money from the escrow account to the plaintiff, and then the restricted cash account will go down.
There will be ups and downs on this balance sheet item going forward. It's just to tell you that these are the items that you should follow also going forward. In terms of cash outflow, my best estimate right now is that this year we will have a cash outflow due to the mesh litigation of around DKK 2 billion, and next year, around DKK 1.5 billion. As I have communicated earlier, we have a loan facility of DKK 1.5 billion to handle this, in order for us to keep our current dividend policy. If we then move into some of the other key cash flow components, this year we are guiding a tax rate of 23%.
My estimate is that we will be able to keep that tax rate going forward, so a tax rate of 23%. In terms of our net working capital, we are, in the last couple of years, been in the level of 24%. My estimation is that the receivables will grow in line with our growth. We are having quite a lot of focus on the receivables in emerging markets, because we are having higher payment terms across our emerging markets, so that is a big focus area for us to become even more efficient in terms of DSO in emerging markets. My expectation is that the inventory levels that we are having currently will also be the levels we will look at going forward. Overall, the net working capital will be in the level of 24%.
We have the CapEx ratio. The CapEx ratio has gone up in the last three to five years due to investments into machines producing new products, also producing existing products. We have also built new facilities in Hungary. Last year, we went live with a new plant in Nyírbátor. This year, we are going live with a new plant in Tatabánya, also in Hungary, right after summer, and we are currently evaluating when to start up building a new plant again. Our estimation is that over the next five years, we need two more plants. That also means that the CapEx ratio will continue to be in the level of 4%- 5%.
This means that we will continue to deliver strong cash flow, and my estimation is that the cash flow will be correlated with our EBIT development. What are we using the cash for? Basically, there are no changes. We will continue to return excess cash to our shareholders, either via dividends or share buyback programs. My estimation is that we will pay out in the level of 80%-100% also going forward. This means the new strategy and the new activities that Lars just presented, our guidance of growing 7%-9% and also improve our EBIT margin with 50-100 basis points, it means that we will continue to create value. We will also continue to have stable cash returns, and we will also continue to have an attractive risk profile.
Yeah, that's basically it.
All right. Let's open up for questions. The first one is Oliver.
Yeah. Hi, just a quick question on your reduced upper end of the guidance. You mentioned mainly due to lower expectations for emerging markets. Two years ago, you said it's your objective to grow with more than 25%. Yeah the revenue growth in emerging markets, so what are your expectations now? Do you have a band, which you can provide for those guys?
We like not to have a specific guidance for emerging markets, and just have a guidance for the company. There's no doubt that right now, our growth in Middle East is significantly lower than what we have invested for. We can feel that the growth is also less in China, where we are above 30%, and now this year we are between 20%-25%. It's simply giving us less visibility, and it's very much the oil prices and of course, the raw material prices that are down, and they are funding the healthcare systems in these countries. That's why we are very cautious about emerging markets. It's very little visibility, that's the reason for it.
Yeah, if you compare your current expectations for all the other markets with your expectations two years ago, would you describe these expectations as remained stable, or have you also seen ups and downs for the respective countries which have come into the guide, new guidance?
It's the change of guidance, that is due to the emerging market situation. It's not because of other markets.
Thanks. Excuse me, Alex, from Barclays. Just maybe two quick ones on the guidance. Do you need the 10% plus U.S. growth and the doubling of the wound care to get to the mid-range or the low end? Just how much do you factor in for the patent expiries, as a drag on the midterm?
Kristian Villumsen is going to talk about the chronic business and will also go deeper into the patent expiry on catheters. I'd like it to keep that for him. It will be very hard for me to give you know, what is going to happen in the U.K. for us to get to a certain level in, you know, what kind of growth that we are going to do three years from now. We think it's realistic that we can grow significantly more than the market and in the 7%-9% range over this period. Of course, we have to be successful in the launches that we have.
We have to have a strong commercial execution in the countries that we're working with. There's also room for markets that are not doing as we expected them to do. This is, this is a guidance that, you know, if we are, you could say, firing on all cylinders, yes, we'll definitely be at the upper end. There's also space that there's something that is not going as we expected it to.
Yeah. Well, I guess then the real question is, if nothing goes the way you expect it to, are we below 7%? Is there, you know, is that somewhere in the plan that if none of your activities hit U.S., U.K., etc?
If nothing goes as we expected it to, we are below, right? I mean, that's not the kind of window that we have given you. We actually think that we will be in a position where most of the things that we have planned, we'll also be able to execute on. We know our current pipeline that has already been launched. We know the things that we're going to launch within the next couple of years. We know the strengths of our consumer products. We know the strengths of our different business leadership teams in the different countries. We think that we're in a very good position, otherwise, we couldn't give a guidance like this.
Okay, very confident, 7%, hopeful for 9%, I guess.
Mm-hmm.
Okay, thanks.
Okay, Michael.
I have two questions. Firstly, on the gross margin expansion, how much of the expansion is driven by efficiency, and how much is driven by positive mix? I mean, I think you described before that you're trying to improve the mix, especially in the United States. Secondly, if I look at the EBIT margin expansion for the long term, do you expect it to be rather linear, or could it be quite volatile depending on the patent situation? Does one do an average between three or four years, or do you expect some volatility in between?
In terms of the gross margin, we are expecting that the gross margin will improve due to the factors I mentioned early on. Efficiency, scale effects at the volume sites will also contribute, together with the dismissals we're going to do in Denmark. I will not be more specific on how much from this activity or how much from this activity. Overall, we expect that the activities we have in place will contribute to an improved gross margin. In terms of the volatility on the EBIT margin, whether we will see that due to the patent expiry, it's not something we have factored in specifically on the EBIT margin development.
Yeah.
I think that Kristian, he'll come back to that question because we have a pretty good take on the patent expiration. We'll be, you know, talking more to that in Kristian's presentation. You're also mentioning, you know, what do we do to get or how do we factor in the uplift that we can get when we get higher prices? It's for sure that whenever we have the opportunity, we'll always go for higher prices. For example, the compact catheters, a lot of them are in many countries, we have gotten a different category, so we have a little bit of a higher price, but it's not something that we can count on. There, we are cautious.
We know that we can do the gross margin uplift, just on the scale effect that we create in the company. Of course, if we are able to improve prices, that's an upside.
To me, it sounds efficiency is. The efficiency component is the more important component in the margin.
Well, that depends if, for me, because, we talk about gross margin, but at the end of the day, what we are guiding is EBIT margin. The most important thing for us to increase our EBIT margin further is the scale effect in the countries where we already have a high market share. For example, in Europe, we don't need to employ much more salespeople. We have lots of new products coming out. That means that we have strong growth in Europe, and that data growth comes with a profitability, which is really, really high. That's where the major scale effect is coming from. We have something coming from gross margin also, but the major scale effect is from sales growth.
Finally, just to be clear, is the midterm margin projection meant to be more linear, not so volatile? Was that a correct assumption?
We are not in a volatile business environment. This is a pretty, stable business environment. You win slowly, you lose slowly.
Great. Thank you very much. I also have a question on the guidance and then a question on wound. On the guidance, I guess if I look at the last couple of years, obviously margins have not progressed. It looks like, I mean, gross margin's the single biggest lever you have to drive the profitability, if I look at the breakdowns and the guidance you've given us for the other cost lines. I guess, is it if you're growing 7, it's 50 basis points, if you're growing 9, it's 100, or is there a scenario where you could be growing 9% and only get a 50 basis points or 7% and get a 100 basis points? That's my first question, kind of what's the relationship?
Our assumption is that if we are growing in the higher end, we will also grow in the higher end of our EBIT margin guidance.
For you to hit the 100 basis points, you really need to be delivering growth that's in the high-
Yes.
At the high end of the revenue range.
Yes.
Okay. On the wound, I mean, a very ambitious target to double your market share. I know that we have a wound presentation a little bit later.
Yes.
I guess, can you talk to us, how significant that target is within the 7%-9%? Then, as you think about the opportunities that you have for share gains, where are those coming from, just initially?
As we speak, we are actually growing in the 7%- 9% area, and we have also been able to do that without Wound Care growing. There's no doubt that if Wound Care is really delivering on the strategy that we have set out for them, that's going to be a positive contributor to growth. No doubt about that. Where do we need to succeed? Well, we have succeeded in turning around Europe, which used to be in a negative growth scenario, so we expect to keep a growth above the market in Europe. We need to succeed in both China and the U.S. to really deliver on this strategy. Nikolaj will come much more back to that.
Thank you.
Thanks very much. Actually, I'd just like to follow on from Veronika's question on wound, just a slightly different angle, actually. I think this is the, probably the first time you've set this sort of double-digit wound growth target.
It is.
Maybe-
Yes.
This is something you've aspired to historically.
Eight years of being very cautious on wounds.
Yeah.
Yes.
I'm interested in that. I mean, is this a point that, on a relative basis, you're now allocating more capital to wound as compared-?
Yeah
To where you have been historically with Chronic Care?
Yes.
Is that then also the follow on an admission that there's nothing to buy in this space, that you have to go it alone and invest in this space?
I think that's not how we see it. We see that we have built a very strong foundation, and we think that we have an opportunity to develop it further now than compared to what we could do two years ago. If something really viable comes up, I've said that many times to most of the people in this room, if the right things come up, we're also willing to do structural things. We don't need it, but if, of course, it's an option because we are subscale, and thereby we also have, you know, a profitability which is much lower than what we see in the other business areas we have. I think we have both options.
Thank you. Just a couple of precise financials for Anders, if that's okay. Just to understand, Anders, the guidance framework you provided. I think if I understand correctly, from the EBIT level, the guidance implies high single digit EBIT growth to low double digit EBIT growth, depending on the expansion and the top line growth. You talked about the potential to raise debt or the requirement to raise debt to meet the mesh liabilities and also keep tax rates and some of the other items stable. Am I correct in showing that earnings growth should be below EBIT growth? Is that how you see it?
With the assumptions that we are working on, yes. Again, it's coming back to how we see the mesh litigations going forward. The figures I have mentioned here, that is our best estimate as we speak right now.
Very lastly, and I know this is very much out of your hands and somewhat contingent on the outcome of tomorrow in the U.K., but I just wondered if you could provide a little bit of flavor or understanding about the volatility of the British pound. I know you've showed a progressive guidance here, but is this something we should be thinking as to a headwind into next year for the organization, where British sterling is today?
As we also have been communicating throughout the year, the British sterling is a risk to us. If the sterling is dropping by around 10%, it will impact our bottom line with DKK 160 million. It's something we're also updating you on in each of our quarterly statements. There, yes, there is an exchange rate risk on the short term. We are hedging for this, but it will have an impact on a midterm, long-term horizon if there will be a Brexit.
Yeah. We hope there'll not be one, of course, but it doesn't do anything to our commitment to invest in the U.K., and we will, we'll continue to do that. We also expect, like, I guess you do, that the British pound will drop, and that will be short term, of course, very noticeable in our margins.
A quick question on your LEAD20 strategy. You're saying that these new financial targets would apply for the next three years?
Yep, that's right.
Which would be-
The three year coming.
Including the-
Not this year.
Including the fiscal year 2019? It includes the fiscal year 2020 as well.
It includes, the next three years. I can't on my feet to take that. 2017, 2018, 2019, right?
Not the fiscal year ending in 2020.
Nope.
Okay. I have one question about the compensation of the senior management team. Does the midterm guidance change the way that you will be compensated? Perhaps you can highlight the KPIs that you'll be rewarded on over the next, over the midterm based on this guidance f or my management team? Yes.
Yeah. Well, most of our salary is fixed salary, right? Then we have some bonus, and the bonus is always based on the EBIT margin and the sales growth for the year. Then we have stock options. The stock options are provided with a 15% hurdle rate. We can't sell them for the first three years, and we have to sell them after, all in all, five years ownership. We have a two-year window to get rid of them, you could say. With a 15% hurdle rate.
We are not in the money until the share price have increased 15%, and that's the share price at the last trade day of the year. This year, the options that we'll get for this year will be at the trade date at the last day of 2016. That's how it's constructed.
Within the EBIT margin, does it include so-called restructuring events as well, or is that clean of restructuring?
No, we get our bonus based on what we say to the markets. What the numbers that we guide you on, is also what we get our bonus on. The only time where we have been able to get that out have been the 2 times where we have made a provision for the mesh litigations, because that's been something that we cannot, in any sense impact with the way that we run the company.
Thanks for taking my questions. I have two quick ones. First of all, if you or when you decide to expand capacity, would that mean any disruption to these 50-100 basis points that we're talking about in terms of margin expansion?
No, I don't think so. We have increased our capacity last year in Nyírbátor in Hungary, and we have also increased our capacity this year in Tatabánya, Hungary. No.
Thanks. On wounds, if you're now considering allocating more capital on wounds, and that's why you're giving a higher guidance, then does that mean that, on the other hand, there's a risk for the other businesses? If you're allocating less money, then you might not grow as much, or?
Yeah.
Have you weighted that? How do you think about that?
We think it's I'd like us to take a step back a little bit, because when we had the capital market day where we said, "Now we're goin to invest more in the company in getting higher top line growth," we also said at that point in time, we don't know if we can invest DKK 1 billion that we have set aside for it, because we don't know if we can find investment opportunities that are also profitable enough for us to have the appetite to invest in them.
Now we actually are here where we say, "Okay, we think we can invest 2x as much as we did at that point in time." That's of course, because we have seen that there are much more investment opportunities that are profitable than what we had anticipated. The reason why we are taking a bigger bet now on Wound Care, is because Wound Care is in a very different shape than it was. We can see that we also have an opportunity to have a better payback on, and a more safe, or we feel more safe about the payback that we can get on the Wound Care activities than what we did in the past.
So you never know, of course, but I think that we're in a situation where we would not feel that we run out of dry powder to invest in this coming plan period to keep our growth in the 7%-9% range. We think that's, we can both entertain more wound care investments and also entertain the investments that we have elsewhere. When we started to invest last time, we had a lot of opportunities to go for in emerging markets, and we also invested quite heavily in emerging markets. We can't do that right now.
We have something that we can invest in the more mature markets, like for some, the U.S., and then we have wound care, and those are going to be a couple of the major drivers of growth in this planned period.
Thanks.
Hi, thanks. One more, just I wanted to ask a question on return on invested capital.
Mm-hmm.
More linked to the CapEx, but you did the 25%, roughly, capacity expansion, but I think you also got some local subsidy for that. I think in terms of incremental return on invested capital, that must have been well above group. What are you expecting for the next wave as you continue to expand capacity? How should we think about return on invested capital development the next three years?
My view on our ROIC, our return on invested capital, is that it will continue in the level that we see today.
Not expanding by sort of 50, 100, 50?
No, that, what I said, I expect it will be in the level of what we see today.
Okay, in other words, maybe some pressure in terms of lower return on your-...
Yeah.
Your margin is expanding and your capital base is.
It's not a, you can say, a metric that we in itself are guiding on.
Uh-huh.
With the knowledge I have with the various dynamics, I would say it's in the level of.
Maybe 5.
what we've seen in the last couple of years.
Okay, thanks.
Thanks. Just one follow-up, please. It's great to see you're still committed in investing, and I think, you know, by committing to invest twice as much with your growth forecast perhaps being reiterated or actually modestly tweaked down, it appears then that growth is costing more. I just wanted to ask a very simple question, actually: why do you think that is, and how can you be confident that your assessment is right here?
Yeah. Very good question. I think, I think it's right that we are having very high market shares. We have to invest to keep our growth up. I don't know if we are going to invest the full DKK 2 billion, because I don't know, and Anders don't know what kind of investment opportunities that we'll be looking at. We have been in a position where we have been able to say yes to a lot of the stuff that came because it was actually having a very nice payback. We, we hope that we'll be in that same position for the coming years. You should more take it like we can afford to invest up to DKK 2 billion, and still keep the guidance that we're looking at.
How that is going to play out, we don't know, because we have not seen those investment opportunities yet. We know that we are going to invest more in wound care, R&D, for example. That takes a little longer than a lot of the other things that we invested in before they start to provide payback to us.
Great. Hi, Lars. over the years, you've, I think it's fair to say, blown hot and cold on M&A, what you've told us this morning sounds like M&A is less on the agenda. Is that fair? Does that reflect the fact you've got more opportunities internally, or is it the fact the external opportunities have got too pricey or aren't around?
I think that it's never been part of the strategy for the last almost 10 years to do M&A. It's. I think we should look at it in an optimistic way. For the first years, when we did the turnaround, it was not at all a question. Then, when we felt that we were getting a more healthy growth coming out of all of the business areas, we said it could be an opportunity. But it's not, it's not, you know, it's not a reflection of any other thoughts on this than we think that we have healthy business areas across the board. If the right things come up, also structurally, we are definitely willing to look at.
We have the funds for it, we have the cash flow for it, but we don't need it to be able to deliver value. That's maybe how you should think about it.
A question about China. I recall your capital markets day in London last year, where you sort of met the management in the emerging markets roundtable discussion. The leader for China highlighted that I think, I haven't got my notes with me, but I think he said, "There is 100 cities in China with over 1 million people, that you don't have a sales rep." I'm trying to understand why that is not the same opportunity as it is today.
Yeah. Yeah.
I don't really understand why it has to be a slower growing market with such an opportunity.
You're absolutely right, and it's also hard for us to understand. The fact is that a part of the salespeople that we hired last year was not making return on the investment in them as fast as we have done in the past. Part of that is because it takes more time for us to do hospital listings or to get approval that we can start selling our products in a new territory. You have to go to a hospital, and you need to get the paperwork done to get a license to sell in those hospitals. It takes longer. Therefore, we also see a longer payback time, and we don't like that.
We are holding back this year to understand how fast can we expand in a profitable way in China, that's why we are more cautious. It's not because our products are not living up to the standards. It's not because of anything else, then we just feel it takes more time to get the right signatures for us to be able to sell. Why that is, I think a lot of Chinese public servants, they feel that it's more risky to sign documents these days, it takes longer to get the signatures. That's the fact of it. All right? Good.
Any more questions? No. Okay, then we are a little bit ahead of time, so I'm gonna change the schedule for the whole day, but we'll move the ball quarter forward. We're gonna see each other here, so this is gonna be a short break for coffee, toilet, whatever. We're gonna see each other back here at... What's that? 9:45 A.M. Half an hour.
Mm-hmm.
Good.
All right.
Thanks.
Thank you.
All right, I think most of you are back after the coffee break. The next couple of hours, we're going to dive a little bit deeper into the different elements of the strategy. We're going to start with Steffen Hovard, Senior Vice President of Urology Care, followed by SVP of Wound Care, Nikolaj, and EVP of Chronic Care, Kristian Villumsen. After, just before the lunch, we're going to break out into one hour of site visits. But more about that later. First of all, welcome, Steffen , and the floor is yours.
Thank you very much. Can you all hear me in the back as well? Sounds good. For those of you who don't know me, my name is Steffen Hovard. I'm the Senior Vice President for Urology Care. Been with Coloplast since 1999, so that's coming up to 17 years. Been working with Urology since the acquisition in 2006. I'm based here in Minneapolis. I've been here since 2011. What I'm going to show you with the next slides here is a perspective on our Urology Care business. I'll give you a status on where we are, based on the strategies we've laid out, and I'll give you an outlook of how we see the business in the coming years.
To kind of take the drama out of the story, hopefully, what you'll see is that since 2009, when Urology Care was first time presented at a capital market day here in Minneapolis, a lot has happened to the business. Since the last time I did the presentation in 2014, a lot has changed because we are executing on the strategies we laid out. Fundamentally, the business remains the same, and we're delivering on the strategies we laid out. The last thing is the future perspective, and I hope that you will find that we have a positive outlook for the Urology Care business.
At a structural level, we operate a global business in a global market. We do that because if you look at the fundamental needs we're meeting with the products we have and the solutions we take to market, they remain pretty much the same across the globe. The portfolio we have is both broad and deep, and that holds true both for our single-use devices and our implantable devices, which means that we can serve pretty much any need that our customers may have in treating their patients. Our customers, just for clarification, is urologists, urogynecologists, and gynecologists. We have a well-developed geographical footprint. We sell our products in roughly 75 markets across the globe. In all of our global functions, we have a very experienced organization.
They know their stuff, and they're doing well. When you look at the split of our revenue, you'll see that the balance between Europe and the U.S. and Rest of World is pretty much as it has been in the past. If you look at the split between single-use devices and implantable devices, you will see a larger share of implantable devices than we've had in the past, and that's a direct consequence of the strategies we laid out and have been executing on. We're growing our revenue, and we are growing our profitability at the same time, as Lars alluded to in his presentation.
When you look at the market, mind you, getting solid data about the Urology Care market is not easy. This is how we define the market, based on the geographies we're in and the products we take to market. We estimate the market to be around DKK 11 billion. We estimate a growth in a range between 3% and 5%. The fundamental drivers for the needs we serve here, aging population and lifestyle driven diseases to a very large degree.
If you look across the four areas we serve, we see endourology with a growth in the range of around 3% or sorry, 5%, which is for sure in the upper end of the range we look at the global market. A lot of it is driven by the continued penetration of use of flexible scopes in stone management procedures. Just for sake of kind of calibration, when a stone management procedure is performed, where they use our products, they may use as many as 30 different products for one single procedure. When you see our stents or the stone baskets and so on, it's not one product, one procedure.
It's a whole portfolio of products, a suite of products, that a physician may use for a stone procedure. In men's health, which is both incontinence for men and erectile dysfunction, we see a growth in the range of around 4%. We have a lot stronger position in penile implants than we do in stress urinary incontinence for men, and I'll come back to that. The growth is predominantly an opportunity by further penetration of the market, especially in Europe. General urology, we estimate the growth around 3%. That's a very broad portfolio of products. It covers everything from urethral stents into needles for Botox procedures, so it's a very broad segment.
We have women's health, where we believe, as we've said before, that we are back to some growth in the low single digit, both for Europe and for U.S.. It covers both stress urinary incontinence and pelvic organ prolapse. One thing is the growth of the market, which is driven by the patient needs. The bigger driver in this market right now is of course, the exit of Astora, that held a market leadership position both in Europe and also in the U.S.. We believe, on that note, that we are in a very good position to benefit from their exit from the market.
From a competitive standpoint, we've seen some consolidation in the industry, which was what we expected, and I think I even talked about that when I did the presentation in 2014. We see the same sharp competitors across the globe, and competition is fairly homogeneous. Based on that, we do have some regional players, but the big global players are the same and remains the same, except for AMS, American Medical Systems, that stepped out when they sold their men's health business to Boston Scientific and when they chose to close down their FPH or their women's health business at the end of March.
We've seen some changes in go-to-market, both from Boston and from Bard, and I think we discussed that also in 2014, where they have been consolidating sales organizations, at least in certain markets, between endourology and FPH. We had expected this development of the industry. We're not surprised about it. We believe that we have set up to be able to benefit from it, and we think that the driver for the consolidation is what we've been planning for quite a while, which is the benefit of a both deep and broad portfolio. It allows us to work very well with both contracts and tenders, and we can work with most hospitals and serve most of the needs they have for products in our space.
Both what has taken us to where we are, and also looking forward, we believe that we're quite well positioned, both with the geographical footprint we have and also with the product portfolio we currently have. FPH is always an interesting space and has for sure been so over the past years. What we've seen in FPH is, again, much as we had anticipated. We've seen a consolidation. We have seen American Medical Systems pull out when they closed down the business in March. On the physician side, we see a consolidation as well. We see fewer physicians performing more procedures, which was also to be expected. We've seen the up- classification from the FDA here in the U.S. That was also expected.
If I take those three changes in the market, from the outside, it looks very dramatic. I would say again, we had anticipated these things happening. We believe that we benefit actually from the changes. We have a full product portfolio. We can serve most needs that urogynecologists, gynecologists, and urologists may have for products in this space. We have strong products, and we have a very strong IP position as well in this space. For the physicians, we continue to invest in training. We invest a lot in training, and we have ramped that up even more with Astora exiting the market. We are sure that we get our absolute fair share of that physician customers that are available.
When we look at the op classification, the 522 studies that you know we are investing in are progressing very nicely. They were designed to be ready for a PMA when the op classification would come. Again, there, no major surprises. From a litigation standpoint, Anders talked to it, we have continued settlement negotiations, and the rate of settlements is progressing very nicely. We believe so, and the judge managing the MDL believes so as well. We made the provision that gave the necessary freedom to the lawyers to go execute on the strategy we laid out at that point, and we believe that the provision is sufficient as it stands. From the outside, it looks like a very dramatic market, and there has been a lot of changes.
I would say we're in a good position. We continue to grow our footprint, we continue to grow our share, good products, solid organization. If we look at the market share perspective, we believe we hold a somewhere between 10% and 15% of the global market. Again, that number is an estimate because the market size is an estimate. DKK 1.4 billion, and if you look at the biggest developments here, kind of across both Europe, U.S., and Rest of World, we have grown our market share of implantable devices both in Europe and also in the U.S., and the same holds true for, specifically for FPH. We've grown quite significantly our share in that market.
We are taking that business out of a probably a subscale situation. Drivers of growth, if you look at FPH, as I mentioned, the exit of Astora is of course, a big opportunity. I don't know exactly what share they held, let's call it somewhere between 20% and 30% share, at least in certain markets. That opens up for a lot of movement. Our Altis single incision sling continues to develop very well and is probably becoming a single incision sling standard. We see very nice growth both in the U.S. and also in Europe.
At the same time, for transabdominal sacrocolpopexy, which is becoming more and more the predominant procedure for pelvic organ prolapse, we have a very nice position with the Restorelle products, that we originally acquired from Mpathy Medical in 2010. That comes with a solid IP position. Men's health is an area where we've grown share, we believe, and we've grown share both in the U.S. and also in Europe. We have a much stronger share in IPPS than we do in male incontinence. Endourology, we continue to develop and that business is growing very nicely. We're benefiting from a full portfolio, there is a lot more cross-selling to do.
We can sell both deeper in individual accounts, and make sure that when they perform a procedure where they use maybe up to 30 products, that even more of the 30 products comes out of the Coloplast portfolio. In Europe, we have a solid situation. We have a very nice geographical reach, we have market leadership position in certain markets, and we can continue to develop on that platform. We're well set to deliver on contracts and tenders in the European market, and see nice growth coming out of that. In the U.S., 2015, 2016 is a great year. We had a not as satisfactory 2014, 2015, as you're aware. 2015 and 2016 is coming back very nicely.
We have a great momentum, we are getting ready to launch our endourology portfolio. I will say, slowly but surely, we're getting there. It takes a lot of registration, takes a lot of setting up, but we are moving in the right direction on that. Rest of World, it's continuing what we have done in the past, continuing to develop our footprint, both with a direct sales organization and also working through distributors in various markets. The globalization journey strategy that we set out some years ago is working very nicely. It works as we had expected, and we can see the results on the financials. We believed that there was an opportunity to, what we call, maximize the present and invest in the future at the same time.
I've been with the business long enough now that we can see that that actually works. We've been able to do a number of things at the same time with the business, both strengthen profitability, grow growth, and continue to invest in innovation, as Lars also mentioned in his presentation. We follow the same aspirations as we've had in the past. We want to be recognized as a global leader in our space. We believe we are on a good track to do that based on how we are able to service our customers today, and we'll be focusing even more on that in the future.
Because when we talk globalization, it's not just a question of selling products, it's actually being able to deliver on the vision that is on the wall, of setting the global standard for listening and responding. We believe that the setup we have, and the organizational setup we have with the geographical reach, allows us to actually set the global standard for listening and responding in our space. That's what we're shooting for, that is kind of what we're moving towards, and that's why operating as one is a key thing for us. If we continue doing what we do, we will continue to execute stronger on the short term, and we'll be able to continue to set a good direction for the business on the long term.
I don't dwell long on this, I just want to point out that innovation is working. We see it on the results, we see what we do when we do well. Titan Touch is growing very nicely, is a key contributor to our growth. In a space where in IPPS, there is a 95% patient satisfaction rate. We have the products that we believe is the strongest. Titan Touch has multiple enhancements compared to competitive products, also compared to our earlier products, we're in a very good space with Titan Touch. Altis, as I mentioned, we believe that it's beginning to set the standard for single incision slings, which is a very nice growing segment of the market.
It's a reproducible procedure that is comfortable for the physician, and eventually may go into outside OR settings, which is very attractive for physicians, obviously. E Series, which was introduced the first time in October of 2015 at the World Congress of Endourology in London, we're working through user preference testing. We have very good results. We went to a full commercial launch in April of this year. It's still early days. I would say the response we get from the market is very positive, and we have great hopes and strong beliefs for this product in the future. If we look at the future and what our priorities are...
continuing the geographical expansion, both in direct sales, continuing to develop our distributor network, leveraging the product portfolio we currently have. There is a lot more potential to go for, a lot more potential to go for. Operating as one, it's maybe a little bit more of an internal thing, but the key here is that our customers will experience a service and a way of working with us as an organization, in the same way, no matter where they are on the globe. That for us means setting the global standard for listening and responding. When we do that exceptionally well, we're able to set great direction for our innovation, we'll continue to invest in innovation.
We have a strong development pipeline, and we believe that there is more potential in that as well in the future. The last thing is commercial execution, which is always a topic. The simple measure is, of course, revenue per sales FTE. We believe that we have more opportunity there. We are defining global programs and rolling those out. It's a matter of doing what we do, just doing it a little bit better, and we believe that there is more potential on that as well. Those are the four priorities. When we deliver on those, we will deliver on our financials.
We can see that the journey we set out originally, we can see how we're able to transfer that into strategic priorities. We can see that when we deliver on our strategic priorities, it directly reflects in the numbers. We're currently at a DKK 1.4 billion revenue, which comes with a very nice profitability and a lot stronger than that profitability was in the past, for sure. We believe that the DKK 2 billion mark, that is what we're shooting for, is within reach in the nearer future. When we get there, we'll see that impacting our profitability as well. We believe that we'll be able to go from healthy profitability to strong profitability. In short, strategies remain the same.
We commit to the targets that we have communicated for a while, and things are progressing as we, as we anticipated. Thank you. We have about 10, 15 minutes for questions, if there might be any. Scott first, and then Veronika.
Thank you. Yeah, I just really wanted to refer to AMS's exit from the mesh market for women's health. I mean, that sends a pretty strong signal about at least how they think the market's gonna progress. Why is it that Coloplast thinks that this is a good market to be in and win? That's question number one, please. Second question, just a moot point. I think back in 2014, if I'm right, you highlighted that you had a modest share in general urology in the U.S., about 5%, I think you said at the time. Now you're showing you've got about a 1% share, it seems that you've lost a bit of share in general urology in the U.S., if I'm right.
I just wonder if you could talk a little bit about that.
Good catch. Good catch, and I'll comment on that. I can't comment on why American Medical Systems or Endo Urology, or, yeah, Endo Health chose to do as they did when they wound down their FPH business. What I can say is that from our perspective, we believe that the products we have on the market are good. We believe that the outcomes physicians have with our products are good. We believe we do the right thing, we do it right. When we have a situation where we have a solid product portfolio, there is a fundamental need in the market, we take the products to market in a way that we are comfortable with. We push forward. Mind you, the fundamental need is there.
What's happening in meshes is it's a legal or litigation battle. When we talk to physicians and when we participate to congresses, the fundamental need is there. We believe that that is a good opportunity. We also came out just around the time when all of this started, we came out with the lightest weight mesh portfolio in every single segment, both in stress urinary incontinence and also in pelvic organ prolapse, so we believe our position is good there. The catch on general urology, we it is the 5% is an estimate, and the 1% is an estimate. We have not lost share.
We do sell a number of our Foley catheters and so on, that we usually classify in that bucket, and that's a slip on our side. No change in position there.
Hi, thanks. wanted to ask just two. One was on Ambu and the partnership you have with them, has there been any progress on getting a market sizing done and just giving us a sense of what the overall opportunity could be for that? Second, at the endourology rollout in the U.S., I think that's been on the agenda for quite a few years now, just wondering what, you know, what's the delay been? Has it been a resourcing issue? Is there some other bottleneck in there that's been causing that delay? You talked about product registrations and things like that, just if you give us more color, it would be helpful.
Sure. We have a cooperation with Ambu on E-Series, a cooperation that we appreciate very much, working well. They manufacture the product, and we sell the product. We are not prepared to talk about the specific potential for the opportunity. It's worked into our numbers, so when we look at the top line growth going forward in the high single digit, that's a part of it. Sorry, your other question?
Oh, it's just on endourology in the U.S.
Endourology, U.S., yeah. The registration process is not easy. We have had to go through quite an extensive registration process. Registration is not just a question of filling out the forms and submitting it. In certain instances, FDA has asked for additional biocompatibility testing and other testing on products we've had on the market in Europe for many years. The registration process has been the primary delaying factor.
Yes.
I have two. One is on the U.S. Endourology opportunity. I guess, you know, what do you think is a realistic expectation for the business in five or 10 years' time? I guess related to that, as you look, you know, the trend in the U.S. towards more bundled purchases, do you think that, you know, maybe your share in some of the other parts of the business has been held back because you don't have endo? Is the purchasing going specifically through each of the channels so that, you know, not having endo in the U.S. has not hurt you in female or male health? I have a follow-on after that, but maybe we can tackle that first.
Sure. I'll take that first. When you look at Endo in the U.S., it is a contract-based business for sure. The same holds true for female pelvic health. If you go back four, five years, there was literally zero contracts in FPH. Now that is 95%, and we have a very strong position on that because of the full portfolio. Goes back to why do we do as we do? We maintain the full portfolio because there is a need. That reflects into it allows us to serve contracts in a good way. For sure, we'll be able to leverage those contracts when we bring in Endo. That's what we see from our competitors as well, and that's what we see in Europe.
Those two things will work very nicely together. When it comes to what do we want with Endo in the U.S., I mean, the sky is the limit, and I say that it's not out of arrogance. I'm just looking at it, you know, raw facts. If I look at the product portfolio, if I look at our European position, if I take the major markets, there is nothing in the portfolio that kind of holds us back. It's all a question of execution. How fast can we make that happen? It won't be easy, for sure, because we're going up against, you know, strong competitors. They know what they're doing.
We'll be the new kid on the block for a while, which is okay, because I believe we bring something extra to the market. We bring an edge when it comes to innovation, and I believe that our ability to listen and respond will actually help us as well. I'm not ready to stick a number to it, but I don't see why we should not have a significant share, in a reasonable time frame.
As you look at the DKK 2 billion ambition that you have sometime in the future, how important would you say are the various buckets of the strategy to it? You know, is female health the key to you getting to DKK 2 billion, with you getting some of the share that AMS has lost? Is it the Endo roll out in the U.S., or is it, you know, executing in emerging markets?
Fortunately, it's a little bit of everything. That's where I'm comfortable with the business. If you look at the kind of the moving parts, we have a lot of geographies. We have a big portfolio, which allows us a very nice balance between pluses and minuses. If we dip a little bit somewhere, we're usually a little bit above somewhere else, which gives me a fairly good feeling for how we move forward. Of course, FPH and the opportunity that has materialized may impact how fast we get to the DKK 2 billion, but it's, the DKK 2 billion is a number that we've been sticking to for a couple of years, and it's a question of when in the future we will hit that number.
That's great.
Okay. Thank you. Any other questions? No? Mike was there. Oops, sorry.
There was one over here.
Yeah.
There's an increase in prostatectomy procedures in the U.S. market, and I was wondering if that's kind of baked into your 3%-4% guidance for the market growth?
For BPH?
Yeah.
BPH may drive erectile dysfunction. If you look at the penile implant market or the erectile dysfunction market, the issue has actually never been the need, because the need is so much larger than what we're able to penetrate. It's primarily a question of how fast can the procedure be adopted by physicians and be demanded by patients.
Do you need to invest a lot more in training then to be able?
We continue to invest in training. We do a lot of work in training. We do that both here in the U.S., and we do that internationally as well. At the same time, it's a fine balance because you need a certain volume of procedures in order to make sure that you keep a solid outcome.
How many centers, how many surgeons are we talking about nationwide here?
I wish I knew that number. I don't recall the number.
Okay.
We're not talking down to, you know, 10, 15 across the U.S. We're talking hundreds of physicians, so it's not.
Yeah.
it's not kind of everything on one, everything on red or black. It's still a solid business.
Okay.
Okay.
I just wanted to just come back to one of the points you made about the heightened regulatory requirements in mesh and the requirement for additional clinical studies. Can you give us a feeling a little bit how you see the market there progressing? Am I right to assume or think that the vaginal mesh market is declining, but the abdominal mesh market is growing until at least we see clinical data in the end of the decade or something? Can you just share some thoughts there?
Yeah. Look across stress urinary incontinence and pelvic organ prolapse. Stress urinary incontinence continues to grow, and again, else is there is a single incision sling, and there is still a market also for standardized slings, so not a lot of change there. I think that market is growing with a couple of %. For pelvic organ prolapse, there has been a shift over the past years from transvaginal procedures to transabdominal procedures. There is still some transvaginal procedures out there that are being performed, so that segment will remain, but there will be a continued growth in transabdominal procedures. Thank you.
Does this one work? Yes, it does.
It does.
That's good.
It gives you an opportunity to introduce yourself anyway.
Do some talking. Yes. Good morning, everybody. My name is Nicolai Buhl. I'm gonna speak about wound care. For those of you who don't know me, I have been with Coloplast since 2005. Before that, I spent 10 years with Novo Nordisk, five of those years here in the U.S. Since 2010, I've been taking care of the wound care business. Actually, my first Capital Market Day presentation was a few months into my new assignment in Hungary. Basically...
The top one.
This one is, here, was when we launched an ambition of turning a business around. I think that a lot of you were giving me a lot of questions about whether this was actually going to be possible, because we had basically been sitting on an asset for quite many years where we, one, we're not profitable. Two, we're not even growing in line with the market. I think there were a lot of questions about, you know, the logic of having this asset as part of the group.
You know, that's a nice way to start at a new job, and there were even people asking me, you know: "Why do you believe in this?" That's back in 2010, and I think there were some pretty fair questions because we did not really perform when it came to our Wound & Skin Care business at that point in time. Nonetheless, we started on a journey with basically two objectives. One is to get the business profitable, and two, get the business to grow. I don't want to give you all the details, but it's been a bumpy road, there's no doubt about that. I do think that when you want to do a turnaround, and a turnaround of this kind, you are not just trying to fix something in the surface.
You have to go all the way down into the bottom of your business to make sure that you kind of get it up and running. What I'm gonna do today, I'm not gonna give you all the details about the turnaround. I'm gonna talk a little bit about to where we are today, but of course, I wanna speak much more about where we're going. I'm not gonna spend a lot of time to talk about the wound care market and its details. We can do that in the Q&A, or we can do some follow-up on that. Basically, I'm gonna be more speaking about what are we going to do now with our business. Before you put up a new ambition, I think, you should sort of try to evaluate how are you then doing versus the old plan.
I do think that a couple of time we have basically been articulating that, one, we have improved our profitability of the business, so we have improved it with more than 12-15 percentage point. Of course, the main question was, can you guys run a Wound Care business? Can you guys go out there and run a business and get, let's say, above the market growth? When I started, we were not only, let's say, questioned about our performance, we even had a business that was declining. Where are we today? Well, today we have a business where we have improved our top line performance with somewhere between 10-15 percentage points. We have seen an uplift in all geographies where we basically went in and wanted to improve our performance.
We have consistently been outgrowing the total market growth on a global level. That means we have taken share. As I said before, we also have a business that is profitable. I do think that the word turnaround, which is a word that I have been confronted with a lot of times, I do think the word, let's say, get something fixed, are words that we definitely have been spending a lot of time on. I do think that we are right now at a time where we can start to increase our vocabulary and maybe start to use a terminology like acceleration or expanding our business, rather than just fixing and trying to turn things around. I do think that this performance speaks for itself, that we do have an understanding for what it takes to run a business.
We do have a very strong engagement with our customers across the world, and I do think we know what it takes to run our business when it comes to the Wound Care space. If you're in doubt, I would be happy to take some Q&As a little bit later. All right, if you want to talk about the future and our new ambition when it comes to Wound Care, of course, from a financial and strategic point of view, we want to make sure that we get an even more profitable business. That's sort of fundamentally what we want to try to solve for. In order to do that, we have basically come up with our new ambition on behalf of Wound Care.
One of the first thing I want to speak to is not the numbers, but that's really when you start to go out there in the wound care space and get into a dialogue with the customers, one of the things that really sticks out is that there is a very poor level of consensus around what is good versus bad wound care management from a clinical point of view. It is basically a little bit of a cowboy land. One of the things that we clearly are getting from our customers into action is, "Coloplast, can't you, together with us, do something about having a better definition of what is good versus poor wound care management?" which is about sort of discussing and shaping the standard of care.
This is one of the things that I really want to do now, together with the Wound Care organization, is to go out there and not just be a follower, but one that really goes out there together with the industry and talk about what is standard of care when it comes to wound management, because that is an area that needs some more attention and some commitment. I think if you look at what we are doing in some of our other businesses within Coloplast, do we believe that we can do something when it comes to shaping the standard of care? I do think so. Point number two, as you heard Lars speaking to, we do believe that with this strategy, we have an opportunity to double the size of the business.
In order to do that, there's no doubt about, we need to play in more geographies than what we are playing on today. Of course, you also have to remember, the key thing about doing a turnaround is doing a few things really, really well. You don't embark on a pure global, you know, all over the place agenda when you want to turn around things. As I said, we're in a different situation. We have a different opportunity right now, and now it's time not just to be a local player, but a global player when it comes to our Wound Care business. How are we going to do that? Well, we have two strategic themes that go sort of across.
One theme is about, you know, creating a platform that enables us to discuss with our customers, sort of this topic about good versus poor wound care management. This platform is about creating a framework that will enable us to talk about shaping the standard of care within the wound care industry. If you have that, you also need to make sure that you have a portfolio of products that fully live up to that standard of care. These are the two, let's say, strategic themes. We have four geographical themes, which is about becoming a more global business. We have done some pretty good stuff, we believe, in Europe. We want to accelerate that even further. Here in the U.S., we have a very nice opportunity. We want really to take that serious and tap into that.
We do also want to make sure that China stays a very important player in our portfolio of countries. Last but not least, yes, emerging market is a different, let's say, bucket of geographies today than it was a couple of years ago, but we still see attractive opportunities within our wound care space. These are the sort of the six themes that we believe will take us to where we want to be. Let's take them a little bit one by one. I don't want to give you a clinical session because I don't think the jet lag or the time allows for it.
Basically, what we have done is we went out to our customers, the global opinion leaders, and talked to them about if we should have a framework that you also can apply in clinical practice, which enable us to take a more sophisticated and more advanced discussion around what is the standard of care within wound care. We have come up with a concept together with them. We call it the Triangle of Wound Assessment. It's an assessment tool that we actually have got an endorsement from some of the leading opinion leaders. The European Wound Association has endorsed it. There's even nursing associations here in the U.S. that have endorsed this.
What we have done together with the customers is create a framework that we now will apply as the way we want to communicate with the customers around when it comes to the standard of care. This will be the driver of everything we do, the driver of our education, the driver of the way we want our reps to speak with our customers, the driver of the things we're gonna do in the market. It's also gonna be the driver that will enable us, tours, payers, and other providers, to talk about what our products really can do when it comes to improving the standard of care within wound care management. That's the Triangle of Wound Assessment.
That framework has, of course, also given us an opportunity to go out and speak to the customers about, so what kind of a portfolio of products do we need in order to fully live up to that standard of care? Here came a couple of themes that we clearly want to invest in, because that will enable us to fully live up to this new standard of care. We have not, in the turnaround period, been overinvesting in new products when it comes to the wound care space. Why? We deliberately wanted to make sure that our commercial front room was operating before we gave them more products. Now, we want to give them more products. We're gonna increase our investments into wound care R&D, in particular, in three spaces. As you all know, silicone is here to stay.
Fastest growing category when it comes to the dressings. We, of course, want to make sure that whenever there is a need for a type of a silicone product, we have it. We are well advanced. We have a couple of SKUs and products that we also now would like to put into the silicone portfolio. Our intelligence and our conversations with the customers has also shown that there's a couple of new areas within, let's say, the basic wound care areas where we see a strong need for better products. Products that fully are living up to the standard of care.
We have already conceptualized these and are working on them, and I guess you all know that for competitive intelligence reasons, I cannot give you the details, but we have a couple of very interesting new solution on the horizon when it comes to our wound care portfolio. There's also another area that we really want to tap into, and that is the skin care area, because we do see that skin care management is an integrated part of wound care management. If you want to be strong in wound management, you also need to make sure that you have an attractive offering when it comes to skin management. That's a third theme that we want to invest in and make sure that we really will deliver on when it comes to improve our product portfolio. Yeah?
Let's take sort of the four regional perspectives. Operating in Europe in 2010 was not a pretty place to be, because basically, austerity measures, healthcare reforms, took the entire market down. When you go out and say, now it's time to do a turnaround, and all your markets is collapsing, you have a little bit of an extra, let's say, challenge on your, on your agenda. Nonetheless, what we have done in the last couple of years is we have taken our entire European business from a, let's say, red to a green area. Actually, if you look at how we are performing right now in Europe, we are taking share because we are doing significantly better than the market. We are in particular taking share in the silicone segment, and we are in particular taking share in the big European geographies.
We want to do more of that. We know exactly what we need to do. We want to expand on the recipe we have pursued right now. We do believe that by adding more products, investing in some more commercial activities, we can accelerate our momentum in Europe even further. There's the U.S. Well, we have 98% to go for. To me, that's an opportunity. You could just say you have sustained a big opportunity in our portfolio of opportunities here in the U.S. The U.S. remains the single biggest wound care market in the world. We want to tap into that. Why? Well, first of all, the silicone space is also a very attractive space and important space here in the U.S. We believe we do have, let's say, relevance in that space. Who are we going to compete with?
We're going to compete with players that we already are competing with, so tapping into the U.S. is not sort of something that we don't know of. Of course, if we want to play in the U.S., we need to make sure that we have the right commercial, let's say, muscle, in terms of share of voice, activities, and stuff like that. We want to expand our muscle here in the U.S. to make sure that we fully are on par with our competitors. We do know there is a couple of, let's say, clinical needs here in the U.S. that we need to make sure that we can bring to our customers, both in terms of evidence but also in terms of product lines.
We will bring that, and with that, we do believe that we can tap in and make a difference here in the U.S. as well. There's China, and we need China to succeed on this strategy. We have, over the years, invested in building a very strong sales force in China. We believe we are among the leading in terms of sales force sizes. We have just been able to bring our full, let's say, product portfolio to the Chinese market. We want to really tap into the Chinese wound care market, and we need to do so. We, of course, need to first capitalize on the investment we have made and make sure we really are delivering on those.
Together with the remaining portfolio and the new educational activities, we do believe that we have an opportunity to be among the leading players in one of the single biggest upcoming wound care markets in the world. China is really, really important for the total performance. Again, who are we going to compete with? Same guys that we see sort of in the rest of the world. Emerging markets. Here, you need really strong analytical lenses to pick your investment, right? Because as you have seen, some economies go up, and then suddenly they can come down very rapidly. We don't want to overinvest and, you know, be all over the place when it comes to tapping into other emerging markets when it comes to wound care.
We have a couple of geographies where we have invested because you believe in the markets, even though the macroeconomic environment right now not is the best, we do believe that the demographic profile, the lack of use of advanced wound care products, provides an attractive opportunity long term. Brazil is one example. We do also see geographies like India, where we already have invested, that has attractive opportunities. We want to make sure that we really tap into those opportunities and capture a significant part of the delta that exists in those markets. We do also see a couple of other emerging markets where we today have no presence or a very small presence, where we can make an attractive difference by going in and investing, both in frontline but also in educational activities as well as customized activities....
It will be a very focused approach, but approach where we believe that five to six countries can actually give us a nice delta when it comes to other emerging markets. Basically, what I'm saying is that next time when we see, hopefully, we can use other terminologies than fixing and turnaround, but we're talking about expansion, we're talking about acceleration. Why? Because our wound care asset is in a very different shape today than it was a couple of years ago. We have improved profitability. I hope that you agree with me that we have proved that we know what it takes to run this business. I hope we have proven that, you know, what we said we were going to do, exactly what we have done, and we have delivered on that. Now it's time to scale up.
Now it's time to really take part of what the industry defines as good versus bad wound care management. I do believe we in Coloplast know what it takes to do that, and yes, we will invest more in wound care because to do this, we need to do more things, but we can do it in a way where we both are improving our top line, but also are improving our profitability of the business simultaneously. To me, that's a pretty attractive position to be in, and that's what are we gonna embark on. With that's what I wanted to say about wound care, and I guess you have a few questions.
Hi, thanks, taking the question. Just, two on negative pressure, mostly.
Yes.
To what extent are you really held back, in the market by not having negative pressure, specifically because you have the really chronic wounds that can be high value where negative pressure is, amazing?
I don't think we're being held back, one.
Yeah.
I think we can be as relevant with the, with this strategy to our customers. I think there are a few countries where some contracts are pooled between negative pressure and, let's say, dressings, but can we live without NPWT short term? Yes, we can.
Okay, but yeah, in the longer term, the question is there any desire to revive negative pressure program? We had the partnership and of course, the lawsuit...
We keep our eyes open.
Yeah.
We keep our eyes open, and of course, if you wanna be, let's say, true leader, you know, those customers that are expressing a need for negative pressure will of course, also be asking us: "Why don't you provide that?" We'll keep our eyes open, but right now, we believe that we have more attractive opportunities to invest in and to go for than adding NPWT to our portfolio right now.
You can go external if you need to, and you want to, essentially?
I think all doors are still open.
Just last on skin substitutes or tissue matrix products, and is that part of your launch program or?
You mean biologics?
Biologics, yeah.
We don't wanna go into what we characterize as more pharmaceuticals. We wanna be a med tech company, biologic is not part of our strategy.
Okay.
Thanks. I mean, Alex just covered that. In terms of the your product portfolio, you've got a decent portfolio in dressings, arguably not in NPWT, not in debridement. You've covered NPWT, maybe debridement, is that an area that you think you need to have access to?
I think we are looking into that. Again, you know, we also have to remember that if you bring in a complex type of product to your portfolio, you're also adding complexity in your commercial execution. We believe that we still have a lot of attractive opportunities to go for by becoming an even stronger, let's call it, dressing player. Debridement is something, of course, that we're keeping our eyes on, but right now, it's not a top priority.
In terms of entering, sort of entering new geographies after you've pulled out of quite a few some years ago, how should we be thinking about the cost of doing that, and how do you expect customers to react to a company kind of reentering where they left?
Yeah. I think I have felt on my own body the pain of customers where you have pulled out, in particular, in some of our European markets, coming back and saying, "We're back, and, you know, treat us well, and we wanna do whatever." It takes a lot of time to regain their faith and confidence, but I think in Europe, in particular, we have shown that it's possible. Of the new geographies we're talking about, we don't have really geographies that are high priority, where we were and then pulled out. I would say that challenge was mainly a challenge in Europe, and I think we've fixed that. Actually, I would say I'm overwhelmed with the engagement we are seeing from our customers right now.
Thanks.
I have a couple questions.
Yes.
The first one is just on the R&D projects-
Yes
... that you mentioned, and I appreciate you're not gonna tell us what they are.
Yeah.
Is this more about you closing some product gaps versus portfolio versus competitors, or are you really trying to push into new innovative treatment approaches?
Okay. First of all, I'm not trying here to stand up and say: We are going to bring blockbusters to the wound care space, because I don't think there's been any blockbusters for a long time. To bring products to the market is not, let's say, a 6-10-year horizon, which is good. However, I do think there's a couple of areas where the technologies that are applied today are very old. Look at antimicrobials today. I mean, that core technology has been around for a long period of time, and there are different variants and stuff like that, but that could be an area where you could say, you know, maybe it's time to revitalize how you treat infected wounds. That's an example, right?
What I'm saying is, I believe that we have an opportunity to bring products to the market that really will tap into the basic needs in a new way, but we don't need to make blockbusters in order to get there.
Okay. Then can you talk a little bit to the competitive environment in the market?
I know our own company the best, but I will try.
Well, I'm just curious, if you look at where you have won market share...
Yeah.
who has it been from? I guess, you know, if you look at this market, it's still, there's still a very big tail to it. Is it the big tail that's shrinking, or is your sense that some of the bigger players in the market are also struggling with their growth?
On the last question, I don't know if they're struggling. I do, you know, some of the companies are listed, so, you know, transparency is there to a certain degree. I do still see some of our, let's say, classic competitors doing okay. Some of them I would characterize as struggling. Who do I take space, market share from? You've seen it, you know, if I can do what I've been doing in Europe, you know, who is, let's say, dominating the European space, that's the classic, let's say, wound care players. I do believe we are taking pretty big chunks of shares from some of them. I don't believe that my competitive challenge is different around the world. It's the same guys, it's the same things.
I do think that we have, let's say, confidence in that, we know what it takes to be a relevant player and take share from some of these.
Thanks, Nicolai. Yeah.
I, yeah.
Yeah, a few questions, please.
Yes.
firstly, I mean, clearly, it's a bold aspiration to take a percentage point of market share over the next, you know, five years or so. I'm interested because I think, you know, clearly, the turnaround part of the execution has proven, certainly for the broader Coloplast group, perhaps the easier to obtain than the investing to accelerate...
Mm.
-growth angle. We haven't seen a major wound player take that sort of market share for many, many years. Actually, it's been a relatively stagnant market.
Mm.
I mean, I know you've highlighted some initiatives, but I wonder if you could talk a little bit about some of the barriers in the North American market. Are there barriers in ostomy and wound care nurses, or the home care setting, which has precluded you getting into that market to date? Why haven't you been doing a little bit better in North America, given you've launched a good silicone product, and we've not really seen growth materially accelerate in North America? Perhaps you could answer some of that.
I mean, the U.S. is, of course, a contractual market, so you need to get the contract sort of to get your license to sell. That's, of course, an area that we need to make sure that we do even better on. I think on the questions about, you know, why have we not yet, let's say, fully tapped into the U.S. market, I think it's a question about priorities. I mean, if you do a turnaround where you both have to solve for the bottom line and the top line, there are certain, let's say, battles you can pick, and we decided to go for some other battles than, you know, the U.S. battle.
I think it's paid off, and you could say that means now we have an opportunity to tap into a nice, large value pool here in the U.S., and that's what we're gonna do. I think it's more a question about prioritizing with the old turnaround strategy that made us, let's say, less focused on the U.S. I think the team here in the U.S. have done a great job and gained some good contracts. We just wanna scale it up and do more of that and make a much, much bigger inroad than what we have done so far. We actually have a great opportunity here in the U.S. because we have a fairly good position when it comes to the skincare franchise.
In the acute channel, we really see some nice opportunities by enforcing what we have been doing in skincare into our wound care business.
Just following on from that, and I know one shouldn't look at a given quarter in isolation, but you saw a deceleration in Wound Care go to about 3% or so in the last quarter?
Yeah.
which demonstrates to me that the performance in emerging markets is not completely separate from the performance in wounds. Of this 10%+ growth that you expect, what is the split between developed markets, emerging markets? How do you see that?
We are dependent upon emerging markets, there's no doubt about that. I do think that in particular, let's say the changes in the performance in China have had an influence on the global performance picture. We hope that some of it is temporarily and it will, you know, get to a better level. At the same time, we are very pleased with what we're seeing in Europe. We do believe that some of the other geographies we have invested in are still, let's say, representing a nice opportunity. We do believe that doubling the business is possible. It will not come within one year, but on the planning horizon we have pursued here, we do definitely believe that it's possible.
There is no doubt about that all the four geographies that I talked about have in sync to deliver according to the plan in order to get us to where we want to be.
Yes, my question was actually also about the Chinese market.
Yeah.
The growth slowdown that you have, talked about, and Smith & Nephew and Convatec.
Yeah
I believe, I talked about recently.
Yeah.
Perhaps you could elaborate on the kind of a product mix composition on the Chinese market, how that differentiates, differs from Europe, U.S., and how you would see that develop in the coming few years.
Actually, the portfolio let's say, commercializing in China is more or less the same as we have elsewhere. We do, of course, still have good momentum, good customer, let's say, feedback on some of the old products, because they're still new to some of the customers in China. Actually, we see the entire portfolio being, let's say, demanded in China, and recently, we also added the silicone portfolio to our Chinese portfolio. It's the full portfolio that's being requested. There might be regional differences, but overall, we still see the Biatain, the Biatain Silicone, as well as the Comfeel range being, let's say, attractive from a Chinese point of view.
Are you able to obtain the same prices in China as you get in Europe?
We do actually have better prices in China compared to the European average.
How much would you say that is?
I cannot elaborate on that.
Thank you. Take it away from you.
Thank you. Firstly, maybe on the margins,
Margins?
Yeah, just on profitability.
Yes.
Since it's been sort of a turnaround story on wound, could you quantify this a little bit? How does it compare, for example, with the overall group, and where do you expect margins to go?
Unfortunately, I'm not at the level of the group when it comes to EBIT margin. We believe that we have an opportunity to if we deliver on this strategy, to significantly improve our, let's say, isolated wound care EBIT margin. I cannot give you more details than that. I do think the wound care space has a couple of players that shows that if you really get scale into your business, you can do some very attractive margins. I think most of you are probably acquainted with Mölnlycke's isolated wound care margins, which are in the early 40s. We do believe that wound care represent a nice opportunity on the margin side, if you get sort of the right scale into the business.
Would that 10%-15% objective that you have over there, is that the right scale?
That's-
Is that still below the scale, or how should we think about it?
If we get that share, and we double the size of our business, we will see a significant uplift in our EBIT margins for wound care as well, yes.
Thank you. Then just coming back to, emerging markets, U.S. and Europe-
Yes.
In terms of, how they have been contributors to growth.
Yes.
Maybe I'm pushing it a little bit.
No, it's okay.
Could you rank, how it has been and how you expect it to be, in terms of how these regions contribute to growth?
Help me understand your question.
U.S., probably less. U.S. has probably contributed less to growth, because your, market share-
Yeah.
is lower there.
Yeah.
Emerging markets in Europe, more. I was wondering if you could put.
Ah.
One, two, three.
I cannot get into the details. Basically, I think it's very important if you're having a new ambition, like we're having right now, you need to make sure that you're not having a, let's say, a chair with only one leg, right? I think we have here a strategy that has, let's say, more than one important region. That's why we have, let's say, elaborated on the four regional perspectives. There's no doubt about that if you want to double the size of the business, as I said before, all of the four geographies that I talked about needs to deliver.
Thank you very much. Thank you, Nicolai.
You are welcome.
With that, I would like to introduce you to Kristian, who's gonna go further into details on the two remaining business areas. Kristian.
Thank you very much. I'm wondering whether the microphone is working. I'm seeing nodding heads, that's good. For those of you who don't know me, my name is Khristian Mikkelsen. I've been with the group for about nine years soon, and I've been in my current role for a couple of years. Prior to that, I've had leadership roles in emerging markets, Region Europe, and our global marketing function. I want to do three things with you guys here over the next 20 some minutes. I'll give you just the big picture of the Chronic Care franchise and how it fits in with the group overall.
I'm going to put some words to the model that we've been trying to build, the DKK 1 billion that Lars referred to earlier today, the Chronic Care business has taken up a significant share of those investments. Have gone into building a, we think, unique commercial model. Finally, I'll talk about three strategic themes that we run our business by and our performance around each of those themes, and there'll be an opportunity to ask questions at the end. All right, let's see if this works. Chronic Care is the majority of the business in Coloplast, about three quarters of total sales, approaching DKK 11 billion, 2 very healthy leading positions in both Ostomy Care and Continence Care. Revenue is roughly split equally, and I'm sure everybody's familiar with our geographical footprint.
It's been our ambition to change that geographical footprint over the past five years, and our investments also reflect that. We deliver very consistent and winning growth rates across the regions where we participate. As investors, I think you should feel confident that there is a strong machine and a strong organizational setup that knows how to run these businesses. We've proven that, and we are very confident that we will continue to prove that. Add to that for each of the regions where we are active, there are significant underlying demand drivers that will continue to drive growth for these markets. For Europe, demographics and decent access for product innovation will continue to drive growth for us.
We see reforms from time to time, but nothing so far over the past eight years that have led to more cost pressure than the 1% that we guide to you guys. In other developed markets, demographics is also a key driver. Other developed markets, of course, North America, Japan and Australia, in all of these markets, we also have the peculiarity that they run on relatively old technology for some of the categories where we're active, in particular in Continence Care. So the upgrade of those markets to modern technology is a significant growth driver. Finally, emerging markets, where I spent a fair amount of my time in Coloplast.
We remain, even though we've taken down the ambition level now for what emerging markets can actually produce in terms of growth, we remain quite optimistic that emerging markets is going to drive growth for many years to come, by basic building access to healthcare coverage and increased access to products. There's plenty of growth to be had, and we're still committed to emerging markets. I'll talk to some of the investments that we have made a little later in my presentation. Now, if we zoom out for a minute, we basically see four trends that affect the industry in which we play.
One is the rise of what we call the healthcare consumer, which is shorthand for a phenomenon that I think everybody in the room is probably familiar with that if we ourselves get sick or somebody that we care about, we want to know: what's the disease? Who knows how to treat it? How do people get treated? What does good practice look like? What are the products that you should get? With digitalization of healthcare information, that information is now available to people, so they search for it online. This basic notion that the consumer will be more informed and have more of a say in the actual product choice that he or she ends up using, we think is a massive trend that is not going away.
Faced with that demand, of course, payers have to be pretty focused on that they get their money's worth. Payers will continue to demand value, and that comes out in the form of, basically documenting that you deliver clinically relevant outcomes. I'll come back to how that gets reflected in the way that we think about building our pipelines. Finally, I'll point out that, in particular for, more developed markets, we see channels consolidating, and some of these channel players, starting to play with different types of commercial initiatives. Lars already alluded to this earlier today. What we're trying to do is build a company that knows how to drive clinical and consumer preference. Both clinical and consumer preference.
When I put it up like this, conceptually, it's pretty easy. On the one hand, you just need to build some great products, on the other hand, you run some sales forces with a few thousand people who get access for those products, build relationship with clinicians, get your products registered, etc, then you've got discharge programs, and access to consumers that you then run. In reality, of course, this stuff is pretty hard. This is a change to the DNA of the group.
We've been at this for now five years, and a very significant chunk of the investments that we've made have gone into basically building the consumer setup, building the Care program, and you'll all get a chance to see what the Care program looks like in practice once we're done here and you go on the site tour. I feel very strongly about the Care program, and I'll talk about some of the details of it later. This model is unique, we think, in this space, and it's also global. This is a model that we're pursuing in all of the regions where we're active. Our ambition remains to continue to take share. Even though we have a number one position, we think there's more to go for.
We like to keep the number of strategic themes simple, so we've got three. One about products, one about services or offering to consumers, and one about execution and investment in the frontline. I'll talk to each of these three in turn. Now, let's start with products. We spent a few years working on building the SenSura Mio platform for Ostomy Care, and we're pretty proud of that. We just launched the SenSura Mio Convex product that you see here on the left-hand side. This is the only product in the ostomy market that has clinical evidence that it reduces leakage. It's the only one. It is back to this basic notion that our core strategy, when we think of innovation, is to build clinically differentiated products. Clinically differentiated products.
For those of you who've had a chance to visit us in Hungary, you'll also know that producing an ostomy portfolio is not something where you just walk out to some supplier of capital equipment, and then they will supply you with an ostomy bag machine. It doesn't work like that. You have to build those machines yourself, and you have to take them to scale and operational equipment efficiency over time. We think that what we have now is a very competitive portfolio that is very difficult to replicate and copy. We think that this is going to drive growth for us for many years to come.
In fact, this product has been so well-received that we've had to take our foot off the gas pedal. You're not going to find online campaigns for SenSura Mio Convex, because we are simply out of supply. Not in the sense that we're running into massive back orders or something like that, but we just can't generate more demand right now. This product is working, and you can also see that in the quarterly sales figures. This is going to work for us for a very long time. On the catheter side, we're equally proud of the product portfolio. The growth is driven mainly by the compact range. You see here is Compact Eve, Set, and Compact Male.
The latest quarters, we've had a bit of ups and downs, driven by U.S. and Saudi Arabia, that I'm sure you're all familiar with if you've been in on the quarterly calls. We still think that this franchise is going to deliver very handsome growth in the years to come. Let me talk about why. Growth is going to come from new innovation. We think there's lots of room for more innovation in the catheter space, Lars talked about it earlier today. We put a massive effort into building a new pipeline, you're going to see some of the fruits of our labor later this fall when we launch the first product from that new pipeline that we're pretty excited about.
Anders alluded to earlier today, that there is significant growth coming from value upgrade of patients from standard products to compact products and in the market that you're in now, from uncoated to hydrophilic. Working with the product mix is a very significant component of the growth strategy. Finally, there's new markets, where we, over the past few years, have invested in opening new markets, and I'll show you a couple of examples of what that means in a few minutes. I'm just gonna get a sip of water. That's not because I'm going to talk about patent expiration. I could see you were thinking that, huh? We've talked a lot about this patent expiration, and this is normally not something that we talk a lot about.
We don't have products that are covered by patents. Ian talks a lot about it. We remain fairly calm about this. Now, there is exposure, of course, when the patent for SpeediCath expires next year in September 2017. I'm not going to say that there isn't, but we believe that this is mostly in tender-based markets, like some of the Scandinavian markets and some of the insurance-based markets that you'll see in Europe, where you've got home care companies and some people in trade who may think it's interesting to do campaigns on competitive products. We believe this is about 10%-15% of our Continence Care revenue that is at risk, I why not just put a few words to this.
The reason we remain pretty confident that this is not that big of a deal is. It's not like we don't have competitors in this space today, right? It's not like there are not other hydrophilic catheters in all of the markets where we're present. They are there. It's not like there are no low-cost competitors in the markets that we're in today. They are in all of the markets where we participate. We are very familiar with the types of products that we have to compete against. There are also markets where the SpeediCath patent doesn't cover today, right? Where somebody could come with a replica of the product, and where we are still enjoying very, very handsome market shares.
We remain pretty confident that the size of this challenge is gonna be below DKK 100 million. All right. That was what I wanted to say about products. This brings me to consumer, and I've been looking forward to talking about the care program. I'm excited that you guys are going to see the program in a little while. If I can leave you with one thought about the care program, that this is a capability. Right, this is a capability. It's not a website. It's not just a bunch of people on the phone. It's a capability. This is a thing that we've been trying to build with a lot of effort over the past five, six years, right?
It has deep content, and when I say deep content, what I mean with that is that for the markets where we're active, the care program has clinically validated protocols and call scripts. These protocols have been co-developed with local clinicians that fit local protocols, local product offering. It's not the same in the U.S. as it is in Canada, as it is in Argentina, South Korea, etc. You have to do the bottom-up work to build these protocols together with the local clinicians, so they also buy into the program. The other thing is that we build into the program is that it's possible for users that they can self-assess, so basically determine and get answers to problems and issues that they have.
We're able, with the program, to share data with physicians and nurses that give them insights to how's the patients doing? It basically is also a vehicle for providing transparency to the market and helping clinicians extend their care into community. It's a very personal and high-touch program. You're going to hear some conversations later on. These are intimate conversations where people talk about problems that they have. You need really good advisors to run those conversations. These need to be people that know what they're talking about, obviously, but they need to know the conditions intimately. They need to know the therapies intimately. They need to know the product offerings intimately, and they need to know the types of issues that people have and how you solve them.
It does not get built overnight. Let me just assure you, it doesn't get built overnight. Of course, there's also a vehicle for providing this information to both patients and healthcare professionals online and in form of newsletters, emails, etc. Last but not least, if you imagine that. Just compare this to our sales force. We've got a few thousand people who visit hospitals. This turns into hundreds of thousands of conversations over the course of a month. The care program turns into, over time, millions of conversations. A lot of data gets generated, and infrastructure is key. I know I'm stating the obvious now, but it is anything but straightforward to get a company on one ERP, one CRM, and one CMS system. CMS stands for Content Management System.
That's part of the work that has been going on in Coloplast over the past five years, is to getting processes and infrastructure in place. This is not just a website, right? This is a capability that we've been working on for five years. We think it's a very, very compelling offering now. We continue to refine it. We're quite proud of it. I'm really looking forward to having you guys experience it later. That was care. It's the same when it comes to the work that we're doing on DTC. We're continuing to invest in our presence in all of the relevant digital channels.
We're also on TV in a number of markets. Again, this is to provide a transparency and visibility for both patients and caregivers about treatment options, product accessibility, etc. That's what I wanted to say about services and consumer. Our third theme was about frontline execution and investments in frontline. You're all now sitting in the headquarters of our U.S. business, where we've invested a lot, and you're going to hear much more about that when Ed and Ed's team will take you through the U.S. market and our business later today. Breakthrough in the U.S. has been a one of the really big investment areas for us over the past few years.
Lots had to do with sales force expansion, lots had to do with investment in the care program that you're going to see. This is a completely different business than it was just a few years back. You're also familiar with the expansion that we've done in U.K., which is mainly focused on ostomy, but also consumer. There have been a number of investments that we've made in our in our mature markets, we're driving them as hard as we can. We've also made a big drive on emerging markets, I was deeply involved with that. Part of that is, of course, to get a broader footprint for the company. We're still enjoying, I think, pretty robust double-digit growth.
It's not the 25% that I'd love to see, but it's still robust double digit. We've simply had to react to new realities on the ground. In a number of markets where funding has dramatically changed, for example, in Brazil, we have to basically adapt, and we've done that. Which I wanna emphasize, is adapting, not pulling out. We're very committed to emerging markets. We think medium and long term, there'll be lots of growth here. The patient populations are large, and the standard of care will go up. The standard of care will go up. We remain still optimistic that emerging markets will be a key growth driver for the company, also for many years to come. Let me spend a few minutes on China. China runs on its own mathematics.
I don't know who mentioned the number of cities in China with more than 1 million people. The right number is 223. It's got 223 cities with more than 1 million people. For a guy who lives in Copenhagen, that means you can take the capital of Denmark and multiply it by more than 200. You know, you've got a lot of work to do if you want to cover those 200 cities. With the expansion that we made, which was a very significant expansion with hundreds of people in the front line, we are getting into coverage of a little more than 100 of these cities. You can imagine that just the raw coverage of this market over time has to drive growth.
When you get into cities of 1 million people, we know that there are a serious number of hospitals. There's a relatively decent standard of care, but it's another thing of actually driving that coverage. I'll get back to that in a second. In the original investment case, coverage-based growth is a cornerstone, and it will continue to be that. The other cornerstone is that we've run our Chinese business historically on an old product portfolio, old technology, and this is a market that's got great prices, actually, free prices, and there's willingness to pay. This is the largest luxury goods market in the world. If you look to the auto manufacturers, they sell tons of cars in China.
We think there's willingness to pay, like Nicolai said, we've introduced our newest technology to basically also drive value upgrade. Then finally, we've, we before we invested, we never really served the Continence Care space. For those of you who have traveled in China, I'd ask you to think of if you could remember if you've seen somebody in a wheelchair. I bet you haven't. It's not because they don't exist. It's not because they don't exist. They are there. In fact, there's more than 1 million people in a that use wheelchairs because they've broken their back in China. That's more than we have in Western Europe and North America combined.
The standard of care for these people is horrendous, and we have to change that, and that's, of course, a long-term investment. For those of you who've been following the company, you know what the Continence Care business can become once the standard of care gets established and modern technology gets in. We remain very optimistic that China is still, over time, a growth driver. It has to be a strong growth driver in the company. What happened for us was that we drove a very strong expansion and then saw an anti-corruption campaign in the market, which had a very significant effect on hospital decision-making, access, etc.
Which basically led to us, for a number of our salespeople, would not be able to sell as much as they otherwise would. The way it works in China is, if you can't reach a bonus, you leave. Last year, Q2, we had after Q2, we had a lot of people that left us, and we had a pretty high people turnover, and we had to get that under control. You can't build anything if you've got high people turnover. We now have that under control. We've got that stabilized. We've got new leadership in our regions.
All of the focus now is on driving the expansion plan, but we're not adding more people to China until we get the investment that we have in there already, get that to work and get people to become efficient. We expect China to deliver around 20% growth this year. All right. On a final note, I wanted to just bring a couple of examples of investments that we make to actually build access for, in this case, IC, wound and catheterizations. These are Japan and Australia, and these are typically longer-term processes where we invest that people who've either been partly covered or not covered, get access to modern technology.
To give you a sense of scale here, the patient populations that now open up for access to our products have a theoretical potential of something that looks like $1 billion. This is definitely important. Getting people, getting clinicians trained and getting patients onto the product is the hard work that has to get done. That leads me to my final slide. Quite simply, we want to continue to take share, even though we are leading already. Three themes, strong focus and continued focus on building great and clinically differentiated products. We'll continue to refine and develop and drive the consumer model that we have been for the past four, five years, and that you'll see more of later today.
We will continue to selectively invest in frontline and growth in our markets. Thank you.
I have three questions. Firstly, if I look at intermittent catheters, you mentioned before that the idea is having clinically differentiated products, if you look at SpeediCath Compact, would it be fair to say that that's actually not clinically more beneficial, it's more of a convenience element? If that is correct, how does one differentiate going forward in the catheter-type business if it's more a convenience? Secondly, when it comes to Convatec, I mean, they've mentioned many times that they're investing in a care type program. Can you comment why your care program delivers a better solution or a better outcome for the patient?
Then thirdly, on the patent expiry, can you comment what you feel will be the impact of the expiry in terms of the overall pricing of the category, and also how you expect unit market share to develop? Why do you feel it's only in relation to tender markets? As an example, for instance, why would.
You have more questions? You could probably repeat the last one.
Okay, I'll repeat the last one.
No, no. Hang on. The first one was about... That was the one about?
Clinical differentiation versus convenience.
Clinical differentiation.
Yeah.
Yeah. If you can't go to work because you don't know how to use a product, it may just be a quality-of-life measure that we've given you, but it's relevant. You're right, there's not hard clinical data on the compact catheters, but if I gave away what we're trying to do, I'd give away half the story, right? We have to bring that to market. What?
Just talking.
All right. There are some really nice things coming in the pipeline, and we have a pretty clear idea about how you can build differentiation. We also think there is, there's real room to innovate. One way to look at the catheter space is if you, if you're a man and you have to use, one of the catheters that you just saw out there, and you have to use it appropriately, it's 4x to 6x per day, 365x , right, over the course of a year. Like, you multiply those two, you start adding years, it turns into thousands and thousands and thousands of catheterizations. taking the burden of that, what you could call bladder management, taking that down, we think there's lots of room to innovate. There's lots of room to innovate.
What was the second question? That was the pricing?
Care program.
Oh, the care program? I haven't tried the Me Plus program that Convatec has done, but I know you can't build a real program over the course of a year, right? 'Cause we've tried that. It's not just a matter of getting a website up and running and getting two, three people on the phone. It is much more than just that. It's not enough to just hire a former Coloplast marketing manager, get your website up and running, and start marketing, and saying you have the program. It has to scale. I think eventually they will have something, and then the question is, how do you start to get it to work in more than just one geography, right?
Patent expiry.
Patent expiry. Pricing? Depends on the market. It depends on the market. For a lot of the markets, the pricing, the reimbursement is actually a fixed price. In those markets, we expect it to have no impact at all. We do expect it to have impact on pricing on, in some of the potentially to have some impact on some of the tender-based markets. Like I said, in our estimates, we think it's less, maybe up to DKK 100 million in top-line impact. That's where we have it.
Thanks.
I was actually gonna ask a similar question to that. DKK 100 million is what's factored into the guidance, into the midterm. If it gets much worse than that, we have some pressure. That's what you're saying?
The DKK 100 million, that's what we believe, and that's what we factored in.
Okay. Yeah, then maybe just, to follow up on that question, can you just give a sense of, mechanically, why that 10%-15% of the market is so much more at risk, and how it works in terms of a competitor coming in, taking shares? Is it just undercutting you on a tender, in those markets?
So-
Distributors as well.
Yeah.
Specifically on that as well.
The financing of product works quite differently depending on which market you dive into. But if you take a tender-based market like Sweden, you will have regional tenders, for example. That's an example of a market where if you win that tender, the region will switch the patient population that's on one type of product to another type of product. That's the exception. Right, that's the exception. We have that type of market very few places. If you go to a market like the U.K., for example, there's no incentive to switch, because the patients, there is a brand-specific reimbursement. You will be able to go into the drug tariff code and find a reimbursement price for SpeediCath Compact Eve.
That's what the whoever hands out the product to a patient gets paid. There's really no incentive for the trade to start switching patients around. The way we look at it is, where do we have market structures where we think some people might have an incentive? The very, very few markets where we have large patient pools that can switch are in those tender-based markets. Those are quite particular and few.
For distributors, though, how do the mechanics work for that?
For distributors, sometimes they will, some might have an incentive to do something where they try to switch patients to another product. I have a couple of observations on that. Number one, that's hard, right? If you're a catheter user, and you're used to a particular product, you're used to a particular routine, you don't wanna change. You don't wanna change. Somebody would have to claim that the product that people are on is unavailable, and then we start getting into that territory where people are doing things that they're not allowed to do.
I, you know, some of that is bound to happen, but it's very hard to do, and it's very hard to scale. It's very hard to scale.
Okay, just last one, quick, was Japan, Australia. You gave a hint on market sizing there, but is there anything in the guidance for that, or is that all upside as you roll it out?
That's all upside?
What are you saying?
Wait. What I just talked about, this, we consider that upside.
Okay.
We consider that upside. I'll say this, these are markets that we're, you know, categories we will then be building from scratch, right? Quite exciting. Veronika.
My first question is on your s-- and I'm sorry to harp on the SpeediCath patent, I was surprised not to see U.S. on your chart as a market where you'd see some impact.
Yeah.
Obviously, the way that the distributors are paid in the U.S., there is an incentive to source the cheapest product.
Yeah.
I'd love for you to talk specifically about the U.S. and how you think about the competitive threat from the patent?
Yeah.
-to the extent that you're able to talk about that. Then I have a separate question about care, maybe we'll get some of the patent stuff out of the way.
Yeah. I do think U.S. is probably, on the chart. There'll be actually quite a lot about this in the afternoon. Is it okay I defer to the afternoon?
Sure.
We're going to do a real thing on this. You'll get much more.
Okay.
You'll get much more on it later.
Okay. Any reason why you omitted U.S. from the 10%-15%, where you showed where you'd expect the impact from the patent expire?
No, not any. I do think there is some risk in the U.S.
Okay.
You are right.
Okay.
If you look at the total volume of business that we have here, we still have a large business that is old technology. As you know, a lot of the U.S. business is still on old technology. We'll cover that extensively in the afternoon.
Perfect. My question, just quickly on Coloplast Care, is, I know we're in the U.S., and we're going to be talking about in the U.S., but one of the things you've mentioned in the past is rolling that program internationally. Can you just give us an update on where you are with that rollout? Maybe, you know, if we meet in two or three years' time, where you think that program might make the most difference, which markets in particular?
I think the program is now in 20, 25 markets. It's in 20-25 markets. I'll say that where we have to do the most development work is actually in Europe. The program is doing super well in emerging markets, it adds a lot of value, and clinicians love it. We've, we've What we've learned in Europe is, and this is back to this chart I showed you, that you have to get your partly clinically validated protocols in place. You have to adapt the care program to the local context. There are some of the European markets where we're still focusing on making that work. There's more work to do, but it's a global program already now.
You asked, where would it be in three, four years?
Yeah, I mean, just the market going to obviously make a big difference to us.
Yeah.
Where do you think the market specifically will make a comparable difference?
I think it's going to... wherever we get the program to really work, it makes a difference. It makes a difference to the level of transparency we have, it makes a difference to the quality of the consumer work that we can do, and it makes a, it makes a difference to the growth rate also. It's, it's definitely contributed very strongly in emerging markets over the past years.
On the slide on page seven, you illustrate the growth rates from your Ostomy Care sales. Would that be sales growth from patients participating in the Care program? What proportion of your Ostomy Care sales would those, would this Care category represent?
Did we answer that already?
I think you talked about that, on your latest capital market day in Copenhagen.
In general, what we say, our aspiration is that we get every other patient that's on our product into the care program. The way that we think about the program is that we have to get 50% of all our patients into the program. We're not there yet. In some markets, we're way above, in some markets, it's everybody. From a global point of view, we wanna get every other patient into the program.
Okay.
Does that make sense?
Thanks, Kristian. Just another question, just following up on the care initiative, really the second pillar of the care initiative, the high touch program that you highlight upon.
Yeah.
Is it still the case that the patient's information, you know, you're also sharing with the clinicians, but also still using marketing partners and sharing that information with patients, or has that changed post-Department of Justice? Also, perhaps could you comment a little bit about how the country rollout has been driving growth to this program, or have you still seen very strong accelerating growth in rollout in the U.S., stagnant, decreasing? You know, just trying to get a feeling for how the U.S. care rollout enrollees have progressed over the last couple of years.
I think both of those questions are much better suited for the afternoon, actually. We're going to talk to both of them specifically. Just to very, very briefly, we, of course, have had a full end-to-end review of everything that we do in the wake of the Department of Justice. We are very confident that everything that we're doing there is legal and fully okay. The care program in the U.S. is doing well. You're going to see how it's accelerating growth for both Ostomy Care and Continence Care. In the afternoon, we'll get much more specific than I am here.
Thank you very much.
Thank you.
Next part of the program, the last hour here before we're gonna have lunch, we're gonna go on a site tour. We're gonna do a little exercise in logistics here. If you start looking at your name tag, you will find either a green dot or a red dot. That's the group you belong to. When you turn around, you will find two of my good colleagues from the U.S. holding a piece of paper that's either green or red. Could you please go to your guides, and they will kind of take it from there.
Very good. Good afternoon, welcome back. It's always a little bit challenging after lunch. I know I'm gonna probably start to see some eyes roll, especially for those of you who have traveled a long way to get here, but I'll try to keep it as energetic as possible, and if I see you dozing off, I'll make you stand up and do some calisthenics. Welcome to Minneapolis on behalf of the local team. This is not only my home, but this building is where I spend the majority of my life, so I'm glad you just got the opportunity to actually get a tour of the facility.
You can see Coloplast provides a first-class facility for our employees to do business, and we're happy that you got a chance to not only see the facility itself, that we're very proud of, but also a chance to view the care program, one of the key aspects that Kristian had talked about, that's in the growth schema for the U.S. organization. As Ian said, I'm Ed Veome. I'm the Senior Vice President for Coloplast Chronic Care, North America. What I'd like to do is talk to you about the global growth engine that we've created in North America for Coloplast Global. It is an exciting opportunity for us to build our business.
We also have significant challenges as we try to achieve our ambition of double-digit growth year after year. There's some characteristics, in particular in the U.S. market, that make it unique and a challenge to do business. What we thought we would do today is go and do a deep dive into three particular areas. One, on payers or reimbursement in the U.S., to help you understand that landscape that we deal. The other area is our acute care customers, how that works. I know there's been a lot of questions about GPOs, so we'll talk to you about that. Finally, we'll also talk about the channel and the way that we get products to market to consumers in the community, and what are the intricacies of the market space in that area.
I've invited several people from my team to do that. We're going to introduce them as they come up. I'll summarize then, how does our strategy for the U.S. fit into that picture and that environment. I just wanted to take a couple of minutes and give you an overview of the market itself. When we look at North America, it's basically U.S. and Canada. Why are these exciting markets for Coloplast? Well, they are large markets where we have a large spend from the healthcare system. In U.S., 17% of GDP, in Canada, 11% of GDP spent on healthcare. We do have low market shares, so there's a lot of opportunity for us to grow. We have an aging population, but we also have a very educated population.
Kristian alluded to this, that this is part of what drives a lot of the efforts in our care program, because we have consumers, healthcare consumers, that we don't differentiate that they're that much different than normal consumers out in the marketplace. It's just that with healthcare, where you used to trust what the clinician had advised you to do, today, people take more control over their condition to want to understand what are the options that they have available to them and what's going to work best with them based on the lifestyle that they have.
We also see that the North America market very much focuses on technology to drive outcomes, and we see a general shift in the market, moving from what was a fee-for-service model in general, where the healthcare providers are paid per intervention that they do, to now looking at sharing the risk towards a total cost of care or total cost of episode model. You'll hear how that affects our strategy as we get into the discussion. Just a couple of statistics. We're about 400 employees here. We're headquartered in Minneapolis for U.S., Toronto for the Canadian organization. Our revenue is roughly divided, as you can see in the chart in the lower right, half of the business is Continence Care, and then roughly a quarter each for Ostomy Care and for Wound & Skin Care.
When I said, what's the opportunity, is that we do have a tremendous opportunity when it comes to gaining market share. It's all about our execution to make sure that we capture those opportunities. To go into each of the specific areas, by one by one, in the Continence Care business, we have roughly 30% market share. There's a tremendous opportunity to move the market from uncoated catheters, which is the largest part of the market, to hydrophilic catheters.
Where we are a leader today with our Self-Cath product, we are also a leader in the hydrophilic segment. As we see the opportunity to move users, as we see them globally, getting a better outcome from utilizing hydrophilic catheters, our goal is to make the market become hydrophilic. In the Ostomy Care area, we see that the market is about 120,000 surgeries done each year. The total growth in the market is about 4%. There's competing demographics that lead to a market growth of that from a revenue perspective. You have an aging population for ostomy, which bodes toward people getting more of the issues that lead to the detection of, say, a cancer or Crohn's or colitis that lead to an ostomy.
They also want to become more educated about their products, so they tend to use more products or use more accessory products to get the best fit. That's also counteracted by there are procedures that are being done to shorten the length of time that people have an ostomy, where they may have been permanent ostomates for life in the past. Now they can have a temporary stoma for a certain amount of time and have the procedure redone to reduce them, or to reverse them, I'm sorry. In the Wound & Skin Care segment, we have, as Nicolai had pointed out, we quote, 2%-7%, so we have a low market share, tremendous opportunity. This is really two segments that work well together.
Skin care and wound care are all about treating the largest organ of the body, which is your skin. One of the main things that it does is protect you from all types of infections that you can have. Doing proper skin care to prevent infection is equally as important as how you treat skin breakdown. Coloplast has a very broad range of products in both the skin and wound areas, and we want to continue to put pressure in the marketplace on working with the coming trends, which is for healthcare providers to look for fewer manufacturers to provide more products across the continuum of wound and skin care. When we look at...
This is the best way that we can describe in as simplistic of a format, what is the complex channels that we have in the U.S. If I can just maybe try to even make it more simple as to say, we're Coloplast here on the left, and there's our consumers on the right. They're either coming out of acute care or they're in the community, and we want to get our products to them. Here are a lot of the people in between who touch the consumer in one way or another in the environment. We call them partners, but certainly, they all have different incentives or needs in terms of where they interact with the end user.
For example, when we look at the acute care across the top, we look at distributors that supply product from Coloplast into the acute care segments. The acute care we define as hospitals, home health organizations, and long-term care. Long-term care would be like Skilled Nursing Facilities or elderly care type of facilities. They are usually managed by group purchasing organizations, which actually pool the resources or the buying power, the purchasing power of those facilities to get better prices from the manufacturers. We work with both distributors and GPOs to get product through the acute care channel into the clinical setting so that products can be used on patients. When we get into the model that's into the community, people either get their products from a retail type of pharmacy or more traditionally now, what's.
or the more of the trend, is that people get their products, users, from a dealer that specializes in Chronic Care types of conditions. They use a mail order type of process to send the products to the consumer, and then they bill their insurance. There is a network of distributors and dealers that we work through to get those products to them. Finally, there's a payer system in the U.S. that's not a single payer system. We basically put the categories into three major categories. The first two are government-based, Medicare, which is typically for the elderly, Medicaid, which is typically for the either infirmed or people that cannot pay, who are low economic means.
There's private insurance for the majority of the population that works, that gets their insurance through their company. We have to keep the payers in mind because they are looking to cut their costs within certain categories over time. What we thought we would do is, looking at the payer systems, looking at the acute channel, and looking at the community channel, I'm gonna invite one person from the group who's an expert in that area for each of them to come up and give you just a brief overview or education in that area. I'd like to ask Mark Draper, who leads our Global Public Affairs, to educate you on that area.
Thanks, Ed. Good afternoon, everybody. Can you hear me okay? Is the mic on? Good. Excellent. Okay. I'm Mark Draper. I am our Head of Global Public Affairs in Coloplast, which means that our department back in corporate is the one that deals with a lot of the different types of payer and trade relationships that we're trying to address and drive to help grow the business. I work very closely with Ed and Steffen as well, here in the U.S., in terms of helping them navigate that environment.
What I wanna do is walk you through some of the trends that we see as important that drive reimbursement in the U.S., look at a little bit of where we see those going, talk a little bit about some mechanics as well, so that we can understand how the trends drive those and impact them, and then we'll wrap up with just a quick summary, and then see what we take your questions as well. I'm gonna touch on three related dynamics, and these, you've already actually heard some of the previous speakers touch them. One is simply the question of costs, and you will hear U.S. policymakers talk about the quest to bend the healthcare cost curve.
We'll look specifically at what that cost curve looks like in just a minute, but those costs are still foremost in terms of driving a lot of the decision-making, a lot of the policymaking that gets done around healthcare and reimbursement, and it's important to know how they drive healthcare. That leads to the second trend, which, as folks have tried to be more and more creative in controlling costs, they look at what are some alternate ways that we can pay for healthcare? It's also something that we'll discuss and talk a little bit more in detail, and then we'll end up with a discussion of what is really now the leading trend, and that is to get the maximum amount of value from the healthcare system. What does that look like? What do they mean by value? What do payers expect from that?
Then we'll look and see how all of those impact each other. Busy slide, but I'm gonna take this a piece at a time. What I want you to do first is focus on that lighter, upward-sloping trend from left to right. This will look familiar to many of you. This is the long-term growth of U.S. healthcare spending in the U.S. as a percentage of GDP. We are at the point now where the U.S. spends somewhere between 17%, 18% of gross domestic product on healthcare. That is, by far and away, the largest in the world. No one gets even close, but there's still a lot of a sense that the U.S. doesn't get what it should in terms of healthcare for its population, despite all of that money that it spends.
Keep this trend in mind as we go through, this lighter curve, but we also wanna keep this one as well, this more jagged one, because that's the year-by-year change in healthcare spending. What's also important there is just to realize that since no time, since we've been tracking this, at least in the early 1960s, have we seen a negative spend trend. In every single year, it's not just been a question of how much it's increased, it's always increased. One year, maybe it was 5%, next year, 8%, another one, 2%, but it's been a constant increase. That starts off way back when you had Medicare established in the mid-1960s, and that's at the time when you see that back there, we were around, I don't know, 4% or 5% of GDP, and it's just been a steady climb.
There have been some events or disruptions along the way. You'll notice that in some cases where this more jagged curve drops, those represent recessions. Usually, the reason that you see spending drop after those is because of the disproportionate amount of folks that get healthcare from an employer. When you have a recession, there's a lot of unemployment, people lose their jobs, they lose their healthcare, spending has decelerated a bit. You'll notice that after each one of these recessions, there's typically a bounce back in terms of spending coming back to levels it was before. There, you've had policymakers try to address that with a series of reforms through time. One of those started back in the late 1980s, early 1990s, with the advent of managed care.
Most of you have probably heard the term, and this was something that back when I started my career in the early 1990s, I worked for a payer back then, a health maintenance organization in Seattle, where I was an analyst. This was at the leading edge of the managed care revolution. The idea was that no longer would you try to just simply pay whatever a provider demanded for healthcare, but you would go out as an insurer, as a payer, and try to group providers together, contract with them for prearranged agreements on them giving you certain types of services, and them getting a fixed amount of money from you as a payer. That, for a while, leveled out in sort of the mid-1990s, some of that healthcare growth, but some of that was also recessionary.
Yet you see, again, in the early 2000s, it started back up. You had the other, what has been probably the largest single attempt to manage or to reform the U.S. healthcare spending since Medicare, really, and that was the Affordable Care Act passed in 2010. There, that was, the president had a unique opportunity in terms of having both houses of Congress. They were able to push through a large-scale reform, and again, a little bit of a slow in the growth of spending, but not enough to stop it. What is it then that drives a lot of these decisions around reimbursement? What is it that's driving that spending?
What are the different parts of the system that are interacting each, with each other, and what is it that each receives when we're looking at reimbursement questions? Very simplified format here. Down here below, we're suppliers. Those are the folks that typically purchase our products. We sell to those, we invoice them, we get paid back. Simple product sales and payment in return. These suppliers can be... This is a very broad category I'm using, so anybody from extremely large dealers to distributors, to even, you know, GPOs, in some cases, could fall under this. Those folks provide products to providers, medical centers, hospitals, individual physicians, and again, there's payment that goes back and forth for that. Out here, as a consumer, what is it that you're looking for? You're looking for three things. You're looking for coverage. What happens to you when you get sick?
Are you able to get your broken leg fixed? Are you able to have ostomy surgery if you get it? What is it that's actually provided to you, what's promised to you from an insurer if you become ill? Consumers are also looking for services from those providers, so physician visits, nursing, home health care, all of those fall here, and they get the products either from the providers or the suppliers. Where reimbursement comes in, it's the lifeblood. If you imagine this as a circulatory system, right? With breathing in and out, then what happens is, as suppliers and providers provide products and services, they then submit claims to payers, usually insurance claims.
That's informing the payer that I have rendered a service or a product to this particular person that you cover, then, in turn, the payers provide that reimbursement, either back to the provider or to the supplier. It's just a cycle around this way. Okay? What we wanna look at, though, is a little bit more detail on who the payers are and go into a little bit more detail in terms of how that breaks out in the U.S. There's several different categories. Ed mentioned up front three of the most important, and we'll focus on those a little bit more in-depth, but there's employment-based insurance, there's government-based insurance, and then multiple categories, oftentimes, under each of those. For employment-based insurance, you can have that covered from your employer.
For government, like Ed said, there's Medicare, there's Medicaid, there's also smaller categories of spending, say, military programs, like for Veterans Affairs. It's really Medicare and Medicaid that are the largest. We're gonna focus on these areas here because these represent, by far, the largest segments of spending for each one of these payers. Private insurers are still the largest segment of healthcare spending. They're still how most Americans get healthcare, and it's one of the things that distinguishes our system. If you are a private payer, an insurance company, like, let's say, United or Aetna, you go out, and you contract individually with different employers to cover their employees.
As part of that process of contracting with that employer, you decide, based on what the breakdown of the age and sex in that population is, what types of services you will cover and how much you will pay for those services. That's individually contracted, which means that they have a little bit more flexibility, but it also means that if you lose the job, you lose the coverage, and then that's been one of the issues for the U.S., is how do you help those folks be able to maintain healthcare? If you look at how healthcare spending is projected to increase in the private insurance sector, it's still set to outstrip even Medicare. Part of that is also because private insurers also administer some government funding.
It's also been the case for a while that if you are a private payer, you might administer, say, coverage for some Medicare patients under certain circumstances. That also gives the private segment a little bit of access into some of the government spending and keeps this level up here fairly high. Medicare is, by far, the most important government payer. They, as Ed mentioned up front, are predominantly meant for the elderly, although there are some categories of the disabled that fall into Medicare and that are interesting to us, like many people with a spinal cord injury also fall under Medicare, as one example.
Medicare, just like private insurance, may often provide only partial coverage for different types of conditions, so it may also be that you also have to go out and buy supplementary insurance if you know that you may need additional types of help or coverage. Medicare and Medicaid both, which I'll touch on in just a second, are both administered by an agency called the Centers for Medicare & Medicaid Services, CMS. CMS is an extremely important agency that we work with when we have a dialogue around how healthcare reimbursement gets done in the U.S. You see that in the middle, again, several folks have touched on this, but there's just some typical types of demographics for folks who would fall within the Medicare segment.
You'll see that aligns pretty well with what we talk about as demographics of folks who use our products. What's also important about Medicare is that the prices that it sets oftentimes act as a reference for private insurers as well. Medicaid is also a federal government program, but it also is jointly financed by the states. There's a little bit more complexity here, because depending upon the level of the state funding, how politically committed that state is to coverage, those funding levels can go up and down. This looks a little bit different when you work with Medicaid. When you looked at one of the things that the Affordable Care Act did, Obamacare, one of the most important aspects of that program was to provide coverage for many millions of Americans who had previously been uninsured by expanding Medicaid.
This is something where Medicaid's importance continues to grow through time, because it's one of the principal means by which Americans now can obtain coverage where they had not been able to before. A consequence of that is that you also see that Medicaid spending also continues on an upward slope. Keep in mind that all these three principal areas, private insurance, Medicare, Medicaid, all of them are still on that upward spending slope, and that has implications for how reimbursement policy gets made. Going back to this for a second, when we see where the system's heading, that spiral, that cost cycle, those reimbursement issues are important in terms of how these different parts of the system interact with each other. Just really quickly, to touch on some of the mechanics of reimbursement.
In the mechanics of this, when you start to look at how do they reform it, how do they control spending, how do they be able to administer these in a way that you can try to control costs. There's 3 important issues. Coverage, I've already mentioned before, so deciding what type of conditions get paid for. That also could be, for example, deciding not just what product you get, but how much and how often you can use it. You have coding, which is then used to identify a particular product, and the reason coding is very important is coding drives payment. There's some examples here of just typical products for us in terms of what we see in the Medicare, Medicaid market, right? For each of these areas, so typical ostomy pouch, typical intermittent urinary catheter, typical dressing, there are codes assigned to those.
The codes drive payment depending upon where the products are obtained, and there's a certain amount of product that you're allowed per period of time based on coverage. What does this mean concretely in terms of an example? A typical example is intermittent catheters, because some of you remember that back in 2008, CMS made a policy change. In other words, they changed the coverage around catheters to say, "Well, we think that it's unreasonable that folks should only be able to have four catheters per month. That's forcing them to reuse catheters. We don't think that's a great idea, so we're changing the policy to allow them to have 200, and essentially go to single use." That was extremely important for those patients. It was extremely important for us.
There's a typical example of how a coverage decision can really drive the business for us. On coding, similar type of thing. Some of you may also be familiar from the catheter example, that for many years now, we and other manufacturers have been trying to get a differentiated code, in other words, one of these codes by itself, for hydrophilic catheters. So far, we've not been able to do that. The reason why is because right now, within one of these codes, you have very low technology, you have very high technology, right? If you are a dealer or a distributor out there that is having to supply this product, you can imagine, which is more attractive to you, if you have a higher-end product where your margin is much smaller, or a lower-end product where that margin is much more profitable for you.
There, too, these coding decisions drive our business and give us the playroom in which we have to be able to grow and introduce new technology. This evolution from fee-for-service to managed care now into value-based payment, is really now what drives a lot of the business and a lot of the way that we have to work with and look at the healthcare system. Lars started off earlier today, Kristian mentioned it as well, one of the things that we have to be able to do is demonstrate value, and we usually try to have to do that now by hitting increasing hurdles to show differentiation for our products, not just from a feature standpoint, but from a clinical evidence standpoint. That's becoming more and more important to be able to do.
When we're talking about these value-based payment system, what will happen then is, let's say you've got Medicare. We'll put together a group of hospitals, and they will say to this group, "Okay, we're giving you this patient population that you have to provide care for. We're going to not only give you a certain amount of money per month to care for those patients, but we're going to look and measure you on a number of quality indicators. How many of them come back for infections? How many readmissions did you have? What's the typical length of stay for these folks in a hospital?
Based on how you do on those quality indicators, we will either increase payment, or if you perform poorly, we will withhold payment. That value then is defined by certain quality outcomes, where then CMS is able to say, "We're going to dial up or down your payment based on how well you perform in providing care." That has important implications for us, because what it means then is that CMS is more and more focused, the Centers for Medicare & Medicaid Services, on moving to these types of value-based care systems. If you look a few years ago, this gray circle represents all of the stuff that Medicare and Medicaid were paying for, still on a fee-for-service basis. You can see already back then, there was an increasing amount that was linked to quality measures.
Over the last two years, we've started to see these alternative payment models sneak in, where they try to create specific networks or specific programs that are designed to reward or punish for certain outcomes. Already this year, and the administration made quite a bit of news about this, like, a few months ago, 30% of Medicare's business now has reached these types of alternative payment models, and they continue to push for even more. That means for us, as a business, we have to be smart, not only in terms of how we navigate these new models, which has implications for things like dealer relationships, how we contract with folks, how we go out and apply for products, how we differentiate ourselves clinically, how we gather and collect evidence, how we talk to payers, all of those things change. They evolve.
The good news is that I think we're well-positioned to do that. As the market leader, we have the best products out there. Now it's about going out and trying to gather that evidence, as Lars talked about this morning. It's also about trying to make sure that as the market leader, we're doing things to change the conversation. How can you go out and try to make sure that you are not just leaving the debate to CMS in terms of setting the conditions, but can we do a little bit of pushback to say, "Well, it is important that we be able to measure quality of life." I think somebody here earlier in the day asked about compact catheters. Can we measure what it is that people get from that? Well, actually, in some ways, we can.
We've done some studies that talk about quality of life from compact catheters. It's all about making sure that we understand the system, we navigate it, we follow these trends, and that's gonna be driving the business for many, many years to come. I'll stop there, and I'll be happy to take your questions.
What were the major differences that you experienced when leading, dealing, for example, with the pilot programs that the CMS already have? What kind of changes are there on the negotiation side?
Well, I think for us, one of the biggest changes is having to, again, talk about that value and having to demonstrate it, because in many cases, it may not be quite at the level of what CMS is looking for. This hydrophilic coating discussion that we had for a long time, that's something where we've had to not quite reach the bar on that, and we've not been able to obtain it. As we go into these alternative payment models, we're gonna have to keep trying to not just show more evidence, but we're also gonna have to go in and show how is it that we, as a healthcare company, provide value, and a very good example that Kristian touched on is care.
One of the other things that we can do sometimes to differentiate ourselves is make the point that it's not just about the product individually and the features there, but what is it actually also that gets delivered to the consumer? Can you demonstrate, for example, that if you give them good advice in those first few weeks at home, if you're able to help them through some of these initial changes in lifestyle, can you then be able to basically prevent the fact that they might be able to go back, or they might be going back to a physician as many times for asking questions, or they might end up in a hospital because they have some sort of a skin condition that they might have otherwise been able to prevent?
Can I just...
Yeah.
..follow up?
Yeah.
Can you just confirm for me. Thanks. When you are dealing with a managed corporation or a managed group, for example, a hospital that's participating on a BPCI program?
Yeah.
When you're talking about negotiation, you're not negotiating with the CMS anymore. You're not trying to convince CMS, you're trying to convince that hospital or that group of hospitals.
I mean, CMS sets the ground rules for what we have to do, right? If we see something that we think is unfair in terms of how CMS has made a decision, whether it's a coding decision or an administrative decision or a policy decision, there are mechanisms in place for us to be able to address those and try to, if not reverse them, at least modify them. We'll do that in some instances, and we've tried to do that. When you get down to actually how the payment system is administered in the hospital itself, that's not what we control. We control the delivery of the products and the services to the patients, but CMS sets the rules. We can try to change those, and we can go a certain distance, but there's things that we can't do as well.
Thanks. I've two quick questions. Really, I think it's one question. If you look at your U.S. business 10 years from today.
Yeah.
How do you think reimbursement will be different?
Yeah.
What do you need to do today to prepare for that?
It will look much more... This dark blue dot, will be up in the 90% area. That means that we will have had to make a number of decisions in terms of how we generate evidence, both in terms of clinical evidence, but also, just as importantly, sometimes health economic argumentation around some of the ways that our products contribute to quality of life. Do they get people back, say, mobile again so that they can return to a job? Can they, you know, be able to pick up a former activity that would be important to them? This will be much larger, and we will have to show and demonstrate more about the products, about care, about how we deliver savings to the system and value to customers. That will be that system.
... chance they can move into a bundled payment for ostomy, let's say? We finally move away from saying, you know, $3 a day for 20 days out of a month, to actually saying, you know, an average ostomy patient cost is this $2,000 or is it $2,000-
Yeah. Yeah, I mean, there's already talk about some places doing that. For example, with Medicare, some of you, as part of the Affordable Care Act, you might have heard of these Accountable Care Organizations. What they try to do is also group together provider networks and then give them financial and clinical incentives to be able to manage populations. If I'm understanding the question directly, one of the ways that they already do that in some cases is through capitated payments, where they don't pay by product, but they give a certain amount of money for a population and say, "Manage this population. If you manage them well and they stay healthy, you get an incentive.
If they don't, then we penalize you." In some cases, that's even already here, although I can't tell you to what extent it is for ostomy, for example, but the model is there.
Yeah, can I add one more point to that, Mark, is that we generically call that shifting of risk, and it's been happening for years.
Yeah.
We see in the acute care facilities and hospitals, that there already are global bundled payments that are given to hospitals. For an ostomy procedure, there's a set amount of reimbursement that you get for that. The hospital needs to manage all of the supplies.
Yep.
within that. What does that mean, just really quick, for a manufacturer? That I think plays to Coloplast's advantage, is they'll be looking for higher quality products because you don't want to consume a lot of volume of products, which they used to look at, "What's my cost?" Go for the lowest end products. Now they're looking at products that deliver better outcomes. Sorry.
Thank you. Thank you. Next question over here.
Just real quickly on the, on the hydrophilic catheters.
Yeah.
Related to the CMS decision, could you just talk a little bit about, you know, what specifically they didn't get from the application? I mean, is it a function of they wanted some clinical outcome studies?
Yeah.
I think the last decision on this was 2014. I mean...
Yeah.
Are you or any of the other manufacturers still attempting to try to provide them data to get a specific code?
Yeah, that's basically what it came down to, is that discussion around evidence, because that coding process is very, very narrowly focused on those types of clinical evidence discussions. What we have argued and what other manufacturers have argued is that actually there are a number of studies that do provide an indication that you get better results from hydrophilics, for example, with urinary tract infections. The problem has been is that that evidence hasn't been so compelling that it's been a slam dunk. CMS has pushed back and said, "Well, you know what? There's just enough here to argue with. We don't quite agree with you guys. We don't see a compelling reason to do this." We believe that over time, the evidence continues to stack up. I think that's why you'll continue to see folks push this. You'll continue to see studies funded.
You'll continue to see folks doing the work to try to make the case because it just doesn't make sense to have those two products lumped into the same category. Yeah. Oh, sorry.
Can you, maybe just, help us understand a little bit how you get the attention of the payers and kind of, you know, bypass the, both the suppliers and the, and the provider? How direct can you be in your marketing?
Well, I mean, for me, it's less a question of marketing in terms of that. I mean, you can do some push, like. For example, let's take. Can I talk about Peristeen?
Yep, no problem.
We have this product, Peristeen, which is for anal irrigation for folks that have inability to void their bowels, right? When we brought this onto the market, we received a code for the product, which was great, we didn't receive the type of payment terms that we had hoped for. There, what we've had to do is go out on sort of a state-by-state basis and seek better ways to get that payment, which you can do through this Medicaid system, because, remember, that's also funded by the states. We've also been trying to make a case to individual private payers that there's enough value here in terms of helping these folks stay healthy to be able to provide better payment as well.
There's a case where we've used dialogue with both, say, individual state Medicaid or individual private payers, where we didn't get the original answer that we liked or would have liked from CMS. You do that in a number of different ways. I mean, you do it in direct dialogue with those regional authorities. We approach them as Coloplast, and we have discussions with them. You also give patients the information that they need, so they can reach out and also say, "Hey, you know what? I really need this product. I'm not able to find it anywhere. Why don't you guys carry it?
I have a question about the Mriteria that you are internally sort of following now for incontinence and also for ostomy. Meaning, how do you future-proof your products from reimbursement going forward? I'm referring to the precise criteria.
Yep.
Is it I mean, are there two or three criteria that you have that you could lay out for both ostomy and incontinence?
I think, I mean, I think rather than pointing to specific criteria like that, I think what I would say is, as part of our R&D process, whenever we start to bring now a new product into the pipeline and develop it, one of the things that happens very early on is we sit down, and we talk with the R&D team about what are the conditions, what are the value arguments that we're going to have to be able to make as a manufacturer for a payer to be able to pay this at a certain level that we think the technology is worth?
There, what we would do is, early on in that development cycle, we would already start to focus on what is it that we think the payer is going to want to see from this product, either in terms of those types of clinical outcomes or features, those types of things. That's something where we've already now integrated that into how we build the products.
Is it more geared towards hospitalization risk, meaning you're at home, you've got an infection, you go back in the hospital?
Yeah.
Does it also include some of the performance features such as leakage? Because to me, leakage.
Yep.
May not really be in the interest of the payer, but hospitalization is.
Yeah.
What other criteria that you are looking for?
It can be several. You know, if we know the payer in the first instance is gonna be focusing narrowly on those types of clinical indicators, say, for urinary tract infections, then, of course, we would want to be able to try to find something that addresses that. It's not one or the other. You know, we would focus on other types of features as well, because what we would see then is that, well, if, say, we have an ostomy bag that we show clinically can reduce leakage, then that's something that we can oftentimes use in different healthcare systems to extract additional payment, right?
It also depends on the healthcare system because, you know, depending on whether we're working here in the U.S. or in the U.K., where we have a different agency and a different model, there are different levels of evidence that we have to apply, and we have to be able to converse in all of those and be able to convince them. In the first instance, it's about being able to show as much clinical value as you can, but it's also about some of those other lifestyle features, because in some markets, we can get some payment for them.
Thank you very much, Mark. That's gonna be the last question.
Okay.
We will be here online.
Yeah. I know we're packing a lot of, sort of topics that have a lot of, issues with them into a short period of time. We will be around at dinner if you have more, questions to ask about each of these topics. The next area we're gonna jump into is our acute care channel. Rich McEnroe, who is our Director of National Accounts for the U.S., is going to provide you an overview of how we get products into the acute care channel.
Good afternoon, everyone. Sounds like my mic is on, so that's good. It's a good start anyway. As Ed said, I'm Rich McEnroe. Thanks for introducing me, Ed. I am the Director of National Accounts for Chronic Care in the U.S.. Before we get into it, I thought I'd just give you a little bit of my background, so you know a little bit more about me anyway. I've got over 20+ years in med tech, in the med tech industry. The actual number of years, I probably would have to think a little harder about that, and I'd probably be too embarrassed to say exactly how many years it is, quite frankly.
As part of that tenure, I've spent between nine and 10 years in the national accounts environment, working with GPOs and with large health systems and IDNs in the U.S., okay? And I also headed up the national accounts organization of one of the competitors of Coloplast in the not-too-distant past. That's just a little bit about me, okay? What I hope to talk about today and discuss with you is the acute market overall, but also dial into some of the product decision-making dynamics and dynamics overall in the acute space, and also get into, you know, how Coloplast is positioned to win and how we're really currently structured to win. There we go. Okay. All right.
Just to level set it just a bit, Ed touched on this in his presentation, but we're viewing acute care as where the clinical care of the patient actually takes place. The care can take place in a variety of settings. Certainly, in the hospital is where a big piece of that care takes place, but also in the home health environment, in the long-term acute care facilities, and skilled nursing facilities, sometimes referred to in the U.S. as the SNFs. You may hear it referred to that way. There's a number of different areas that can take place. For the sake of today's discussion, I really kind of want to zero in on the hospital piece of it, though. Okay.
Within that segment, the most influential customers, as we see it, are large health systems and the integrated delivery networks or the IDNs. Right now, there's roughly 650 IDNs in the United States. Now, we could bring 10 different people up here in the industry, and we could debate it all day long. Some people could say it's 800, some people say it's 400, but just for the sake of today's discussion, let's say it's around 600 or a little over 600, okay? And these IDNs look a little bit differently depending on who they are. The, you know, the IDNs come in varying degrees of size, have varying degrees of, I guess we'll say, geographic reach, and also varying degrees of clinical integration and also supply chain integration across their systems, okay?
Many of them are national in scope. For example, well, Trinity Health would be a good example of a national IDN, 75 acute care facilities spread across many, many states and across the U.S. We also have regional IDNs. OhioHealth, based out of Columbus, Ohio, their primary service area is Ohio and Northern Kentucky. I would use that as an example of a regional IDN. We also have local IDNs. Maybe some of you have heard of Advocate Health in Chicago. It's a 12-hospital system, Chicago metro area, probably soon to be 16, because it looks like the North Shore merger is probably gonna go through there. We've got national IDNs, we've got regional IDNs, and we have local IDNs, and they're getting larger.
They're adding more and more members to their systems. They're really trying to use their scale to compete in certain specific geographies, and one might say, to try to control certain geographies. My belief and my opinion at this point is, if someone is a standalone, small standalone hospital in a metro area in the United States, it's very hard to compete right now against an integrated health system like we've just talked about, okay? What I think is really interesting and actually very important for a company like Coloplast or other suppliers, is how the IDN actually goes about making their decisions. Typically, there's gonna be a value analysis committee or a value analysis team, a VAC or a VAT, respectively, that's gonna be involved. This team is gonna consist of members from or people from the member institutions of that IDN.
You're absolutely gonna have clinical people sitting on those committees. You've got to definitely have materials management or supply chain people sitting on those committees, and you're also going to have people from various other functions. Could be infection prevention or whatever, but a lot of different people could be on that committee. When they make the decisions on what product they're gonna use, or maybe it's a service that they want to bring in, and they make that decision, who they're gonna use and what they're gonna use, it really comes down to, it could be a wide variety of parameters, but a number of them, I'll just mention here, the key parameters: Can the product or the service impact my hospital or system KPIs? For example, can that product help me reduce my readmission rates?
Can that service help me to achieve better satisfaction scores and help out my reimbursement, okay? The second one here is clinical preference, and what the nurses and the clinicians want to use at the facilities is still very powerful. That's a big driver in the decisions. GPO contracts can come into play, and also local contracts could come into play. When I mean local contracts, I mean, maybe there's a local contract already in place with the provider or a vendor, or maybe one can be negotiated on the product that they want to use with their preferred supplier, okay? A number of parameters go into the decision making. I'm gonna zoom it out a bit here and look a little bigger picture. Within acute care, we've got a number of layers of decision-makers, okay?
I'll touch on each one of these or a number of these boxes, and then I'll talk a little bit about the complexity. The GPOs or the group purchasing organizations, these, the members of the GPO consist of hospitals and also non-acute members. A typical GPO may have a couple of 1,000 hospitals in their membership, but they may have, in total, 9,000, 11,000, 12,000 members. When you consider all the other entities that are part of it, the home health entities, the long-term care chains, the physician practices, the hospice organizations, etc, etc, you can get very large memberships.
What they try to do on the contracting front is to negotiate agreements on behalf of their members that utilize that scale that they have and that size across their entire membership to negotiate the best deal possible for the membership. Okay. You have the purchasing coalitions. There's also purchasing collaboratives. You may sometimes hear these referred to as aggregators. Essentially, these are IDNs that have banded together to use their volume to create purchasing power. Okay? You have the IDNs, which are hospitals that have come together, and if they're a true IDN, they've actually integrated, either clinically integrated their practices, and/or their supply chain activities as well. Okay? These folks actually make decisions on what products to use for their entire system, and they'll contract for what they want to use.
They direct contract, okay. We'll get back to some of that in a little bit. Then you have the actual hospitals or the facilities that roll up into the IDNs. This is where the rubber meets the road. I mean, this is where the product is used. This is where the nurse or some clinician, every day, pulls a product off the shelf based upon what her specific patient's needs are to use on that patient, okay. If we're just looking at it's just a couple of boxes, right, on a slide.
The reality is, this is extremely complex, and it is that way because to be successful in working in this environment, a supplier has to be able to successfully penetrate all of these layers, know how to work with all these layers, know who the key players and the decision-makers are in all these layers, know what the interdependencies are between all these layers, so how they play off against each other. What can make it even more complicated, quite frankly, is a lot of times, these guys, they don't communicate very well. They don't talk very good up and down the layers. Sometimes you have one hand not knowing what the other hand's doing, so it can make it even more complicated. You know, I'll take it even a step further.
Right now, fairly, in fairly recent history, we've started to see IDNs form GPOs. Now we've got IDNs as part of GPOs, if we put another layer here, we get GPOs as part of IDNs, and it just keeps getting more and more complex every single day, every single week, okay? That's kind of that's the environment we live in in acute care in the United States, all right? One important thing to remember here is that the GPOs themselves don't actually purchase product. Those decisions are made, and the products are purchased at the IDN level and the hospital level. I'll come back to that point in a few slides here again, okay? Excuse me.
When those purchases are made, they're usually done one of two ways, either through a contract that's been directly negotiated with the supplier or through a GPO contract that they have in place. Now, a little bit about the GPOs. The GPOs have been around a long time. In fact, it was two days ago, I heard a little anecdotal story about back in either 1908 or 1909. I don't have the date exactly. It goes a long ways back. Two hospitals in New York City banded together to negotiate laundry supply costs. That might have been the origin of the first healthcare GPO in the United States, for all I know, okay? It goes back a long way. I guess, that's the point. Like everything, over time, they've evolved, and they've had to change.
It hasn't been that long, maybe 12- 15 years, where they started to move away from almost exclusively contracting on products to get lower pricing to offering more services to their members. Keep in mind, their members are their customers. That's their lifeblood. To the point where now you have some GPOs engaged in population health initiatives with their member organizations and their systems, data analytics, supply chain initiatives that may be going on. They're expanding their customer offerings to maintain relevancy. It's all about relevancy. Relevancy is important to a GPO because they need to keep members in the fold. Member retention is very paramount at a GPO, and also member solicitation, quite frankly, because there's only so many hospitals in the United States. They don't pop up every single day of the week, right?
If a GPO loses a large health system to another GPO, it can be very costly in terms of the lost admin fees that flow through those contracts that health system was buying off. Those automatically go to the other GPO, okay? I'll put a couple of examples up here. I think it was October of 2015, when Tenet Health System decided that they were going to leave MedAssets and go to HealthTrust. Big health system. Not too long before that, Cleveland Clinic went on notice as saying they were moving away from Premier as their primary GPO and went to Vizient. Those type of huge swings of large health systems leaving a GPO can be very, very painful to the GPO, okay? Member retention and member solicitation is the lifeblood of the GPO, ultimately. All right?
In the U.S. right now, we've got, what I would say, four major GPOs. We have Novation, which is now called Vizient. We have Premier, we have MedAssets, which is in the process of integrating into Vizient, and we have the HealthTrust Purchasing Group or HealthTrust. We have four right now. The reality is, in the near term, we're probably going to have three once that integration is complete between MedAssets and Vizient. These are the national, what I would call the major national players. We also have several hundred regional GPOs, much smaller GPOs, but a lot of regional GPOs. In its simplistic form, how a GPO goes about making a product decision or a contracting decision is typically done through committees.
You'll have the clinical committee or clinical committees, and as the name states, it's made up of clinical people. You're also going to have what I've termed here, category management area, and I'll group a lot of things into there. You'll have your sourcing people in there. You're definitely going to have your economic or financial buyers and influencers that are part of that group. Collectively, they're going to weigh the products, they're going to weigh the proposals and so on, and they'll come to a decision on who they're going to award the contract to. When they do that contract is typically going to be one of three types of awards. You're going to have a sole source award, one vendor, dual source award, two vendor, or the multi-source award.
The multi-source gets a little interesting, to be honest, because in most cases, that means more than 2 vendors. In some cases, if it serves the GPO's needs in negotiation and positioning with the potential suppliers, that could mean more than one source, okay? I've seen it both ways, and I've lived through it both ways, all right? It can get a little interesting on the multi-source side. I think it's important to note that, you know, the GPOs, generally, a health system is a member of more than one GPO, they'll generally have a primary and a secondary GPO, and maybe even some others. They will use multiple GPO contracts to fulfill their product needs. GPO contracts. There's no doubt about it, having a GPO contract makes the access easier. That's true, absolutely.
A GPO is really just contract is maybe a starting point. It's a hunting license, if you will. If you have the hunting license, it doesn't necessarily mean you're gonna get the business, okay? There's still a lot of work to do, even if you have a GPO contract, right? Don't get me wrong, we love GPO contracts. We'd love to have more GPO contracts, but it goes much deeper than that. A couple of reasons that somebody would want to buy products that are on their GPO contract could be, you know, the pricing's already been negotiated, and the GPO used their entire scale to negotiate a fair and reasonable price, so they don't have to worry about it.
Another one could be the governing terms and conditions of the purchases are already negotiated between the supplier and the GPO. Another compelling reason is, are there financial incentives to the health system to use their GPO contract? In simple terms, here's how it works: A supplier sells products to a health system. The supplier then pays the GPO an admin fee, some small percentage, based upon the dollar volume of product that they sell to the GPO's membership. A certain percentage of that is given back in a shareback to the health systems based upon their volumes. Depending on the health system, they can get a higher percentage or a lower percentage. Some can negotiate a pretty high percentage shareback, right? There's definitely some financial incentives, more so for some systems than others, to utilize the GPO contract, right?
Now I'm gonna go back to my comment about the GPOs actually don't purchase any product. Again, the purchasing is done, and those decisions are made at the hospital and the IDN level, and in most cases, they're made based upon what is the best product clinically for their staffs and for the patients that they serve. Other things go into it, but that is a huge driving factor. 2016 and into 2017, it's a very heavy contracting period. There are several contracts that are being renegotiated or up for negotiation this year and moving into next year. You can see some of them here. I'll just say it's an incredibly busy year for my team, and I don't see that changing over the next nine months, 12 months, something like that. It's going to continue to be very busy.
As you can imagine, we're obviously staying very close to each of these contracting processes and also some of the regional GPO contracting processes as well, all right. This is very important to us in maintaining our GPO contracts, and trying to secure new ones is very important to us. The GPOs aren't the only things that we're focusing on. We're also focusing very heavily on the IDNs and the health systems because they purchase the product. When it comes to the IDN's level of compliance to their GPO, I guess I would say that the majority of the GPOs really don't have that much strength in being able to drive compliance with their membership, compliance to their contracts with their membership, okay.
What that means is, their members, many of their members, will have the ability to purchase away from their GPO contract, actually, without repercussions. Why would somebody want to do that? Okay. One, maybe they can negotiate a better price with a local agreement than is on their GPO contract. Why could that be? Because the health system can actually drive the compliance, and therefore, it might be actually more meaningful to the supplier. Another big reason is the products that they want to use aren't on the GPO contract, so they do a local agreement, okay? Again, in very few cases would there be repercussions to somebody buying away from their GPO contract. I think boiling a little deeper here, HealthTrust is probably the most, in fact, is the most compliant GPO in the United States, okay?
When I think about the ones that are less compliant, I group into that bucket Vizient, MedAssets, and to a lesser degree, Premier into there. If you look at the health systems within those three GPOs, you may have some that are buying 85% of the products on contract. You may have some buying 0%, 20%, 50%. It's gonna be all over the board. There isn't really a rule of thumb, okay? From our estimates, those three GPOs grouped together account for about, or cover about 70% of the market. If you have 70% of the market that is covered by these three GPOs, they don't really drive or mandate high compliance levels, not like an HPG. They don't mandate that, okay?
What that means is Coloplast has access to the majority of the market, even if we don't happen to have a contract in a specific product category. It's about access. Access is the key thing here, okay? We have access. Just I'm gonna dive a little bit deeper now into how we're actually structured and how we work with the different layers. But we do target all of them, the GPOs, the coalitions, the IDNs, and the individual hospitals. At the GPO and IDN level, we use a dedicated national accounts team that reports up through me, and we are working with all of these entities in contracting discussions and also implementation if we have contracts with them.
Right now, my team focuses on all of the major GPOs, a number of the regional GPOs, and also the top 100 coalitions or IDNs in the country. We've got a pretty big scope within the national accounts team here in the U.S.. When you get down to the hospital level, we're primarily focusing on those entities with our direct sales forces and our dedicated sales forces. We've established dedicated sales forces for all our business areas. What that means is, in Ostomy Care, we have a dedicated team. In Wound & Skin Care, we have a dedicated sales force. In Continence Care, we also have a dedicated sales force. At the end of the day, we've actually got all the layers covered and all the decision-makers covered throughout every layer within acute care, okay?
In short, the way we're structured right now, we believe, and we feel that we're very well structured to continue to penetrate this market and grow in acute care, and we're well positioned at this point. Mark talked a lot about health reform and payment and so on. There are a number of trends playing out in the market, some just natural trends, some related to health reform, actually, that are very important to my team and also very beneficial to Coloplast, I think. I'm not going to talk about all of them, but I'll hit on the three that are on the slide here. First, you've got the IDNs. They're getting bigger, they're getting more powerful. More powerful in general, but also more powerful within their GPOs.
They're starting to exert more influence over their product decision processes and those selections, and that means they're engaging in, and we've seen it, engaging in more local or custom contracts than they have before. The next step from there is, that means that we're starting to see a greater number of products starting to be purchased, you know, away from the GPO contract, okay? There's a shift going on, here's what I'm saying. Where if it was down here before those purchases, now maybe they're up here. Just as that, we're starting to see more product flow through local or custom contracts. An example would be CCG. I don't know if you know who CCG is. It stands for Catholic Contracting Group. This is a member of Premier.... It's actually seven IDNs that banded together and formed CCG.
Premier actually has an entity that does custom contracting for groups like this within their membership. Very recently, we actually entered into an ostomy agreement with CCG. It's a Premier member. Keep in mind, we right now do not have a Premier ostomy contract. Again, it's about access and finding ways to have access, okay? Another trend is on system costs and what are called total cost of care. It's taking on greater importance now in the United States, trying to reduce the total per capita cost, right, for healthcare. Well, a number of products and services have the ability for the hospital and align well with the hospital to try to reduce those patient costs, okay?
The third one is, in the United States, we're trying to become more customer-focused on healthcare and more transparent, and patient satisfaction is playing a bigger role. In fact, a hospital has reimbursements at stake if they don't achieve certain levels of patient satisfaction scoring, so it can definitely impact their bottom line. We have services like the Coloplast Care that you learned about and experienced around the noon hour, and our product lines, like the Mio, we believe, can have a definite impact on creating a positive patient experience in the hospital. All right? Just really wrapping it all up. Over the past few years, we've actually seen very strong growth in acute care and consistent growth, which I think is also important.
A number of factors have gone into driving this growth, and looking ahead at the future, we think that the way we have ourselves structured now, the product lines that we have and the programs that we have in place, such as care, put us in a good position to continue that growth and actually accelerate that growth. Okay, I'll open up for questions now.
Hi, thanks for taking the question. First one is, how difficult is it for you to get access or airtime with the groups at the IDN just because it's a small category, generally, ostomy incontinence? Is it just number 100 on their priority list because they have cardio and ortho and imaging equipment to deal with first?
Yeah, I think some IDNs can be more challenging than others because the spend in a certain category. Ostomy spend, for example, is a lower spend typically, if you just look at that. What, you know, when you look at our entire portfolio of products, Wound & Skin Care, Continence Care, and ostomy, we, within a health system, we generally have a significant piece of business. All right. It's not just about ostomy. At least in my team, we look at it from the whole portfolio perspective, and that actually helps with access.
Just in terms of GPO contracts or dual source, which is most of the case, and I guess at your previous company, you were on the good side of the dual sourcing. you know, why is that continuing to be the case, and how do you manage to break that? Is it just a function of GPOs look at this across a very broad number of categories, they get down to your three or four categories, and say, "You know what? It's good enough. Let's leave it as is." Is that the case, or, you know, why do we have this blockage, and how do we break it?
obviously, you're probably referring to ostomy then, right?
For me, it more on the Ostomy.
Yeah. Yeah.
Yeah, 'cause the others you guys.
Others, most of the others are multisource, you know, frankly.
Yeah.
Yeah. On the ostomy side, there's a number of things that come into play with the decision, contract decision. You've got the product line, having a complete product line. You've got, is your financial proposal attractive? You know, what's the clinical preference within the membership? You know, market share. There's many things that come into a decision-making process at a GPO, okay? I think, not every GPO is created the same. Historically, the contracts in ostomy have been dual source, okay? You do see GPOs, some of them are more progressive than other GPOs. I think, it really comes down to, do we have the best products? Can we offer a very attractive financial proposal? Are we generating the clinical momentum and clinical support that we need to get their attention? That's my belief.
I don't know. Do you have any further thoughts on this?
I would just add to it saying that clinical preference is what they're looking for, price, and then ultimately, they also look at market share. We do have a position right now where we're lower market share, and if there's a dual source award, which it seems that all of them are right now, we are in a tougher position to get on there because the competitors will look to re-up their position at a lower price than if they open it to a multisource. We do have access to the IDNs, and that's where you build the market share so that you get onto them.
The market shares are a chicken and egg, right? Because if you don't have, you can't get on.
It's chicken and egg. I can say that the trend is moving more toward IDNs, not necessarily using the GPOs. That's a starting point. As long as Coloplast is present, we will win IDNs, and for example, with CCG, that will give us the market share to move toward the position on Premier.
What do you think the priority is?
The next question is... Sorry. Thank you. I'm gonna follow up broadly along the same lines as Alex. Yeah, I mean, interesting that one of the things you didn't mention within this sort of decision-making process was relationships. Sorry for the direct question, Richard, but do you think that Coloplast would have lost this, the ostomy, Novation GPO, had you been in the organization earlier? Or is it really so structural?
I can't comment on that.
Well, let me.
No, we do have good relationships within the institutions, and we've actually had a good relationship with Novation because we do maintain other contracts at Novation or Vizient Novation.
Yeah, we're on most of the contracts for Wound & Skin Care, so we do have relationships with any of the GPOs and have had them for a while.
That brings me on to a good lead into the next point. MedAssets is consolidating with Novation. You've had a very successful skincare contract with MedAssets. You're now moving over to Novation, which has been less favorable in certain product categories. Is this consolidation a risk for you?
Well, you can look at it that way. I actually look at it as an opportunity, too, because we as they merge, we have a presence then within the membership, whereas Novation, standing by itself, not as much of a pre-presence, obviously, in that category. You can look at it either way, I look at it as opportunity, and, you know, we're actively working. As they're trying to integrate their stuff together, we're working with both sides of it to try to work with them to make it happen, and with us being in a favorable position when it does happen.
Good. Okay.
It's just a 5-second question, but it's: What is the bar in terms of how much market share do you need, where you have critical mass, and you must be on-
There isn't a bar. I don't think it's fair to even try to characterize it that way. We have had sole source, dual source, and multi-source in the ostomy category over the 10-year horizon, at least, that I've been involved with this, so it goes through cycles. Right now, what we're looking to do is to either displace one of the competitors and become dual with them or open it up to multi in each of the contracts. I don't think that they have a market share. We want to build market share. We want to get clinical preference. A new thing for us is SenSura Mio.
It's very much, as you had heard earlier from Kristian, being very much well-received in the marketplace, and so that dynamic is also playing well towards the future, opportunities for Coloplast in the IDNs or in the GPOs.
Can I just quickly ask on the Premier negotiation? Is there anything that you're doing differently with Premier than you did with Novation? What's your learning point from that?
I'm probably not at liberty to comment on specifically what we've done with Premier, okay. Yes, there are some learnings, and we've tweaked some of the things that we've looked at and how we've approached the contracting end, if you will, and the proposal end of it. I will say that. As a follow-up to that, because maybe the next question is, you know, what's going on with Premier. It's too early to tell right now. I mean, the current ostomy contract with Premier doesn't expire till the end of the year, that dual source award with Convatec and Hollister. There's a lot of time between now and then. Between now and when they have to make an award decision, where I think there's gonna be a lot of discussion and everything going on.
I wouldn't want to speculate on what the outcome of that would be.
Maybe a good point to also bring up to that is, for example, with CCG, once we implement in those memberships, if they didn't go forward with us with Premier, CCG will most likely stay with Coloplast. We will continue to get access through the IDNs.
You mentioned that price was one of the sort of three considerations for being on a GPO, and I don't really understand that because I guess the volumes that you have in GPOs is probably tiny, maybe five to less than of total sales. Why would you not go in there with cost price? Why does price matter?
Yep. Great point. Rich, do you want to take it?
I think price matters because you can't be completely out of the realms of reality with your pricing, okay. I think you have to be competitively priced, but price alone is not gonna do it, all right. The clinical preference and the clinical, the clinical support is gonna go a long way, but you do have to tie the price into that and other services, maybe offer as part of your proposal and so on. It's a package, if you will, that makes the decision. It's not just one element here or there. That's my opinion.
Have you tried putting in a price of cost, the lowest legal price? Have you tried that?
Maybe.
I can't even comment on that.
Yeah.
No, we thoroughly evaluate each proposal with the GPO and how we want to approach the GPO and what the GPO can bring to Coloplast and vice versa. We come forward with what we believe to be reasonable pricing and a reasonable proposal structure for a particular GPO or opportunity.
Thank you very much. We're now going to have a 15-minute break.
Okay.
Toilet and coffee and come back. Thank you.
Okay. Based on the questions we're getting, I hope that we're delivering about the right level of information. I do see a couple of puzzled faces, so I want to put some puzzled pieces together for you here before we move on to the community-based systems. When we look at the payment systems that Mark talked about, I want to also start by saying, which we might not have mentioned, acute care facilities are for-profit institutions, and that's what's happening in the U.S. The payers are paying for the services that are being rendered, and they're more in bundled type of payment systems that they do that. The trend in the acute care facilities is looking towards saying: What is the best outcome I can get from the products I'm using?
Can I leverage either my spend or the spend of my IDN or the spend of my GPO? The larger I can, you know, achieve economies of scale, the lower or better prices I'm going to get to purchase the products to apply toward the reimbursement that I'm getting from the payer systems. The payers themselves and the acute care facilities are not really looking for brand-specific payment type of systems. They're looking for paying for global fees for the services provided. We're gonna shift over to the community side, and I'm going to introduce Morten Hansen, who is our vice president of consumer sales and marketing. I want to also just maybe preface this side of it of saying we're still more in a fee-for-service type of payment system.
It's the same payers, Medicare, Medicaid, private insurance, that are paying for products, particularly ostomy products and catheter products in the community, and they're paying on a per-unit consumed basis. They have a fee that they pay, and then there's an allowable that they allow to do that. Morten's going to go into more details about how do we actually deal with the providers that do that.
Thank you, Ed. I think I'm on, and you can hear me in the back? It's good. Excellent. My name is Morten Hansen, I am the VP of Channel Sales and Marketing in the U.S. I came to Coloplast in 2010 by way of the med tech industry. I came from hearing aids. I've had the opportunity over the last several years, since 2010, to be part of this journey we've been on, and in particular, some of the items that Kristian described with the care program. I've been involved in that from day one of this journey here in the U.S., and I'll get into that a little bit more in detail here.
I hope that when I'm done, you'll have a little bit of a better understanding of some of the dynamics that are happening in the U.S. distribution space, so-called distribution and dealer space, as well as what it is that we bring to the market with our care program and how we collaborate with our dealer partners in this space. You've seen this chart before. It's one I'll try to keep it to a minimum in terms of repeating things that have already been said, I just want to make clear what we're talking about when we're talking about distribution in the context that I'm describing now. The distributors traditionally are logistics providers.
They provide logistics services for the acute channel that we discussed earlier, and they ensure that the product moves from Coloplast to the end user, no matter what clinical setting that they end up in. At the very bottom of the spectrum here, or I should say, at the end of the spectrum, we have the DME dealers, DME, Durable Medical Equipment. The DME dealers are the accounts that move the product to the patient's home and bill for the services, as we discussed. What we have seen in the last couple of years, and I'm sure that you have seen this as well in the market, is that there is a new model that has emerged, where the distributors are also moving into that space in which they service the patients directly and also bill for the services.
I have a couple of examples of that in a moment here. In getting the product from here to the consumer, can offer some complexities and barriers, and I'll talk a little bit about how we deal with that. In an overall setting, we have the three channels that we talked about, and this, to a very large extent, follows the continuum of care, if you will, for our Chronic Care users of our products. They are in an acute setting. They have their surgery. They come into some type of alt site setting that could be a home health episode, where a nurse visits them at home for six weeks after surgery, and then they end up in their home, receiving their products through their DME supplier.
Traditionally, we had distributors that were very bucketed into these channels individually, but what we have seen is an expansion of the distributors, where they go across that continuum of care and across those channels in the marketplace. If we look at the examples, and you'll see in parentheses here, we have the approximate revenue of each of the players. You can see it probably better in your, in your little folder as well. You have an Owens & Minor that deal with the acute space. You have a Cardinal Health that traditionally were an acute and alt side, but have, in the last couple of years, through the acquisition of AssuraMed, moved in to actually direct billing and servicing of patients as well.
You have Medline, who's a privately held business down in Chicago, that have, I would call it, organically grown into that space and are servicing patients in that space. You have a McKesson that has traditionally been an alt side, but have also moved forward in the channel. Of course, you have the retailers that are purely focused on retail rather than, retail and home care, where they sell the products to the home of the patient, without having any distribution to the acute channel systems. We've seen three main trends, I would say, in the last couple of years in terms of consolidation. We have seen this forward integration by the distributors into the channels.
We have seen that the retail players, and I will get into more detail about the retail players in a moment here, about how many of them there are, but we've seen a lot of consolidation in the small to mid-range size players in that space. Finally, we have seen, as I'm sure you have also noticed, acquisitions of some of the dealers by manufacturers. We've had two examples of that lately that I'll also cover briefly. In terms of how the products actually get delivered, this is very important to us because we, at the end of the day, we have one desire in what we do. We want to make sure that the consumer that sits at the end of this chain have access to our product. We want to remove any obstacle and a barrier for them to get access.
This means that in how we work with our accounts and how we work with the marketplace, we need to address the different modes of delivery, if you will, that exist out there. We split it into three main categories. We have the typical traditional version, where we sell to a DME retailer, who then sells the product on to the patient. It's fairly straightforward, and contractually, that's fairly simple to set up. You could have an indirect setup in which the distributor gets in between, service the small retailer, that then sells the product on to the end user. It's also a fairly common setup and very common in the small to mid-size DME space.
Finally, we've seen an emerging trend that many of the smaller DMEs abandon the warehouse management process, if you will, and use the distributors that we saw earlier for drop shipping of the product to the consumer. The DME retains the patient service as well as the billing services for that patient. These are the models that we operate within. This is how the market is seen from our perspective. With the clarification now on who the different players are in the channel, I just want to put a couple of words to what it is that we bring to the players in the market. The distributors are typically, as you saw from the revenue numbers, as you know from the names of the organizations out there, very large organizations.
They, therefore, do not have a very specifically dedicated sales force to our products. That also means that each individual is more dependent on what the demand is in the hospital and on our support when they need to deliver our products in there. What we provide in that space is obviously our innovation in products. It is the clinical preference that's driven through some of the sales channels we heard about earlier in the acute channel from our field sales team and from our national accounts team. Then we provide education and support for both the distribution organization, but also for the clinical facilities that pull the demand in.
On the side of the dealers, we work with them as we work with the distributors. I would say we have a slightly deeper relationship with the reps on the dealer side and with the dealer organizations, for the fact that they are closer to the end user that uses our products. In terms of joint marketing activities, you've heard about this before, we work with several of our dealer partners to run campaigns where we can introduce end users to new products, improve products, and educate them on their rights. For us, we gain access to a population of end users we otherwise may not have access to, and for the dealer, they have an opportunity to grow revenue or grow revenue in areas where they have not been present prior.
We, of course, work with the dealers' reps in the field, not only to educate their field-based staff, we also educate their representatives on the phone. We also spend time in the accounts with our dealer partner reps to make sure that the clinics understand that this particular DME is, of course, willing and ready to provide our innovative products, which gives the dealer a little bit of an edge over their competitors. It's a very crowded space. The DME space, with all the reps of the DMEs that are out there, they will call in a clinic that has just been called on by five other DME reps earlier that same day. They are essentially providing a very similar service.
The ones that are able to provide the products that the clinician and the end user wants, is, over the long run, going to be the one that's selected for service there. I want to talk a little bit about what the actual DME space looks like. I have a slide, and it's extremely busy, so bear with me. You may want to look at your folder for this one. What I'd like you to take away from this is that the DME market is incredibly large. There's about 15,000% 16,000 retailers out there that are outlets. We estimate that probably about half of those are actually selling our products in some quantity or other. What's important to remember, and we use Medicare data to approximate this, it's a very, very concentrated market toward the top 50 players.
The top four to six players in both ostomy and continence constitute about 50% of the Medicare billings that are happening out there. If you take a look at the first 50%, you're up to 80% of the market. There's a very long tail from the 50% until the end of the marketplace in both OC and CC of small DMEs that are providing products in the marketplace, which are obviously not very practical for us to reach. This is part of the reason why we're also very focused on interacting with the end users, so we can have a connection with those end users as well and make sure they have access to our products.
In terms of the dealers that are out there, I think it's important to recognize that there are a couple of pressures that they are under. There's reimbursement pressure from the private insurers on them. They also have recently been subject to additional audits, and as it has become tougher to be part of this Medicare and general billing space, we have seen about a 10% reduction in the total number of billers in the last four to five years. The number of accounts that actually bill Medicare is coming down as it becomes harder and more expensive to service these patients. This goes back to my point earlier on us seeing mergers in that category.
The patients are still using the products, the consumers are still using the products, at this point in time, they're getting them more likely from one of the 50 top players in the market. I have a couple of examples of the companies we are talking about, just for your reference. We have 180 Medical, which is now owned by Convatec. We have Byram, which is owned by Mediq out of Europe. We have Edgepark, which is a Cardinal company. We have Liberator Medical, that was acquired by C.R. Bard lately. We have McKesson Patient Care Solutions, you guessed it, they're owned by McKesson. Then we have Shield Healthcare, that is a privately held company out on the West Coast.
They all have different go-to-market strategies, but one thing that they have in common is they have some sort of field sales presence, and this is the field sales team that our team interacts with on an ongoing basis in the field. There are a few players in the marketplace that obtain their end users and patients through mass media, TV advertising. The one we have on the list here is Liberator Medical. There are a few others out there that use TV advertising as a means to get the names of the end users and offer them services. This is what the marketplace looks like. These are the players that are out there, and so highly concentrated, but at the tail end, very fragmented, and there's still a large population out there that gets serviced by those players.
The way we interact with the biggest players in the marketplace, and with some of the mid-sized ones as well, is we have a key account management team that is very, very focused. Each of the key account managers within my team only have a few accounts that they manage, and the objective here is that we can stay close to this partner, we can identify opportunities, explore what the opportunities look like, make sure we execute on our joint marketing activities, and make sure that we stay on top of any challenges that there are that would create obstacles to ensuring that our products are available through this dealer in the marketplace. On the other side of the equation, we have our consumer care organization, that on an ongoing basis, interact with our end users.
They talk to the end users, make sure they're educated, make sure that the end user knows what their rights are, make sure that the end users are transferred back to the dealer, get the help they need, so they can get access to our products, and so that we can make sure that the dealer lives up to their promise in terms of what our contractual relationship is. Why is this so critically important? Someone asked it partially in a question earlier, and I couldn't see who it was because I was in the back, but it comes back to reimbursement. I'll just use one example. Our product, as has been described, is very innovative, and it's substantially better than some of the other products that it's lumped together with in some of the categories under reimbursement.
This challenge, I'm going to use our straight catheters as an example. You have a straight catheter. It's called the A4351 catheter code. The HCPCS code is A4351. Within that code, you have red rubber latex catheters, you have straight two PVC catheters, and you have the technologically advanced SpeediCath catheter. From a reimbursement perspective, they are all reimbursed at the same level. From a reimbursement level, these are examples, but let's say that that's the reimbursement that comes back, $1.53. The end user's out-of-pocket cost is the same, but the cost of the product to the dealer is obviously higher on the SpeediCath product than on some of the low-end products.
This is the conflict that is created by the way the reimbursement system works, this is the challenge that we face every day, this is why we have created a system in which we work with the dealers on a contractual level and on a marketing level together to introduce products that are mutually beneficial to us to have in the marketplace. It's also why we're very focused on keeping our center of attention on the end user in the middle of all this, because an educated end user that understands that they have the right to get this product, only need one DME out in the marketplace that is willing to provide the product, in order to have access to the product. It comes down to the ecosystem that we have tried to create around the end user.
What we have seen, and Kristian spoke to this earlier, over the last five years, we have created an environment in which the end user is at the center. We have care that helps That helps the transition from hospital to home. We have educational materials and great products that come from our marketing organization. We have a field sales team that works with our clinicians, and the clinicians know about our products, all with the end user in mind, and in ensuring that the dealer, over time, will provide the products that the clinician prescribes and that the end user wants. Up here on the top right, we have the Seamless Transitions mentioned. I just want to speak briefly to this.
One of the ways, as part of the Coloplast Care program and as part of our consumer effort, that we hold our partners accountable and share valuable information with them, is the Seamless Transitions program. It's a program within which we, on an ongoing basis, measure if there's any product access issues, if the quality of services is appropriate from the dealer partner, and we feed this information back to the dealer with the benchmarking so that they can understand how they fall within the industry, and so we can evaluate whether it's a partner that is willing to work with us to be part of our growth journey with our hydrophilic category in catheters in particular, but also on our new ostomy products.
That's the ecosystem that we have created. This is the ecosystem that we have spent five years building. We call it Coloplast Care. You know that in the past, we've had this for years now. In the past, we had an offline system that was focused on the first year out of the hospital or the first year out of the clinical facility. Now, we have a program that is there to support the end user for life. As we have matured over the last several years in this space, we have come a long way. We have invested heavily, not only in systems, processes, but also in resources and capabilities within a management team that run this. Kristian talked about how it works in the Rest of World.
It obviously works here, and we enjoy the benefit of being able to learn from our colleagues in other subsidiaries as well. We are right now, as we speak, upgrading the overall offering once again, and we continuously improve the program in terms of how our end user can access us, whether it's online, whether it's over the phone, whether it's via email, or whether it's in getting them back to their clinician for the support that they need from a clinical perspective. I think there was a question earlier that asked: Why Coloplast Care? I mean, they could go somewhere else, couldn't they? We have, over the last several years, built a confidence in the process, and the clinicians and the end users are voting with their feet.
The end users, we ran a survey of, I want to say, 1,200 end users, 97% of them said that they would recommend the Coloplast Care program to someone in a similar situation as themselves. Our goal here is to provide reliable advice and to identify struggling users. By having clinical content that is validated and good, the clinicians know that when they enroll an end user in the Coloplast Care program, the end user interacts with us, we have the end user's best interest in mind. Occasionally, there will be end users that end up in products that are not ours. We are okay with this. We will have a product for them in the future when we interact with them, when they're having problems with leakage or something else, that will be right for them at that time.
This is the power of the program, and I think that answers the question as to why would they enroll in this program. It's also very important to understand that as we work with the Coloplast Care program, we, over time. We started this journey even before the Coloplast Care program was rolled out. We had, in the early 2000s, in the U.S., a similar program, but at a much smaller scale, that was running for several years.
Over time, we have built a database of end users. This allows us to not only deliver services to the end users that they require at the right time, it also provides us with hundreds of thousands of names in that database that we can interact with when it is time for us to launch a new product, as an example. And that has obviously been vastly beneficial in a situation like the Mio Convex launch. You've seen and heard some of the calls. You saw the team downstairs. We, at this time, have more than 500,000 interactions a year through that team, and we expect that that will continue to expand as we go forward.
I'm going to wrap it up by talking briefly about our DTC activities, and Kristian talked about some of these as well. The activities that we have tried and that we have implemented over the last several years, some of them worked really well, some of them we have passed on after finding that they didn't work. Because we've been working with this for years, we now have a platform on which we can build future DTC activities. We've run a TV pilot that gave us great learnings, I'm hoping that we can maybe tap into the DKK 2 billion and be on the Super Bowl or something. Joking aside, we have great learnings from the TV commercial, we have great learnings from all of the channels.
We try to find a mix that gives us the lowest possible cost of accessing end users in the community that are beyond our reach, because, as we have talked about, our market share is not 100%. There are end users that are on products, either our own or other manufacturers' products, that we don't interact with. We are trying, through a multitude of ways, to get access to those so that we, in the end of the day, can expose them to our products, we can make sure they have access to our products, and that they can have a good and successful experience. In summary, we have the care program that enables us to get the end users as they come out of the facility, get them introduced to our products.
We have our DTC channel that enables us to expand our market share within the existing community. We have our dealer partnerships to make sure that the products are accessible and that the end users can get those products in there. With that said, I think I'll open it up for questions.
Great. Perhaps we could start out talking about the promotion campaigns, the conversion campaigns, etc, that were so much in focus in the DOJ investigations. How is the activity developing? Are you back up to full speed? I mean, where is the campaigning activity not back to full momentum yet?
You're referring to the external campaigns we'd run with our partners in the field. I'd say with the DOJ investigation, we saw a dip. There were many people that were stopping activities to evaluate what was going to happen next. We saw a dip with that. I'd say we are back to the level we were at before in terms of the activities that we are executing with the dealer partners.
Hi. Me first?
Alex, sir.
Okay.
Because he's got the microphone.
Yeah, okay.
Hi, Alex.
You have to listen to me. Just two quick ones. On the TV pilot, if we can get maybe just some high-level numbers around what kind of response rate did you get, and how did you handle that, and did any of it filter through to conversions from Comtech or anyone else?
I can't share a lot of details around how that worked. I'll say we got a lot of learnings from it. Yes, we did get new business from doing that. We found that there was a high proportion of users that, A, were not in our database already, and we found that we also had an opportunity to transact with a lot of users that were not on our products already. From that perspective, it worked. I'll say we ran it as a pilot. We hope that we can run future pilots in different channels at a different scale, maybe, where we can have a little longer time to optimize that, and see what kind of outcomes that can bring.
Okay, then my second question, just follow up on the DOJ one. Hollister's now settled. At Convatec, I don't know if they're settled or not, but, what is their level of activity in the market that you're seeing? If you're back at the full speed, are they at 20% speed or 100% speed, or where are they?
You should probably ask the Hollister people about what is happening with them.
We can.
I can't really speak to that. It's our competitor. I'd say we are back to full speed. I don't know the situation of, around their settlement beyond what has been published.
Thank you. I actually want to start talking about the dealers.
Yes.
Obviously, not just in ostomy, but across the board, I think dealers are in a pretty challenged market situation in the U.S.. How is that impacting your relationships with them? As you've seen the consolidation, has the debate around pricing and relationships that you have with them changed substantially?
I think the answer to that question is a simple... The conversations has been the same. I think maybe the frequency of the conversation has increased, but the number of people we have to have it with is decreasing. You are getting larger players in the marketplace. The benefit of that to us is that you have actors that are much more professional, that also can operate on a lower cost base, I would say, than we've experienced with maybe smaller DMEs.
Does that mean more pricing pressure for your business day in, day out? How do you handle that?
With the U.S. reimbursement system and with the way, that we bring products to market, we have always been in this situation, within basically every single product category we have. With that, we've always been under pricing pressure. I don't think that has changed, based on what is happening in the marketplace.
Really quickly, can you give us an example of a DTC campaign that didn't succeed, just so we know what stuff you've stopped doing?
I think we can have that conversation offline. I'll find something for you that I can show you. How about that?
I'm going to fight you afterwards.
All right.
I also have a question on the DME dealers. I mean, it seems that the world around you is consolidating, certainly from the DME dealer side of things. My question is, strategically, why is Coloplast remaining passive in this process? Is it not tempting to take part in this consolidation yourself?
When you ask about the consolidation, I'm taking the question as, why are you not buying a DME yourself and partaking in that space? There are a couple of different reasons. First of all, and Ed will speak more to this, we have a strategy right now in the U.S. that appears to be working. We are seeing really good numbers. We are having good results. We have no interest in entering a space to create channel conflict with our very, very good partners in this space when we have a model that is working.
Just to follow up, if partners like Liberator starts to make inroads, and we see some impact to your growth numbers, do you reassess and say, "That's a good idea, we now join that bus," or is it that you're fundamentally opposed to consolidating in the channel?
At this time, we don't see a reason to consolidate into that channel. We don't think that there's a benefit from consolidating into that channel, given the dynamics we've seen.
Yeah, I don't think we're fundamentally opposed. We do monitor the activity that's continuing to happen as we do see the consolidation. I think consolidation is driven by what we're hearing, is that the challenge be of the squeeze that's happening to the dealers. They're trying to gain economies by doing that. We keep our eye on it. At this point, there's still a certain amount of fragmentation around there, that we're partners with a lot more of the dealers than our competitors who have acquired a dealer and the churn that they've created in the market over doing that.
Perhaps I could ask that question in a different way, because when would it make sense for you to basically bypass the local dealers and take over the billing process yourself, like an e-commerce type of business?
The exact timing of that, I do not have an answer to.
Well, and let's be clear, too, you cannot just open shop and say you're an e-commerce business in the U.S. You have to have a provider license, and that goes state by state, for how you contract out with the different payer systems that we talked about. You have to become a Medicare provider. You have to become a Medicaid provider in the States. If you're trying to become a national dealer, you have to become a provider for the 50 states. You have to have an organization that contracts out with all of the 30,000 insurance companies that are out there. If we wanted to open shop, it would be a big challenge to do that. It would be more likely that we would acquire.
What would be the litmus test would be when there is no choice being given. At this time, even the manufacturers that have purchased dealers, they have to provide choice of all products to the consumers. You cannot steer them into your product. If that makes sense.
We spend, I was just going to say to that point.
Yes.
We spend a lot of time educating the clinical community as well, on how to write the script. If they want their end user on the SpeediCath product, the clinician can write on her script that needs to be dispensed as written, that you can't change that script at the dealer level. That's not compliant.
Okay. Very good. Thank you, Morten. I'm going to try to bring it home here and say, based on what you've heard are the challenges that we have in acute care, in the community, and with the payer system, what is the Coloplast strategy? Well, for those of you who were here two years ago, I think I had just come into this role, and I was telling you about the journey that we've been on. Myself and my predecessor, who came here in 2011 into the U.S., experienced a team that was very inwardly focused. We were not really looking at what are the key drivers by each of the aspects that we've talked about today in the marketplace.
We spent a lot of time focusing the teams around what we called our back-to-basic strategy, making sure that we had dedicated teams around Ostomy Care, Continence Care, Wound & Skin Care, so that the customers who are asking for representation that really understood not only the features and benefits of the product, but how it relates to my practice, that they would be able to do that. We also had established a dedicated national accounts team that Rich is now managing to make sure that we create value propositions that are in line with what the larger IDN systems are looking for in the GPOs and hospital systems. We created a key account team that Morten manages to focus on dealers and distributors, that they and the value propositions that they have relative to the reimbursements that's out there.
We also established the consumer team, which is now a key driver of our growth because we're not just focused on gaining access to consumers through the acute care channel, but we are simultaneously focused on gaining access to consumers in the community. We achieved what we felt was the ambition of that Back-to-Basic Strategy, and we moved into what we call Beyond Breakthrough. The idea behind Beyond Breakthrough is that we are going to accelerate upon the same momentum that we built with the Back-to-Basic Strategy. Ultimately, we can say when we achieved our Back-to-Basic Strategy, we achieved the double-digit growth that Coloplast was looking for in the U.S.. That's despite several challenges that we had.
One that we've just focused on here for the last few minutes is the Department of Justice investigation that caused some slowdown in our DTC type of activities that we settled and finished that as of December of last year. Now, as Morten just pointed out, we are back to resuming the normal level of campaigns that we were doing previously. The next three challenges that we have there are all related to each other, and that is that as we see the consolidation that you've pointed out within the distributor and dealer segments, we see some challenges around buying pattern behaviors as they're consolidating inventories. As, for example, distributors take on dealers that are large customers that were direct to Coloplast now move into distribution, that causes challenges for growth as the inventories get consolidated.
Therefore, we need to look on a regular basis at not only what are the purchases that the dealers and distributors are buying from Coloplast, we also have to look at what are they selling out. We get tracings from them that help us to understand what is actually happening out there in the community when we see the challenges that we have happen. I think Lars has previously communicated to you with Cardinal Health at Home. You know, we have excess inventory that they built up through a contract that was put together with them, that involved purchase incentives that they used to get to a lower price point without having the demand that was there, resulting in excess inventory. More recently, we've had McKesson. I don't know if folks have read about them.
They have consolidated, I think it's 15 warehouses that they communicated to us. And in that process, they are now consolidating inventories that they're purchasing on. This happens roughly every year to every other year in the market, where we might have, for example, a previously direct customer go into distribution, but we've been struggling with this previously and into this year, you know, at the same time with some of our larger distributors. That will continue to be a challenge as we move forward and continue our ambition of growing beyond the current momentum at the double-digit growth that we're achieving. Our Beyond Breakthrough strategy that we put together really involves 3, 5 strategic themes. The first 3 are actually focused on BA-specific themes.
We want to challenge the market leader in Ostomy Care. Second, we want to make SpeediCath and Peristeen the standard. If you remember, I previously had talked about this being an uncoated market primarily, and we're moving the market toward coated catheters. We want to become a tier one skin integrity player. When we say skin integrity, it's more of a phenomenon in the U.S. than I think outside the U.S., but customers, as I said, looking for providers, manufacturer providers of products across the entire wound and skin spectrum. We want to continue to drive our efforts toward community preference through our consumer care efforts.
Finally, as we grow and these challenges continue to emerge in terms of the dealer and distributors and acute customers merging, we want to make sure that we have muscle and pricing and contracts and pricing excellence. Just going quickly through each of them, letting you know that we actually manage these on a regular basis. We have KPIs around each of these strategic themes. I just want to point out some progress on them and then point out the metrics. When we talk on Ostomy Care, it's a really nice story to tell. The progress that we've made thus far with dedicating the teams in the for Ostomy Care now shows that we have growth at three to five times the market in acute care.
We continue to see our Brava campaigns, in particular to the community, doing well towards driving our high growth. We've launched, as was pointed out, previously in the conversation that we had about SenSura Mio, both flat and convex, now having a big impact towards clinical demand for Coloplast ostomy products. We now can see that we're gaining approximately 1/3 of all of the discharges or the new patient discharges are going into the Coloplast Care program. If you can imagine that our market share is significantly below 1/3 of all of the discharges, it portends for great opportunity for Coloplast growth for the future. Just a couple of recent wins that I wanted to point out to just say that these are large IDN systems.
Memorial Hermann out of Texas, Cedars-Sinai out of California, Allina, that's actually local, large IDN, Mountain State in the Southeast, Cleveland Clinic. Dignity is a large IDN of 24 hospitals out in the West. CCG that Rich talked about, Intermountain Healthcare and BayCare. It's across the board, across the country, that we're having success. Again, I owe that to a combination of dedicated territory managers that really understand the clinical needs, combined with the innovative products that we're bringing to market that are not seen prior to our launch. How do we know it's working? We have two major KPIs that we look at here that I wanted to share. One is acute market share of barriers and pouches. The top dotted line is our one-piece.
Actually, our one-piece is doing growing faster than the two-piece. You see the one piece on top. The dotted line on the bottom is the two-piece. Ultimately, the bar in the middle is the combined. What we can see is over the past couple of years, we've picked up 6.5 points of market share in the acute care segment. That also means to our competitors, because we know it's a three horse race here, that they've lost that in the process. We know that we're continuing to gain share, and that's through getting the acute care wins. The other measure that we have is our Care enrollments.
Again, we continue to see the care enrollments grow as we continue to deliver the message about how this program helps end users as they transition from acute care to home, and also as we innovate so that we can continue to show value to clinicians and to end users about how we can help them as they transition from acute care to home. If I switch next into Continence Care. The Continence Care business, we're really measuring hydrophilic sales because even though we're a big market share leader in the uncoated catheter segment, we want to drive toward the better clinical outcome that end users get from hydrophilic catheters, and we also look at care enrollments. In the Continence Care business, we're not necessarily targeting hospital systems like we do with Ostomy.
We're more targeting rehab centers, which are either specialty hospitals or parts, departments of large hospitals, or we're going to urology clinics. Those could be spina bifida clinics. They can be just general urology clinics where people who have a spinal cord injury or spina bifida or MS, some type of neurologic disorder that affects their bladder function, goes to the urologist to understand how to better use catheters. That's where we can capture them into the Care Program if the nurse feels they're a candidate to be exposed to a Coloplast product. That's where we introduce them to the Coloplast products, is through the Care Program. Given that that initiative is really much more field-based because it's not system-based or hospital contract-based, we've expanded our sales force this year in order to meet that need.
We've grown our sales force by approximately one third, and that began this fiscal year. We now see the demand for hydrophilics growing, as you can see on the left-hand, or the middle, let's say, picture here. That's the hydrophilic growth that we've seen over the last couple of years. We've launched new products into higher-end segments. In particular, Morten had pointed out 4351, 52, and 53 reimbursement. The sets, as we call them, or 53 reimbursement, we've launched two new products into that area called SpeediCath Compact Set and SpeediCath Compact Male also goes into that category. Again, giving us access to get users that need that type or that level of product, ability to be exposed to Coloplast products.
We see, as you can see, the care enrollments going up as well. We see more clinicians appreciating the fact that we are able to help the users after they leave their care to make sure that they have good cathing practices through the care program and proper education to good bladder health after they leave the acute care facilities. Just pointing out the recent wins. The wins here I focused on are the rehab centers that we would call luminary centers that are using SpeediCath now as a standard of care for putting it on the shelf, we say, so using it as a standard of care for which they educate people before they leave the rehab hospitals. It's kind of the luminary segment that we look at. We have Mayo Clinic that's located in Minnesota.
We have Hershey, which is part of the Penn State Health. We have Spaulding, which is part of the Harvard Medical School, the University of Michigan, Scripps Health, which is based in Southern California, and Dartmouth in the Northeast, that have recently moved toward Coloplast as a standard of care for which they educate and transition patients out. Moving over to Wound & Skin Care. I think Nicolai had brought up earlier that we have a rather large Skin Care business in the U.S. I know oftentimes we don't promote that largely because we have a big global focus on wound care. The Skin Care business, we have now moved into the second place position within the U.S. It was previously Medline first, and then Convatec, and then Coloplast for traditional skin care products that we play in.
We've now surpassed Convatec in that area and are in second place. To that end, we know that the clinicians, as I said earlier, are looking for single providers or single partners to help them manage all of the skin needs from what we would say, bathing, moisturizing, protecting, and then treating the skin through wound care. That's where Coloplast does have a breadth of offering across all of those areas, and we will continue to leverage our excellent position with skin care to gain more wound care accounts moving forward. That's recently evident with Dignity, Memorial Hermann, Henry Ford, and Piedmont. These are $250,000 to multimillion-dollar contracts that we've won in the more recent time.
When we look at our consumer efforts, what we really measure is more the size of our end user database that Morten talked about, how are we growing it through both care and DTC? Then look at the number of consumer FTEs to make sure that are we providing the right level of service to the number of people that are coming to Coloplast, searching out, help or a better experience with Coloplast products?
We've created, as you might have seen downstairs, dedicated setups within the teams so that we can make sure that if they're a care patient, for example, in Ostomy Care, that we have dedicated people who really, truly understand how to troubleshoot with them, how they get the best fit of their products, versus, let's say, the team that's dedicated to catheter users, versus, let's say, the team who is just marketing products through our DTC efforts. We continue to explore more consumer channels. You had asked about the TV, and Morten talked a little bit about the TV. One thing we did learn about TV that I wanted to point out is that when people go on TV today and learn about a product, they don't just call the 800 number anymore. You have to activate multiple channels.
They want to see you on Facebook. They want to see you. They go to your website to learn more about you, and they may interact through that channel rather than directly through a TV-to-phone type of advertising. We see a lot of promise there. One other point that I wanted to bring up in terms of just bringing it all together with the consumer activities that we have, is combining our acute activities and consumer through the care program. We have an IDN that hasn't published this yet, so I'm not going to use the name yet, but they actually saw in their HCAHPS surveys, and I'll tell you what that is in a second, a significant increase when they moved to Coloplast product and the care service in ostomy care.
What that survey is, as we said, healthcare systems are looking to pay more for outcome rather than the fee-for-service. They are now in the Medicare populations, surveying patients, holding back a certain amount of the payment to the hospital systems and giving it to them, provided that they have an adequate level of survey score about the experience that they had in the hospital. That can be anywhere from, Did I get a good bath? To, Did I understand my medication needs? Did I understand when I was discharged, where I was going next? We worked with them to select just the ostomy segment after post implementation of Coloplast SenSura products and the Coloplast Care program, and they saw a significant increase in the outcomes.
We're going to continue to use that to help drive better outcomes within the health systems, and I think it's that combination of excellent products and service that will help us to do that. In terms of the investment, and I know Morten was angling for some of that, $2 billion, I can say that knowing that Lars said that the U.S. is going to be a key part of that, we are going to expect that we continue to double down on the efforts that we know are working. Previously, our investments have been in consumer programs, and we did a TV pilot, and most recently in Continence Care expansion. We'll expect, as we move forward, to continue to expand our pressure, sales pressure within the other areas. Ostomy Care is definitely one that's up for discussion.
Wound and skin sales force penetration to have better pressure in the marketplace will be there. Continuing to expand the channels that we have for consumer. Just to summarize, I think if you look at the value proposition for Coloplast U.S. moving forward, it's pretty exciting. Why I say it's pretty exciting is that we have low market share with lots of opportunity. Even if there's all of these minutiae that we talked about, declining reimbursement and consolidating dealers, we have lots of opportunity to gain market share just within the system that's currently available there. What's our value prop? Is we're continuing to deliver products that are innovative, that are aligned with what the market is looking for.
They're looking for products that can help reduce leakage or that can help catheterize without infecting yourself, or that can provide a bath that somebody experiences, that they've had a bath and not been wiped down with a certain type of wiping cloth that leaves a residue on you. We've recently launched products, particularly in the Ostomy and Continence Care, that are having a big impact, SenSura Mio Convex, which we're talking about, we're having trouble even keeping up with that demand. SpeediCath Compact Male has now been launched in the U.S. in that 84353 category. We combine that with, I think the question was asked earlier of your program compared to others.
Our program is now just continuing to grow by just a premise that we have about making sure that we meet consumers where and when they want to meet us. It started as a care program that helps people transition and now has moved to 24/7 type of services, that we can meet you and help predict what trouble you might be in based on feedback that you give to us, and then provide you the appropriate information relative to the challenges that you're experiencing. Ultimately, we can say that this is having an impact on our business that we're measuring. We can see that now we are growing at five times the market in Ostomy Care, and that's total Ostomy Care business.
1.5x the market in continence care. If you remember, we're a market leader in continence care. We have an opportunity there to move the market to hydrophilic and grow at multiples of the market. Skin care, 2.5x the market, wound care at just a little bit over the market level. I think I'll open to questions at that point on, around our strategy.
Could you please give us a split about your catheter split in the U.S. between traditional SpeediCath and SpeediCath Compact? That's question number 1. If some sort of percentage.
I can't really give you a split of our sales. I can just tell you that, you know, we have a market share estimate of 30% that we've talked about there. We estimate that the market right now of hydrophilics is probably about 10% of the total market, so again, 90% of the market still has the opportunity to move. I can also tell you our fastest-growing products are SpeediCath Compact Set, for example, and SpeediCath-
The second question is what progress are you making in converting SpeediCath to SpeediCath Compact? Some sort of benchmark or KPI that you can share with us.
I don't have a number to give you on that one as well, but I can say we do see that it's. SpeediCath Compact Male falls into a different category, so our ability to transition people from just uncoated catheters or SpeediCath to SpeediCath Compact Set or Compact Male is probably not the same as taking a person who's currently using a cath and bag type of product and moving them into that segment as well.
Let me try the question different. What progress are you making in terms of de-risking the situation with the patent situation in September of 2017?
Yeah, yeah. Good question.
The question is, how are you dealing with the transition to Compact?
Yeah, it's a good point, and I think, one of our strategies around the patent expiration is around making sure that people have the opportunity to move to Compact, that's not the only way that we're going to be working within that environment. For the last several years, just getting people to move to hydrophilic has required us to have our territory managers educating nurses about how SpeediCath can be reimbursed under the current system. Making sure what we have in the U.S. is called, dispense as written or branded prescriptions prescribed for the product, to make sure that the dealer that uses the product has to use SpeediCath when they're prescribing that product. One way would be moving them to Compact.
One way would be to make sure that the prescriptions are branded. I can say that the competitive products that will be coming out to compete with SpeediCath, it's a little bit more difficult to. We've dealt with this issue with Self-Cath. We're the market leader in this for years. To make an uncoated catheter, it's a PVC tube with two holes knocked into it, is a lot different than making a coated catheter and making sure that you have a coated catheter that has the quality of SpeediCath, where you have lubrication across the entire catheter. There will be differences in the products, we think, as they come out.
As we've also seen, there are hydrophilics out there today, albeit that there's probably six or seven other competitors that we have today, but they use a water dispensing system, a water sachet that they break to activate the catheter. We can see differences in the quality of those products as well. It's multi-level strategies that we'll be pursuing to make sure that we maintain our level of growth.
My first question is just on the destocking patterns.
Yes.
That you've seen. Can you give us an update on where you are with that? Then, sort of as a follow-up to that, what proportion of your contracts with distributors are now on a sales-out basis as opposed to sales-in basis?
Yeah, good question. Well, our challenge is in the larger contracts. As I said before, when we have smaller, every year, we have smaller dealers moving or shifting within the distribution channels every year. We also have smaller consolidations. In particular, when we had Cardinal Health and McKesson doing it affects our business more significantly. We have moved them towards sales-out contracts, as you talked about. Moving them there, it's really just a renegotiation of the terms to make sure that as they destock, it's good for both organizations, so it happens over some time. As far as, you know, when will we be at fully, we end up-
How many big distributors do you have left that are on a sales contract?
At any time, distributors can consolidate, whether or not they're on a purchase or a sales-out contract, so that could create a challenge for us. As I said, each year, we do struggle with that to some degree. We've just had the biggest ones do it, so I don't foresee in the near future that'll happen, but I can't say never.
You're saying that, you are gaining approximately a third of all NPD into Coloplast Care?
Yes.
Would that be a third of the NPD of the overall U.S. market?
Correct. We're talking, just to be clear, Ostomy Care.
Mm-hmm.
Surgeries done in the U.S., approximately one third of them are going into our Coloplast Care program.
... How has that ratio evolved over the past few years? Has it been impacted by the SenSura Mio or the care program, or what has actually driven it to a third?
Yes, and yes. We are continuing to grow each year our level of end users enrolled into the care program just because nurses see an advantage or a benefit to Coloplast product. To the point of SenSura Mio now being put into the hospitals and converting hospitals, typically, we move from a hospital where perhaps they are using Convatec or Hollister in the hospital and then enrolling them in the care program to see if that choice is a better one for them. The nurse feels that the choice is good, to hospitals where they are going to Coloplast, where we are looking to make sure that is the choice for the patient.
What proportion of that third being lost in the community care because your products, for some reason, are not available?
Are not available?
I mean, you were saying before that approximately, your product were available in approximately 50% of all the dealers in the country.
I think we were talking acute care at that point, and the dealers. No, we're present in all channels in the U.S. The only reason we would have churn or losing them in the Coloplast Care program, if, for example, they were also exposed to another manufacturer's program, and the end user preferred the other manufacturer's product. Does that make sense?
Just a couple of quickies. It seems to me, given some of the numbers you presented, and it wasn't particularly clear whether these enrollment numbers you were giving were the group enrollment numbers or whether they were the U.S. enrollment numbers. I'm not sure.
It's U.S.
They're just U.S.
All U.S.
On that basis, it seems to me that you've been very successful in enrolling in ostomy, but perhaps to a degree, less so in the Continence Care, where you actually saw some disenrollments actually last year, which was a bit of a surprise.
You know what? What happened in the Continence Care one, I meant to mention that when we were in that one, you saw a little bit of a dip. That was actually when we were doing two things. We were actually going through a process of hiring new people into the program, so territories were changing, and relationships were being broken and repositioned as we had new people coming into the business. We were also moving towards a differentiation on the care enrollments themselves for Continence Care. In Continence Care, we can get people enrolled either from the acute care facilities or rehab centers, or we can also go meet them in the community. There's a lot of continence care events, like wheelchair basketball, etc, where you can introduce an end user to the care program, and they can get into that program.
We found that the quality of those enrollments was lower than the clinical leads. We did make a change with the territory managers of making sure that they were really focused on the clinical leads. While we did do a dip in that year, which you can now see has significantly grown up, the quality did go up. Our estimate of our overall, let's say, capture rate or the number of people that actually chose a Coloplast product actually went up during that time, even when we had the slight dip. We'll expect that because we have the new reps in place, that we will expect that momentum to increase as we move forward.
Okay. This enrollment number is directly correlated with SpeediCath conversion, presumably. Is this dip one of the reasons why the conversion of SpeediCath in the U.S. has been a little bit slower than initially anticipated, or?
No, it isn't. I, we didn't quote a number, and I know that we don't exactly quote numbers, but I would say that since we've expanded the sales force, we've actually roughly doubled the enrollments on the continence side of it.
Thanks. Just, you know, want to come back on your strategic themes on page 45.
Yes.
I'm kind of missing, you know, your, you know, focus on wound care, you know. You're just mentioning, skin care, you know, and basically, you know, going back, you know, to Nikolaj's, you know, presentation, and I think, you know, one of his major upside was basically, you know, going into the U.S. wound care market. Could you talk on that?
Yeah. Happy to do that. One of the challenges in wound care in the U.S. is that there is a increasing phenomenon around pressure ulcer prevention and using products that go into that area. We have a gap in our portfolio in that area. I can tell you that where we're winning in wound care is the Nicolai talked about Biatain Silicone is our key flagship product that is driving the growth. It was also showing that's one of our focus products that we have that's high growth that we have growing. As customers are looking for the full portfolio in wound care, that's an area that we have a gap.
We will be filling that as we go into the next fiscal year, and so we will expect the momentum in wound care to pick up as we're able to do that. Right now, it's really leveraging as much as we can our skin care wins to gain incremental wound care business.
Thanks.
No more questions? Go for it.
Thanks. Just a quick one. Just, what do you think about Cardinal Health and their device strategy? Is there any risk that they make more inroads in, let's say, to wound care or maybe look at ostomy or something like that over time and put some pressure on you?
In particular, are you thinking of a product category?
They have a strategy around doing, trying to do some ortho and trauma. They want to do wound as well.
Yeah.
These are the way-.
They do have some skin care and some wound care products.
Yeah.
I have to say that to the question that was asked about would we want to go become a distributor or a dealer? Our competency in that area is another, let's say, barrier factor to it. I can say on the flip side, the distribution network that is also becoming a product manufacturer, they typically don't have an R&D force. They are focused on product categories where they can source them from low-cost manufacturers, let's say, out of China or India. Typically the products that they're bringing to market are not considered high quality, so it does service a certain segment of the market. That's not exactly where we play. I still see that the trend in acute care facilities in the U.S. is moving towards, as we said, total cost per episode of care.
Hospitals have stopped doing that, what's just the lowest cost product I can provide, and asking what's the lowest cost, but what's the best benefit that the clinicians say? It's a purchasing or an economic buyer and a clinical buyer coming together to make the decision about the products. That's where I think that there will be a place that they will continue to play, but in general, it's not the space that we're going after for growth.
Can I just ask, with the Coloplast Care-
Yes.
What's your physician co-coverage now or hospital coverage? What proportion of your customers are part of the program, and therefore refer the patients out to it?
Yeah, great question. If I had a number, I would give it to you. I don't know. We of course target all customers that we can with the program, and I will say that, you know, the clinicians that like the program use it a lot. The clinicians that don't have the time to do it, do it less. There's a lot of opportunity, I should say, for growth, so even in the numbers, we're saying, you know, it's only 1/3. I can say in a positive way, it's 1/3, but it's only 1/3, so there's a lot of opportunity to gain more enrollments through clinicians who aren't enrolling today. Okay, thank you. I'll turn it back to Lars...
Yep.
...finish up. Or did you have slides?
He have slides. All right. That was what we had to present to you today. I'm really happy that you had a chance to meet our management team, because normally you have to put up with Anas and me and the investor relations team, and we are extremely coordinated. You ask one thing, and we just give the script answer, right? This time over, you had a chance to see all of the people that we work with on a daily basis, or some of the people that we work with, and you got the same answer.
Ian here been doing a very good job, I know, on training them, but it's also because we are telling a very coordinated story, because the story we talk to you about on a daily basis is basically the agenda that we run in the company. We try to make it simple. We have four business areas. We can lose ourselves very easily, but we have a very, very clear strategy and a very clear way to run the company. It is not more complicated than what we are showing to you today. There's a lot of things that can take your attention away when you run a company, and we really try to avoid that and focus on what does the patients think about our products?
How do we make them more happy with the products than what they are today? That's what's really driving us. I think we have a strong setup. What we have shown to you today is not a complete change of what we do. We continue with the most of the activities that we have done for the last few years, and then we add a little bit more attention to a couple of the areas, like, for example, in wound care, and that's what we're going to do in the coming period. We feel quite convinced that we can grow over and above the markets also in the coming period. We have some pretty strong activities in the pipeline, and I think more money to invest in them, to deliver the results that is in our guidance.
With that said, I think that we will then close the day off. We'll meet again at 6:00 for drinks. We'll meet at the ground level of the W Hotel. It's the same place where the restaurant is. We, then you'll have plenty of opportunities to catch up on the things that we didn't cover today. We're looking forward to seeing you, and thank you very much for being here. Thank you.