For Derma Sciences’ CEO, Skin ‘Is’ the Game

THE CHALLENGE
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.

THE CONTEXT
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.”

THE RESOLUTION
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.


THE HURDLE
Acquiring products with great potential in its niche proved only part of the company’s growth challenge. Lacking the name recognition of larger medical-device and wound-care companies, such as Covidien, Derma Sciences faced an uphill battle convincing healthcare facilities and professionals to try its products. “Five years ago, no one had heard of Medihoney,” says Quilty. “When our sales reps walked into a hospital or wound center and said, ‘I’m with Derma Sciences,’ people would say, ‘Who the hell is that?’”

Early on, sales and marketing overcame that hurdle by being “willing to run anywhere anytime,” he says. “In wound care, you can have a lot of clinical statistics, but you still basically have to make the rounds and talk to one clinician at a time. Now that we’re more established and our salesforce is bigger, we’re able to be more analytical and more disciplined about how we build relationships with facilities.”

THE ENDGAME
Under Quilty’s tenure, Derma Sciences has grown its single product line into a portfolio of 2,000 products and brought a 100,000-square-foot Canadian manufacturing facility into the fold. The company expects revenues to hit $95 million this year, driven largely by its advanced wound-care arm, which grew by 36.3 percent in 2013, as compared to the company’s overall growth rate of 9.7 percent.

Perhaps most exciting, however, is the pharmaceutical product for treatment of diabetic foot ulcers, burns and scars that Derma Sciences currently has in a Phase III clinical trial. “We’re in the final stage of development of what will be the first drug with a wound-healing indication,” explains Quilty, who sees the drug, known as DSC127, as a potential game-changer. “If it’s approved, it will be a first-line treatment for the 900,000 diabetic foot ulcers diagnosed in the U.S. each year. That represents hundreds of millions of dollars.”

THE LESSON
For Quilty, perseverance in the face of adversity is a cornerstone of success. “I think the most important thing we did was [to] develop a strategic plan early on—which was to focus on using our commodity business to support a focus on technology and growth—and to stick to that plan,” he says. “Inevitably, you run into problems along the way; and the minute things go wrong, it’s easy for you or your investors to succumb to self-doubt. We are realizing success today because we didn’t abandon our strategy.”