December 4, 2007

Opportunities in Hospital Infection Control

The infection control market is estimated at about $28 billion and will be bolstered significatnlty by new Medicare reimbursement rules

Hospital-acquired infections (HAIs), which can spread easily and cause life-threatening illness and prolonged hospital stays, are arousing considerable concern in the medical community. The "superbug" known as methicillin-resistant Staphylococcus aureus (MRSA) may be the most visible and virulent HAI, but it is only one of many types. MRSA is particularly dangerous because it does not respond to most antibiotic therapies, but other HAIs also cause severe illness and even death, although they are more easily treated. Nevertheless, they too are increasingly resistant to at least one or more common antibiotics.

Medical device and pharmaceutical companies are seizing the opportunity to help hospitals with infection control. While interest in infection control isn't new, hospitals are under greater pressure to control HAIs, as bacteria become more resistant to existing therapies and payers tally the mounting costs of treatment for complications that might have been preventable. Infection control products, while often derived from supply categories sold as commodities, can command premium pricing if they are effective and face little competition.

The Centers for Disease Control (CDC) estimates HAIs affect more than 1.7 million patients a year, causing about 100,000 deaths and generating up to $20 billion or more a year in expenses. In August 2007, Medicare, the federal program that pays for health care for Americans aged 65 or older, announced (in a final rule that has yet to be formally adopted) that as of October 1, 2008, it will not reimburse hospitals for treating preventable medical errors and accidents, including certain HAIs. Medicare cited the following HAIs and said it is considering inclusion of others: catheter-associated urinary tract infections, vascular-catheter associated infections, and mediastinitis after coronary artery bypass graft surgery (inflammation of the mediastinum, which is a group of structures in the chest, including the heart, trachea, and esophagus).

In addition, bills now pending in Congress encourage a coherent national strategy to fight anti-microbial drug resistance. The U.S. Food and Drug Administration in July 2007 proposed guidelines for manufacturers of antimicrobial devices, requiring that clinical data has to support any claims that their product reduces or prevents infections.

Manufacturers of medical devices for surgical and intensive-care units are jumping on the bandwagon. A majority of the most serious bacterial outbreaks occurs in these hospital departments. Manufacturers have been coating invasive, basic hospital supplies like feeding tubes and IV systems with anti-microbial compounds. The concept isn't new, but it is being used on more products and with new kinds of compounds.

C.R. Bard, for example, expects infection control to play an important role in driving its device business forward, particularly its thriving urology unit, which comprises about 30% of the company's total revenues. While traditional urological drainage product sales rose 6% in the first nine months of 2007, Bard's anti-microbial-coated Bardex IC line of Foley catheters saw sales climb 11%.

In November 2007, Bard got U.S. regulatory clearance for a silver-coated breathing tube for ventilator patients. The device, which is called the Agento, is the first endotracheal tube with antimicrobial properties and Bard's first respiratory product. According to the CDC, 15% of patients on ventilators develop a lung infection known as ventilator-associated pneumonia (VAP), and, every year, 26,000 die from it. Based on clinical data submitted by Bard, the FDA is allowing the manufacturer to claim that Agento reduces rates of VAP. The company has said that it is likely to coordinate the product's launch with the pending publication of clinical trial results in a major medical journal.

Cardinal Health estimates the infection control market is about $28 billion, and will be bolstered significantly by the new Medicare reimbursement rules. The company is gradually moving into manufacturing medical products, which includes infection control and which has higher margins than its drug and medical supplies distribution businesses. Cardinal already is the leader in U.S. sales of infection prevention products (gowns, exam and surgical gloves, masks, etc.); its supplies are used in 90% of U.S. hospitals and 50% of U.S. surgeries.

In May 2007, the company announced the $3.3 billion purchase of Viasys, a maker of respiratory devices, including several products that combat VAP. The deal closed in June. Cardinal also manufactures new central line kits that are specifically designed to reduce infection rates. The company's newly acquired data mining business, MedMined, specializes in automated electronic surveillance of HAIs in order to identify the location and type of infection. Cardinal says MedMined can help hospitals reduce HAIs by 13% in first year of use and 19% in second year. Cardinal projects the MedMined customer base, now at 250 hospitals, will grow by 40% in fiscal 2008.

Europe also represents an important international opportunity for Cardinal's infection control efforts, because the market there is only 50% converted from reusable supplies to disposables, which are considered important for reducing infection rates.

Other companies increasing their involvement in infection-control include Baxter International, a leading manufacturer of infusion pumps and accessories, and manufacturers of advanced wound-care therapies. These companies also hope to get a boost from the new Medicare rules. Baxter received FDA clearance in November 2007 for the first needle-free IV connector containing a silver anti-microbial coating, which helps to prevent contamination and the growth of pathogens at the point of entry into the patient's blood. Baxter plans to launch this product in the first half of 2008 as the first in a series of medication-delivery devices that aim to reduce the risks of IV-delivered therapy.

Wound-care companies, which have been using anti-infective agents for years, are trying new kinds of compounds. Smith & Nephew makes a wound-care product line coated with antimicrobial silver called Acticoat, which works against many kinds of microbes, including MRSA. While sales to date have been modest, in part because of the products' comparatively high cost, the company recently expanded the product line and is introducing a lower-cost version of Acticoat. In August 2007, it launched a post-operative wound dressing to apply following cardiothoracic, orthopedic, soft tissue, and other surgical procedures. The company sees silver-lined wound care products as a key growth component of its advanced wound management business, which constitutes 25% of total revenues and grew 8% globally in the third quarter of 2007.

Various kinds of silver products are increasingly used as anti-microbial coatings, because they are known to have activity against many kinds of bacteria and, when used in sufficient quantities, they don't induce resistance. Smith & Nephew licenses the silver compounds it uses for Acticoat from Nucryst Pharmaceuticals, which manufactures nanocrystalline silver under the trademark Silcryst. Nucryst has a proprietary technology that easily converts silver into a nanocrystalline structure, which enhances its infection-fighting abilities.

The start-up NovaBay Pharmaceuticals, which raised $20 million in an initial public offering in October 2007, is developing a class of antimicrobial compounds it calls Aganocides, for a wide range of infection-control treatments, including against MRSA. Aganocides destroy bacteria by attacking multiple infections at the site of infection; traditional antibiotics work systemically, that is, throughout the body. NovaBay is in early clinical trials with an Aganocide-based treatment against MRSA colonization in nasal passages prior to surgery and also is studying that drug for prevention of catheter-associated urinary tract infections.

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