A Prescription for Growth

Baird Capital's Outlook on Infection Prevention & Control

When someone is admitted to a hospital, typically they expect to be cured of what ails them rather than be discharged with a new infection due to exposure or a procedure. However, this phenomenon is fairly common. The US Health and Human Services reports that 1 in 20 hospital patients has a healthcare-associated infection at any given time, and these infections are responsible for approximately $28 billion to $33 billion in preventable healthcare costs each year. In addition, a 2013 study published in JAMA Internal Medicine, reports that infections acquired in the hospital account for $9.8 billion of costs each year. With an increased focus on these hospital acquired infections ("HAI") costs, many hospitals increasingly look to market on the quality of the care they deliver. Today, consumers can go online to find HAI rates and penalties paid for every hospital int he nation, using that information to make choices about where they will seek care. Payers can reference these data to determine negotiating terms. The potential bottom-line impact on hospitals, along with increasing fervor around patient advocacy and rising concerns about antibiotic resistance to bacteria, have been catalysts for the ongoing investment activity and opportunity in the infection prevention and control space.

Infection prevention and control is compelling from an investment perspective for a number of reasons.

Breadth of Impact. Hospitals and healthcare systems are certainly a primary focus for companies focused on infection control, but these technologies and services are relevant across other areas, including the food safety area, the agricultural market, and diagnostics for identification of new outbreaks and strains.

Clinical Study Process. Clinical studies typically involve a long duration for patient enrollment and follow-up, and the results can be quite varied when the products are tested in humans relative to what is seen on the laboratory bench or in animal studies. One particular advantage for anti-infective devices and therapeutics is the higher success rate for these products in clinical studies, given the higher correlation of microbial kill in vitro when studied in vivo. In addition, for certain areas of infection prevention, the time needed for follow-up can be quite short, significantly decreasing the overall length of a clinical study.

Strategic Interest. While the infection prevention and control space is very broad with a lot of room for improvement, business innovation does not truly happen until investment dollars are behind it. Infection prevention has been a key area of focus among strategics that are increasingly focused on delivering complete care – moving beyond a single device or diagnostic toward building a total package of services around those pieces to deliver better care. They are looking for complete product offerings and being a full healthcare solution provider. The number of strategics focused in infection prevention is also larger than typical other business sectors.

This shifting dynamic piques our investment interest and has pushed us to ask a number of fundamental questions: Is there a clear and addressable clinical need? Is there potential to make this a platform technology? Does the business model for the new solution fit seamlessly into what the company currently does? IS the solution the same price or lower than what people are using today?

Looking ahead, we see a tremendous opportunity within the inflection prevention and control space, especially in diagnostics. While it continues to be challenging to develop solutions in real time on major outbreaks like the Flu or more recently Zika, we believe there are strong opportunities for predictive analytics. Imagine leveraging data to know when a person enters the Emergency Room door that he or she is likely 50 percent of the way to sepsis. We believe that type of data is something that could very meaningfully impact the course of care and save lives. 

Michael Liang, Partner, and Nicole Walker, Principal are based in the Chicago office of Baird Capital.