Danish medical device maker Coloplast A/S (COLO-B.KO) says it's investing heavily to ramp up sales and product development and already has credit facilities in place for potential new acquisitions which it wants to spur earnings growth.

Copenhagen-listed Coloplast, which sells "intimate healthcare" products such as catheters, penile implants and ostomy pouches, leads the global market for chronic ostomy and continence care, a segment that's expanding as the world's population ages and emerging economies expand their healthcare coverage.

Driven by rising sales and improving margins, Coloplast's stock has more than doubled in value over the past two years, outperforming the overall Danish market.

Still, some analysts are concerned that the momentum could fade away.

In a note to investors Friday, brokerage Cheuvreux reiterated its underperform rating for Coloplast, saying that the market may overestimate the company's potential to continue raising profits.

But the Danish medical device maker's chief executive insists Coloplast is hugely focused on using its momentum within chronic care and raising its sales growth in that segment further.

"We must create stable long-term growth there, so that's were we invest most right now," Lars Rasmussen told Dow Jones Newswires in an interview. Innovative and convenient new product offerings are key to its growth plans, the CEO added.

Coloplast recently launched new SpeediCath catheters which are much smaller than rivaling devices. In April, it will start selling ostomy pouches under the SenSura brand which are particularly elastic. Rasmussen said the company is also rolling out a new service concept in the U.S. and Europe to help patients with questions and product issues.

The company, which in October paid $30 million for Mpathy, a U.K.-based maker of surgical urology products, is also mulling fresh takeover targets, Rasmussen said.

"Acquisitions are of course a part of what we are looking at now." He added that his company can use its steady cash flow and low debt to fund an eventual takeover.

Still, antitrust concerns are an obstacle to acquisition-driven growth within the ostomy and continence business, especially in Europe where Coloplast's presence is strongest.

If Coloplast should find a viable acquisition target, it can raise its net debt from currently 0.7 times earnings before interest, taxes, depreciation and amortization to over 2.5 times Ebitda in order to finance a takeover, Rasmussen said.

The company's Ebitda was 2.58 billion Danish kroner ($490 million) in the fiscal year 2009/2010.

Besides boosting sales, Coloplast aims to raise its profit margins. Methods include trimming its product portfolio, which includes many older devices, Rasmussen said.

Helped by recently finalized production relocations from Denmark to lower-cost Hungary and China, Coloplast has lifted its operating profit margin to 24% in the current financial year from 20% in the first quarter of the previous fiscal year, Rasmussen said. The aim is to bring that in line with Coloplast's best-performing peers, at around 27%.

Coloplast has few listed direct competitors. It does have an established peer group of comparable companies such as U.K.-based clinical device maker Smith & Nephew PLC (SN.LN), Swedish medical technology firm Getinge AB (GETI-B.SK) and Danish hearing aid maker William Demant Holding A/S (WDH.KO).

Coloplast has in recent years worked to improve profitability at its small Wound and Skin Care business, which has been less profitable than the other units, but is now shifting focus there from efficiency to growth, Rasmussen said.

"It's a quite sizable amount of money we're spending this year to get the growth back," he said. For instance, the company has just established a new sales force aimed at home care nurses rather than hospitals in order to help boost growth.

Wound and Skin Care only made up 15% of Coloplast's first-quarter sales, and the company may well pursue acquisitions to give the business some critical mass, said Rasmussen. But the unit should first be strong enough to outgrow its wider market, he added and predicted it is likely to match the market's growth rate by the end of the current financial year.

By Gustav Sandstrom, Dow Jones Newswires; +46-8-5451-3099; gustav.sandstrom@dowjones.com
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