Coming to the Rescue for Very Personal Health Needs

29 October 2024
2 min read

Coloplast of Denmark has built a durable business by addressing deeply personal health problems, with solutions that support consistent growth potential.

Some health disorders can be especially difficult to talk about. But companies that come to the rescue with products that offer patients a better quality of life deserve to be discussed by patients—and investors.

Coloplast, a Denmark-based company, has built a durable business addressing health problems that are debilitating and deeply personal. From catheters to colostomy bags, the company’s innovative product line helps people overcome unpleasant challenges related to surgical procedures, such as an ostomy or urological conditions. Its products enjoy stable demand drivers that aren’t vulnerable to macroeconomic cycles.

Bolstering Competitive Advantages

Demographics are a big structural market driver. “The world’s population is aging, which is increasing demand for healthcare products—particularly for disorders that are more common in older people,” says AllianceBernstein’s Thorsten Winkelmann, Chief Investment Officer of European and Global Growth. “Coloplast was a pioneer in ostomy care decades ago, and over time it has bolstered competitive advantages and built an attractive business model.”

The company’s story began with an engineering solution to a very delicate problem. Back in the 1950s, Elise Sorensen was a nurse who conceived the idea of an adhesive ostomy bag to help her sister, who was struggling to get back to normal life after an ostomy operation. That idea led to an engineering breakthrough and the founding of Coloplast in 1957. Since then, the company—whose mission statement is to make life easier for people with intimate healthcare needs—has sold its products globally and helped countless people around the world lead better lives.

Today, Coloplast employs 12,500 people and has a market-leading position in several key business segments. The company ranks number one versus peers in products for ostomy care, continence care and voice and respiratory care, according to Coloplast. These three business segments account for more than three-quarters of its revenues. Coloplast has 40% of the market in its two largest businesses—ostomy and continence care—and 85% of the market for voice and respiratory care.

High-Quality Features Support Consistent Growth Potential

These businesses offer several high-quality attributes for investors. First, customers tend to stay loyal, typically using the product for at least 10 years, which creates a formidable competitive moat for Coloplast. Second, the loyalty factor helps generate recurring revenues for many products, some of which are patent protected. Third, Coloplast’s business model is cash generative and capital light, which supports profitability.

“Business features like these point to consistent long-term growth potential,” says Winkelmann. “Companies that enjoy leading positions in niche markets with recurring revenues offer high visibility that we as equity investors crave.”

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams. Views are subject to revision over time.

References to specific securities discussed are for illustrative purposes only and should not to be considered recommendations by AllianceBernstein L.P. It should not be assumed that investments in the securities mentioned have necessarily been or will necessarily be profitable.


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