You’re a healthcare company CEO approached by a small wound-care company that has been treading water for more than a decade. The founder, a former nurse who built a $5 million company around an ointment she invented, shares her concern that the business she and her sons are now running will flounder due to changes in Medicaid and Medicare reimbursement policies. Fresh from engineering the successful sale of the company you were leading previously—MedChem Products, acquired by C.R. Bard—and somewhat familiar with the $5 billion wound-care marketplace, you see the opportunity to build a much larger enterprise.
After joining Derma Sciences as CEO in 1998, Edward J. Quilty lost no time embarking on an ambitious growth strategy centered on serving a growing need for effective ways to treat chronic, non-healing wounds, such as diabetic foot ulcers. “I lined up some investors, including friends in investment banking and a venture fund, and we started making acquisitions, both in traditional and advanced wound care,” he recounts.
The company’s new management vetted each potential acquisition carefully. “If it was a new product, we looked at the odds of getting approval by the FDA; if it was an existing one, we looked at things like how it fits into our business, who will buy it, how much it will cost to manufacture and what can we sell it for,” Quilty explains. “We’re also careful to acquire and develop products that fit into existing reimbursement [programs]. We spend a lot of money and time on lobbying and having a good understanding of the reimbursement landscape.”
As a result of this acquisition spree, the company’s operations now fall into three divisions: standard wound-care products like bandages and gauze; advanced wound care products that employ proprietary, patented technology to treat chronic wounds and pharmaceutical product research.
While its standard wound products are essentially commodities, those developed for advanced wound care—such as Total Contact Casting (a patented cast designed to relieve the pressure on diabetic foot ulcers, allowing them to heal)—feature proprietary technology. For example, the company’s MediHoney Wound & Burn Dressing products are bandages saturated with manuka honey, a New Zealand honey that has potent antimicrobial properties to which Derma Sciences has exclusive access. “We’re the sole partner of the world’s largest manufacturing of this medical-grade honey, which works really well with wounds that are difficult to heal,” explains Quilty.