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Hydrophilic Coatings Market Misinformation

I have noticed several firms trying to estimate the size of the hydrophilic coatings market, which is a subset of the medical coatings market. Previous articles as well as ongoing updates to the data exist on the subject by big names like JP Morgan, Frost & Sullivan, the BBC, and others. Most of these reports agree withBCC Research (HLC049B) which puts the market for medical coatings at US$5.3 billion in 2010, growing at 10% annually.

I am here to tell you that number is probably wrong, and off by perhaps an order of magnitude or more.

First let's break the medical coatings market down into segments. Here's how I would do it:

Lubricious Hydrophilic Coatings

Drug Delivery Coatings

Antimicrobial Coatings

Hydrophobic and other barrier coatings

Of course this is simplified because there is some overlap between these areas. For example, you can have a lubricious drug releasing hydrophobic coating too. Nevertheless, follow my logic here.

Let's take a look at publically available information on Surmodics and its deal with Cordis to provide a drug delivery coating for the now-defunct Cypher stent. The quarterly minimum royalty paid by Cordis to Surmodics is $1,000,000. (This is from Surmodics' latest 10-K form.) In its heyday, Surmodic's received roughly 30% of its roughly $70 Million/year revenue from Cordis, which means about $21 Million. So, I will stress again, the revenue to Surmodics on that was $21 Million/year, while Cordis' revenue for Cypher at its peak was way more than that. For argument's sake, let's say it was $1 Billion.

Researchers that write these marketing reports do not seem to understand that there is a difference between $21 Million and $1 Billion. The stent market contribution from Cordis at that time was perhaps $1 Billion, but that $1 Billion does not count towards the drug delivery coating market. Instead, you should use the $21 Million, which is the revenue to Surmodics.

Now think about this. If every single stent company licensed a swanky new drug delivery coating from a coating company like Surmodics, what would the total revenue be for that? If there were 10 such stent companies, and they were twice as successful as Cordis ever was, you would have a $420 Million market for drug delivery coatings. That's probably a generous estimation.

Now add in all the other coating types to that. Hydrophilic coatings are not drug delivery coatings. They do not bring in as much revenue. Trust me if I say that a "really decent" customer can potentially bring in $1 Million/year in hydrophilic coating revenue at an industry standard 2% royalty rate. Granted, few customers are that decent, but let's pretend they are. Surmodics claims to have 100+ licensees, so let's pretend that all of them are hydrophilic customers that are "decent", and now let's pretend that there's 5 major players in that market: Surmodics, Biocoat, DSM, AST, and Harland. If each one of those companies is bringing in $100 million per year, that's another $500 million for the hydrophilic coatings market. Since we all know what Surmodics' revenue is, and it's not $100 Million (and it's not all from hydrophilic coating sales), you know that this is wishful thinking. From the math, you can also see that we haven't even reached $1 Billion yet for market size ($420 Million + $500 Million = $920 Million).

Suffice to say, if you calculate out hydrophobic and antimicrobial coating markets, you will not come up with the other $4.3 Billion put forth by BBC, and again I think this is because they do not differentiate between revenue to the coating company versus revenue that a completed device on the market fetches an OEM.

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