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Five medical device asx companies that look promising

Here are five home grown medical device companies that look promising according to James Dunn.

There would be few investors focused on the Australian Securities Exchange (ASX) who are unaware that Australian medical device companies Cochlear and ResMed are global leaders in their respective spaces, hearing aids and obstructive sleep apnoea (OSA) pumps and masks. Nanosonics, which has developed an automated disinfection system for ultrasound probes, is well on the way to joining that duo as a heavyweight medical device player – although NAN’s success appears to have pushed its share price well past what analysts believe is fair value. But there is no shortage of other medical device companies on the ASX that are advancing their products. Here is a look at 5 promising situations. 
 

1. Medical Developments (MVP:ASX)

Market capitalisation: $390 million
Revenue: $20.9 million FY19
Profit: $1 million FY19
Dividend: 4 cents FY19
Three-year total return: 5.3% a year
Analysts’ consensus valuation: $7.05 (Thomson Reuters)

 Anyone who has experienced a painful injury or suffered a traumatic accident would be familiar with the “green whistle,” an inhaler that, after a few puffs, provides instant pain relief.

This pain management product is Australian. Known as Penthrox, it is made in Melbourne by Medical Developments Limited (MVP). Penthrox is a fast-acting, non-narcotic analgesic that can be self-administered, as well as used during short surgical procedures – such as dental and cosmetic surgery – as well as in other medical applications. MVP says 85% of patients reach “clinical analgesia” (the inability to feel pain) within six to 10 breaths.

Penthrox has been used by hospitals, ambulances, the Australian Defence Force, national sporting leagues, surf lifesavers and other emergency services for more than 30 years. It is currently sold in more than 30 countries.

MVP is making a good fist of its ambition to globalise Penthrox, and make it the mainstream analgesic of choice around the world. It is currently going through the assessment process in the US, by the FDA – which would be the game-changer – as well as regulatory submissions in China, Russia, Taiwan, Vietnam and South Korea. Not only is Penthrox a non-opiate analgesic, MVP says that clinical evidence proves that it is superior to intra-venous (IV) morphine and other opioid analgesics – which is a great story to be able to tell, to put it mildly.

On the crucial FDA application, MVP says it has a “clear pathway forward” to open an investigative new drug (IND) application – the company says its FDA IND approval target is for the first half of FY20 (that is, by the end of the year). MVP is banking on the FDA taking notice of the fact that Penthrox has been recommended as the “First-Line” analgesic in trauma medication throughout Europe, in a new “standard-of-care paper” that MVP believes will prove a cornerstone to building the global acceptance of Penthrox. In China, the IND application was lodged in August and MVP expects a decision from the Chinese authorities before the end of the year.

MVP also manufactures and sells a range of world-leading asthma respiratory devices. In the US, the company recently agreed a 4,600-store rollout of Walmart-branded products, and launched a trial program with 200 CVS stores (CVS is the largest single operator of pharmacies in the US, with more than 9,950 stores).

 

2. EMVision Medical Devices (EMV:ASX)

Market capitalisation: $49 million
Revenue: No
Profit: No
Three-year total return: n/a
Analysts’ consensus valuation: n/a

Listed in December 2018 at 25 cents, EMVision has been welcomed by the stock market, which has pushed it to 85 cents. The medical device firm's main product is a brain scanner, used to diagnose and monitor stroke and traumatic brain injury. EMVision has unveiled its prototype portable brain scanner, which will allow doctors to conduct scans on stroke patients from virtually any location, at the “point of care.” The device works by attaching a lightweight headset to patients, which transmits safe, low-power electromagnetic signals into the brain: these interactions in the brain are then picked up by AI software, which reconstructs and displays an image on the screen to guide diagnosis.

The portable unit is designed for use by emergency response paramedic teams, but also suits any hospital, being able to be moved around wards, and it also has huge potential for rural medical centres. EMVision says its device will enable clinicians to make crucial decisions earlier, allowing them to classify stroke sub-types and improve patient outcomes. The prototype unit is scheduled to begin a clinical trial at Brisbane’s Princess Alexandra Hospital before year-end.

At present, EMV is in a trading halt pending an announcement.

 

3. SomnoMed (SOM:ASX)

Market capitalisation: $174 million
Revenue: $58.9 million FY19
Profit: $0.5 million FY19
Three-year total return: –9.2% a year
Analysts’ consensus valuation: $2.78 (Thomson Reuters)

While ASX healthcare heavyweights ResMed (RMD) and the New Zealand-based Fisher & Paykel Healthcare (FPH) are major world players in the US$8 billion ($11.8 billion) obstructive sleep apnoea (OSA) market, with their continuous positive airways pressure (CPAP) pumps and face-masks, SomnoMed tackles the same problem from a different angle, with its continuous open airway therapy (COAT) approach. SomnoMed produces a mouthguard-style device called SomnoDent, which is a “mandibular advancement splint” that works against OSA by moving the patient’ lower jaw slightly forward, keeping the airway open at all times.

SomnoMed is benefiting from a re-assessment of CPAP as the “gold standard” treatment, as increasingly, studies show that “adherence” – that is, wearing the CPAP masks at all times while sleeping – is a problem for sufferers: the company cites a major study that shows that about half of CPAP patients stop wearing the masks after six months. With its COAT device more comfortable for the patient, SomnoMed argues, the compliance improves and thus the clinical effectiveness of the treatment improves.

The company sells its mouthguards in 28 countries and has treated 500,000 patients. In FY19, revenue rose by 12%, to $59 million, with North American revenue up 11%, Europe up 13% and Asia-Pacific up 16%. Underlying EBITDA (earnings before interest, tax, depreciation and amortisation) grew by 27%, to $4.9 million. SomnoMed broke through for net profit of $522,000.

This year, SomnoMed has given guidance for revenue growth of 14%–17%, to $67 million–$69 million, and an EBITDA lift of 26%–34%, to $6.3 million–$6.7 million. Part of the boost expected this financial year is the launch of the new product, the digitally manufactured SomnoDent Avant mouthguard, which is made from mouth impressions taken with intra-oral scanners: the Avant promises to be even more comfortable for users to wear, and SomnoMed says this will boost patient compliance even more. On Thomson Reuters’ collation of forecasts, analysts expect net profit to surge to $3.5 million this year and $4.4 million in FY21, but dividends aren’t expected in that period.

SomnoMed is a very promising stock, but the market appears to have pushed the price past fair value.
 

4. Compumedics (CMP:ASX)

Market capitalisation: $127 million
Revenue: $41.5 million FY19
Profit: $4 million FY19
Dividend: 4 cents FY19
Three-year total return: –4.5% a year
Analysts’ consensus valuation: 95 cents (Thomson Reuters)

Still in the sleep field, Melbourne-based Compumedics has become a global market leader in sleep and brain diagnostics. Compumedics owns the US-based Neuroscan and Germany’s DWL Elektronische (which gives the company its Doppler transcranial scan capacity: that is, ultrasounds to detect vascular systems within the brain). The company’s capabilities range across sleep diagnosis (in particular, its cloud-based sleep diagnostics platform, NeXus 360), and its core diagnostic medical devices business, encompassing technology such as clinical electro-encephalogram (EEG) scans, magneto-encephalography (MEG) scans, brain monitoring and ultra-sonic blood-flow systems.

In FY19, Compumedics lifted revenue by 12% to $41.5 million and net profit by 43% to $4 million. Cash on hand improved to $4.6 million for FY19 compared to $3.9 million for FY18. Given the key growth opportunities it is targeting, the company has issued FY20 guidance for revenue to increase to $42 million–$44 million and net profit to come in at $4 million–$5 million. A dividend of 0.8 cents is expected in FY20, increasing to 1.3 cents in FY21, supported by EPS of 3 cents and 5.3 cents respectively (compared to 2.3 cents in FY19.) Although not widely covered, Compumedics appears to be on a growth path, with the lone analyst valuing the stock of 95 cents.
 

5. Osprey Medical (OSP:ASX)

Market capitalisation: $9 million
Revenue: Yes
Profit: No
Three-year total return: –53.6% a year
Analysts’ consensus valuation: 24.7 cents (Thomson Reuters)

Osprey Medical is in the opposite boat to SomnoMed, in that the shares have steadily headed south for the last three years, despite having a technology that performs well, in a situation of large unmet need. Osprey’s core technology was developed at the Baker IDI Heart and Diabetes Institute in Melbourne, to address problems caused by the X-ray-visible dye that cardiologists inject during common heart procedures such as stenting and angioplasty. The dye is used as a contrast medium to help the doctors “see through” certain body parts and interpret the X-rays better. But the dyes are toxic and thus hazardous to patients with vulnerable kidneys, who can suffer of dye-related kidney damage known as contrast-induced acute kidney injury (CI-AKI). This can affect up to 30% of patients, and badly: it can lead to permanent kidney injury, which can result in patients requiring short-term dialysis, but in some cases, it can result in permanent kidney failure and even death.

Osprey’s DyeVert technology reduces the amount of dye reaching the patients’ kidneys by up to 40%, with no impact on image quality. DyeVert was cleared for sale in the US by the Food & Drug Administration (FDA) in November 2015: although a major trial failed to demonstrate formal clinical evidence of DyeVert’s efficacy, the FDA cleared Osprey to use its main marketing claims, relating to dye savings, image quality and reflux (leaking dye) reduction. The FDA recognises DyeVert as the only product that can reduce dye usage without compromising image quality, and allow for real-time monitoring of contrast dose.

The DyeVert technology range is cleared for sale in the US, Europe and Australia. The company appears to be gaining traction: the June quarter of 2019 saw 63% growth in DyeVert unit sales over June 2018, a 19% increase in new hospitals purchasing, and 53% revenue growth. Osprey says the total addressable market is worth US$1.65 billion ($2.4 billion) a year, and that the CI-AKI problem is growing – but its market penetration so far is less than 5%. Osprey has $23 million of cash on hand and no debt. Analysts see big scope for revenue growth in FY20 and FY21 but Osprey is still going to make losses (although decreasing). Earnings per share (EPS) and dividends are a long way off. At 4.2 cents, OSP has endured a long share price decline from levels above 80 cents four years ago. That has left a lot of disappointed investors, but has worked in the favour of current bargain-hunters.


About the Author
James Dunn , Switzer Group

James Dunn is an author at Switzer Report, freelance finance journalist and media consultant. James was founding editor of Shares magazine, and formerly, the personal investment editor at The Australian. His first book, Share Investing for Dummies, was published by John Wiley & Co. in September 2002: a second edition was published in March 2007, and a third edition was published in April 2011. There have also been two editions of the mini-version, Getting Started in Shares for Dummies. James is also a regular finance commentator on Australian radio and television.