By Chris Wood, Senior Analyst
How do you know what businesses/markets are most ripe for disruption? The right answer to that question, of course, could save—or make—you a lot of money.
While there is no way to say precisely which is next in line, there is a finger-in-the-wind test for whether a market is primed for that kind of transformation. Ask yourself, "In 25 years, how much has the experience changed?" If the answer is "Not much at all," you probably have a reasonably favorable market on your hands.
Then go back 50 years. Still pretty much the same? Record shops, spinning disks, and album sales, anyone? From vinyl to CDs, it's still basically just about an hour of music on a platter. But storing 250 hours of tunes on your smartphone, with plenty of room left over for photos? Now that's a game-changer.
Then go back 75 years. Anything different? Newspapers: We all know what's happening there.
How about 100 years? Books: consider what the rise of the ebook has done for the self-publisher…
These are the kinds of markets investors and would-be entrepreneurs should constantly be on the lookout for.
The field of medicine is particularly fertile ground for this kind of speculation, because many of its basic tools have remained essentially unchanged for the past century. A prime example is the hypodermic syringe.
While the first known use of a syringe-like device to perform a medical procedure dates back about 1,100 years—when the Egyptian surgeon Ammar ibn Ali al-Mawsili utilized a thin, hollow glass tube with suction to remove cataracts from his patients' eyes—the "modern" hypodermic (meaning beneath or under the skin) syringe is no spring chicken, either.
History usually credits the Scottish doctor Alexander Wood with the invention of this device in 1853. For some time, Dr. Wood had been experimenting with a hollow needle used with a syringe for the administration of drugs. He eventually published a paper on the subject in the Edinburgh Medical and Surgical Review titled "A New Method of Treating Neuralgia by the direct application of Opiates to the Painful Points." (Unfortunately, Dr. Wood and his wife became addicted to injected morphine while testing this novel delivery system for the pain-relief drug. Wood's poor spouse eventually secured a dubious place in history by becoming the first woman on record to die of an accidental injected-opiate overdose.)
At the same time as Wood was conducting his experiments, French surgeon Charles Gabriel Pravaz created a hollow needle used with a syringe to treat an aneurysm with a direct injection of ferric chloride. While Wood's paper marked the first reported case in which a hypodermic needle and syringe were used successfully with therapeutic results, it was Pravaz's hypodermic syringe that is widely acknowledged as being the first to promise widespread, (mostly) painless, and practical applications because the needle was so fine.
By the late 1800s, hypodermic syringes were widely available; however, since then the basic design, mechanics, and operation of these devices have remained essentially unchanged. This is a classic example of a technology ripe for disruption. Sure, needles have gotten thinner, stronger, and cheaper. Its materials now carry antimicrobial nanocoatings. But at the core, a hypodermic syringe and the way you use it remains the same:
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Stick it in a vial of medicine
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Pull back the plunger to eyeball that you've filled the syringe correctly
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Replace the used needle with a fresh one
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Find a suitable injection site, insert the needle, draw back to ensure you're not in a blood vessel, and push the plunger
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Dispose of the needle in a "sharps" box, and the syringe in a medical waste box
In other words, hypodermic syringes are still dangerous and inexact. They take far too long to fill in emergencies, are difficult to use for many patients (they can be hard to see and require steady hands), and pose a public health risk if not properly disposed of.
But the fact that the hypodermic syringe has remained virtually unchanged for the past 150 years is only part of the story of why this market is so ripe for disruption. To finish the narrative we need to consider two very important trends taking place in medicine today:
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The mobilization of health care; and
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The composition of the therapeutics themselves.
Not only are these trends reshaping the business landscape for drug developers, they are creating previously unimagined opportunities for innovators in certain areas of drug-delivery technology, too.
Starting with the mobilization of health care:
Analysts from Ernst & Young predict that over the next decade, as much as 50% of health care will shift out of the hospital and clinic settings, and we will increasingly conduct virtual visits with doctors and nurses through our mobile devices. This trend is being driven by demands to cut costs from the healthcare system while enhancing the lifestyle of the patient, so he or she can deal with these matters at home or on the go. This trend has helped open up the market for new self-injection technologies and devices that are easier, cheaper, and safer for healthcare workers to use—particularly for innovations in the prefilled syringe (otherwise known as ready-to-fill syringe) market.
[Ed. note: From this point on for simplicity, the word "syringe(s)" will be used in place of "hypodermic syringe," but it is still intended to refer to the hypodermic-needle-plus-syringe system.]
The self-injection market has been around for decades to help treat such maladies as type 1 diabetes and growth hormone deficiency. Until recently, these injectable drugs came to the patient in the form of a sterile vial (or vials) and accompanying syringes. The patient had to stick the syringe into the vial(s), draw the appropriate dose, and self-inject the medicine. For some people (especially type 1 diabetics, who learn the process at a young age and quickly become comfortable with it), this is fine; but overall the vial-syringe format is prone to dosing errors and low patient compliance rates. Given the recent surge in the number of patients who self-administer drugs to treat chronic conditions like multiple sclerosis and rheumatoid arthritis, to name a couple, the archaic vial-syringe system just won't cut it.
That's where prefilled syringes come in. There are already more than 50 drugs, including antithrombotic agents (i.e., blood-clot-dissolving drugs), vaccines, blood stimulants, and rheumatoid arthritis treatments (among others) now available in prefilled syringe formats—both for self-injection and for the administration by healthcare professionals. According to Patty Kiang, former head of device development at Genentech, more than 2.5 billion prefilled syringes were used in 2011, and the market is expected to continue to grow at well over 10% per year for the foreseeable future. "The prefilled syringe market is poised for expansive growth mainly because of the ease-of-use factor that these syringes offer to patients and healthcare professionals," she said.
Kiang is right. But prefilled syringes provide numerous benefits to patients and healthcare workers beyond the ease-of-use factor, including: more accurate dosing; improved compliance; and a reduced likelihood of contamination. Furthermore, while the end user (i.e., the patient) is obviously the most important part of the equation here, the fact that prefilled syringes also offer many advantages to drug makers certainly does not hurt the market's growth prospects.
According to Jonathan Arnold, VP of sterile technologies at Catalent, prefilled syringes actually offer drug companies a lower overall cost per dosage unit compared with the syringe-vial formats, because they contain an exact amount of drug to be delivered, whereas vials are typically overfilled 10% to 25% to account for any drug that may be lost during injection preparation and administration. Furthermore, prefilled syringes are easier to handle and store. They also weigh less and are more compact than vials, so they're less expensive to ship. JoAnne Jacobs, technical services manager at Cook Pharmica, adds, "Prefills occupy less shelf space at distributors and pharmacies, which makes them easier to store than vials, which can also help to reduce costs."
With so many obvious advantages to prefilled syringes, you'd expect a number of companies to be producing them—and there are. In 2011, there were over 20 pharmaceutical companies manufacturing them as a preferred delivery device. But the prefilled-syringe technology developed by one company stands apart from the rest as the most disruptive.
Due to laws in the US like the Needlestick Safety and Prevention Act, safety devices must be implemented into prefilled syringe systems to help prevent against needlestick and infection—and similar laws are now coming in to effect in Europe and elsewhere. Typically, this involves the attachment of an ancillary device onto a standard prefilled syringe that adds at least one extra step to the assembly process and leads to an increase in packaging, transport, and storage costs by up to 70%, due to the bulky size and weight of the final product. Furthermore, the available safety technologies don't actually work that well, because they usually require a secondary action (like sliding a protective sheath forward) to manually engage the safety mechanism while the needle is exposed.
That's where Pennsylvania-based Unilife Corp. (UNIS) comes in. Unilife has developed the Unifill Syringe, the first and only patent-protected, prefilled syringe with safety features integrated right into the barrel. The video below of Unilife CEO Alan Shortall introducing the Unifill Syringe helps clarify the technology.
The basic elements include a needle that is attached to a small plastic piece that interlocks with the plunger stopper upon administration of fluid contained in the barrel. Fully depressing the plunger triggers the release of a spring at the top of the plunger, which provides a moderate outward pressure, initiating needle withdrawal while enabling the user to easily control the rate of withdrawal. The needle fully withdraws into the barrel automatically and locks into place after injection, so there is no need for an extra step to sheath the needle and risk injury. It's simple, elegant, and most important, effective.
There are numerous reasons why Unilife's Unifill Syringe should be well received by pharmaceutical companies, healthcare workers, and self-injecting patients. To name just a couple:
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It protects against injury. Despite the laws and introduction of various "safety" mechanisms over the years, healthcare providers continue to suffer from needlestick injury rates that have not changed much over the past decade. The automatically activated, user-controlled safety mechanism, which does not require the extra step to deploy that conventional safety modifications do, is far superior when it comes to actually protecting against injury.
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It minimizes costs. The Unifill Syringe has been designed for integration into companies' conventional fill-finish lines, meaning that adoption by industry will require no special investment in capital equipment. Furthermore, the slim design and light weight compared to competing products reduces shipping and storage costs.
Another reason one might find Unilife's value proposition compelling has to do with the second trend we mentioned above—the composition of the therapeutics themselves.
In the past five years, the drug market has been characterized by a strong shift away from small molecules and toward large molecules and biologics for drug development. The reasoning is simple: Biological drugs offer greater target specificity, improved safety profiles, and open up new possibilities in disease treatment and prevention not addressable with conventional therapeutics. As such, they are an attractive addition to the pharma portfolio, commanding a premium price with reduced competitive pressure, especially from the generic threat that looms for small-molecule drugs.
In 2000, just two of the top 20 pharmaceutical products sold in the US were biologics. By 2016, 10 of the 20 leading US drugs by sales, and seven of the top eight, are expected to be biologics, whose annual sales are forecast to top about $50 billion. Industry sources indicate that there are over 1,000 biologic drugs currently coming through the R&D pipelines of US pharma companies alone. Within five years, half of all marketed drugs are expected to be biologics.
While many of these new drugs promise to be a big improvement for patients in terms of safety and efficacy, they're also a challenge for drug developers in a number of ways. They are very complex—so complex, in fact, that up to 30% of the time drug makers cannot get them liquid-stable to meet the two-year shelf life requirement. Instead, they freeze-dry the liquid into a powder form. When it comes time to administer the drug, the patient or physician/nurse has to reconstitute it. The reconstitution process is complicated and requires a number of steps. But with Unilife's EZMix product (shown in this video), it's just one easy step to reconstitute the drug; and then when you inject the drug, just like with Unifill, you have automatic and controlled retraction.
Unifill and EZMix are just two products in Unilife's growing line—which also includes auto-injectors and bolus injection pumps—that appear poised to start generating significant revenue over the near term. What's more, the company seems to have devised a savvy strategy to penetrate the market. Instead of competing directly against entrenched syringe manufacturers with deep pockets like Becton, Dickinson and Co., Unilife is bypassing the end-user market (i.e., hospitals and physicians' offices) and instead targeting pharmaceutical and biotech companies directly. It also seeks to strike deals with drug makers before the drug in question is even commercialized, usually in Phase II or Phase III trials. What this means is that Unilife does not need a huge sales force to gain market share. It also means that the deals it signs will be longer term (i.e., 10 to 15 years), somewhat insulating the company from normal market volatility and producing more predictable revenue streams, as its products essentially become part of the drug itself—the FDA will approve the drug/delivery device combination.
With a potential slam-dunk technology like this, it's an important question to ask if the company is also a great investment. Consider that Unilife only generated $3.3 million in revenues over the trailing twelve months while losing $56 million. This could signal an unsustainable business model, selling low-margin commodity devices into a saturated market; or it could be the signs of a company on the launch pad, just starting to roll out a game-changer in the syringe space.
Potential game-changers like this are just the kinds of companies that we recommend each month in Casey Extraordinary Technology. If you'd like to learn our investor's take on Unilife and dozens of other breakthrough technology pioneers, take CET for one of our famous risk-free test drives.
