Coloplast A/S - Qualitative Analysis

Coloplast has been on my watchlist since I began investing nearly three years ago. However, its high valuation and a series of expensive acquisitions (which shifted the company from a net cash position to one with significant debt and the potential for further deterioration) led me to postpone a deep dive.

That changed last quarter. The company is now trading at its lowest share price in five years, and its CEO was recently dismissed after seven years at the helm. I regained interest on studying it thank to these developments, especially as a potential biotech cycle upturn appears to be taking shape.

Welcome to Coloplast qualitative analysis, the most extensive single article I have written about any company so far.

DISCLAIMER: This article is not a recommendation to buy or sell any financial instrument, the content is educational and my personal opinion. Each person has to make his own analysis. Any action or decision you take as a result of viewing this article is your sole responsibility.

Support Independent Analysis

This newsletter will always be FREE! If you’d like to help sustaining it, consider buying me a coffee. With your contribution I will cover any annual costs I might incur and search for alternatives to enhance the experience.

Podcast Generated from the Write-up

To give you more options to enjoy the write-up I have used Google NotebookLM to generate a podcast of the present write-up that you can listen to while running, during your commute or whenever you like.

The AI-generated podcast does a great job summarizing the article and making the content more accessible. Although it does I great job providing the full picture, I still recommed you to read the full article to get all the details and insights.

Brief History

The company's origins trace back to a personal ordeal: Thora Sorensen, at 32, underwent successful surgery for colon cancer, which left her with an ostomy. The challenges she faced, including leaks and odor, severely impacted her daily life. Her sister, Elise Sorensen, a nurse, recognized these difficulties and became determined to find a solution. Inspired by the then-emerging use of plastic bags, Elise conceived the idea for the world's first adhesive ostomy bag.

Bringing her innovative concept to fruition proved challenging, as many manufacturers initially rejected her proposal. However, Elise's perseverance paid off when Aage Louis-Hansen, a civil engineer and plastics manufacturer, encouraged by his wife, Johanne Louis-Hansen, agreed to produce the bag. Johanne's background as a nurse meant she understood the problems faced by ostomy patients and could see the potential in Elise's invention, ultimately convincing her husband. The ostomy bag was an immediate and resounding success, with 66% of sales becoming international within just two years, underscoring the universal need for such a product.

After establishing its foundational success in ostomy care, Coloplast strategically diversified its product portfolio to address other related intimate healthcare needs. Their Continence Care segment offers products like catheters and continence management devices, leveraging shared patient needs and distribution. They also moved into Interventional Urology, developing solutions for conditions such as erectile dysfunction and benign prostatic hyperplasia. More recently, Coloplast broadened its scope into Advanced Wound Care and Voice & Respiratory Care, the latter significantly bolstered by the acquisition of Atos Medical.

Market Prospects

Forecasts for the global medical device market's compound annual growth rate (CAGR) in the coming years vary, typically ranging from 4.5% to 9.5%. What remains consistent across these projections is that its growth is expected to outpace the global GDP CAGR.

The U.S. medical device manufacturing market alone is projected to grow by 5.9% over the next five years, according to Grand View Research data.

I dived deeper into the medical devices sector in my previous article linked below.

Product Segments

Ostomy Care (35.3% of sales)

Coloplast's Ostomy Care segment focuses on developing and marketing products and services that make life easier for individuals with a stoma, which is a surgically created opening in the abdominal wall for waste removal due to intestinal or urinary dysfunction. This business area is considered a chronic care segment, meaning products are typically used daily over long periods, averaging about 10 years, and over 90% of sales are covered by reimbursement.

Coloplast maintains its position as the global market leader in ostomy care, holding a market share of 35-40%. From the fiscal year 2018/2019 to 2023/2024, the Ostomy Care segment demonstrated a compound annual growth rate (CAGR) of approximately 5.9%.

Continence Care (31.6% of sales)

The Continence Care segment is dedicated to provide products & services for individuals experiencing bladder or bowel control issues. The segment addresses urinary retention (inability to empty the bladder) through intermittent catheters and urinary/faecal incontinence with collecting devices and bowel management systems.

Continence Care segment as a chronic care business (90% products reimbursed). Users typically rely on these products daily for extended periods, averaging about 30 years for intermittent catheters in chronic conditions. The majority of sales (over 90%) occur in the community setting after patients are discharged from hospitals, highlighting the importance of product loyalty established during clinical introductions and ongoing support.

Coloplast is the global market leader, holding a market share of 40-45%. Intermittent catheters account for about 75% of the market and drive most of the growth while the bowel care segment is the fastest growing, with a high-single to double-digit growth rate. From fiscal year 2018/19 to 2023/24, the Continence Care segment's reported sales increased at a CAGR of approximately 5.74%.

Advanced Wound Care (15.0% os sales)

These products are primarily used for exudate management in patients with chronic wounds (e.g., diabetic foot ulcers, venous leg ulcers, pressure ulcers) and acute wounds (e.g., surgical, burn wounds). This market is largely hospital-based, especially in the US and China, but treatment is more community-based in Europe.

Coloplast's Advanced Wound Care segment is one of its key business areas, recently evolved to include biologics alongside advanced dressings, skin care, and contract manufacturing.

• Skin Care: This involves products like disinfectant liquids, creams, and InterDry® for treating and preventing skin damage (e.g., moisture-associated, incontinence-related, skin folds). Skin care products are mostly sold in hospitals in the US and Canada. The Skin Care portfolio was divested in December 2024, impacting reported revenue for FY 2024/25 by approximately DKK 350 million (10 months impact), but is expected to positively impact the group EBIT margin by around 30 basis points.

• Compeed Contract Manufacturing: This involves the contract manufacturing of Compeed®, a plaster for blisters and cold sores (originally developed by Coloplast).

  

  Exhibit 3: Compeed various product offerings. Source: compeed.dk

• Biologics (Kerecis): This is the newest and a significantly growing part of the segment, added through the acquisition of Kerecis in August 2023. It consists of tissue-based products, specifically Kerecis' patented fish-skin technology, used for difficult-to-heal wounds. This segment is primarily US-centric (over 90% of the market), with an estimated global market size of DKK 16-18 billion.

Interventional Urology (10.3% of sales)

Coloplast's Interventional Urology segment is dedicated to developing and marketing products used around the surgical procedures for individuals facing various urological conditions. This business area has been a core part of Coloplast, with its foundation strengthened through acquisitions like Mentor's urology and continence business in 2006 and Mpathy Medical Devices in 2010. The segment has reported an impressive 5-year sales CAGR of 7.1%.

The segment comprises both implantable products and disposable single-use devices used in urological and gynecological surgical procedures.

Specific products and their applications are split as follows:

• Men's Health: Penile implants for severe impotence, which is a key growth driver for the segment. This segment accounts for around 40% of Interventional Urology sales.

• Women's Health: Vaginal slings to restore continence and synthetic mesh products to treat weak pelvic floor. This segment accounts for around 20% of Interventional Urology sales.

• Endourology and Bladder Health & Surgery: Disposable products like prostate catheters and stents (some under the Porgès brand) for stone management and other urological conditions. These two segments combined account for around 40% of Interventional Urology sales.

Coloplast is the fourth largest manufacturer globally in this market, second largest manufacturer in the US and Europe market, holding a market share of around 15%.

Voice & Respiratory Care (7.8% of sales)

Coloplast's Voice and Respiratory Care segment focuses on developing and marketing products and services for individuals who have undergone a total laryngectomy or tracheostomy, which are surgical procedures affecting voice and breathing. This business area was added to Coloplast through the acquisition of Atos Medical, completed on January 31, 2022. Sales grew 11% during the last reporting period.

The segment primarily addresses needs related to laryngectomy (market leader holding 85% market share), where the larynx (voice box) is removed, leading to a loss of voice and the need to breathe through a stomach. Patients require Voice Prostheses (VPs) to speak and Heat- and Moisture Exchangers (HMEs) for humidification and filtration of air. Over half of laryngectomy sales are direct to consumers.

The business also includes tracheostomy products (10% market share), where an opening is created in the throat to aid breathing, often due to conditions like head and neck cancer or lung infections.. Both conditions often require chronic care, with patients using products for an average of 8-10 years for laryngectomy.

Business Model

Coloplast is vertically integrated. The company owns the supply chain end-to-end (E2E) areas that are key within Coloplast business model: R&D, manufacturing & distribution and commercialization.