Impedimed is a medical device company that produces equipment capable of measuring changes in fluid levels in the human body in a highly accurate, non-invasive way. It has been given a Category 1 reimbursement code in the USA – the only other Australian listed companies similarly positioned are Cochlear and Resmed. The US regulator is keen to see the product in use as it allows diseases to be identified early, reducing the cost of treatment.
Their primary product, L-Dex, allows for the early detection of an otherwise incurable condition called Lymphedema, which affects many cancer patients after chemotherapy.
More significantly, Impedimed is not just about lymphedema, as this is a platform business. L-Dex can measure body-fluid changes anywhere in the body. One area in which they are currently developing a new product is the early detection of chronic heart disease, a market many times larger than lymphedema. They have recently also flagged an extension into kidney disease.
Insights
- Behaviour of regulators and hospitals. Globally, the rising cost of healthcare to governments is a big issue. In the USA, Medicare is penalizing hospitals that are readmitted within 30 days of initial procedures. Impedimed have a product that is unique in its ability to cheaply detect problems early, which leads to more effective treatment, thereby reducing longer term costs. The surprisingly strong encouragement by regulators, and rapid early adoption by hospitals, is evidence of the product’s future penetration and ultimate demand.
- Underestimation of significant change. The application of Impedimed’s systems into patient monitoring is a big change to current procedures. While the market is pricing Impedimed for strong near term growth, it has not yet incorporated reasonable forecasts of longer term sales and profitability into its share price.
- Lack of analyst coverage. There are currently only 3 analysts covering the company, and none are from Tier 1 stock broking firms. As more analysts begin to cover the stock, increased distribution of research on it will lead to a re-rating.
Growth
- Impedimed is on track to meet its goal of 50 new sites commercially using L-Dex by the end of the year. It has also flagged that the clinical trial program to support marketing of its heart failure product should be complete by August 2017.
- It has announced two agreements with the Mayo Clinic for the development of new applications and has also signed a partnership with Redox which provides middleware that interfaces with 120 electronic medical records systems.
- Impedimed’s video for SOZO (click here to see video) highlights the potential for this next generation product to integrate a range of healthcare and wellness applications with remote patient monitoring. It is expected that, in addition to revenue from sales of the device, IPD will look to generate high margin, annuity revenue from subscriptions for app and monitoring services that can be tailored to meet patient specific needs.
Value
- Impedimed’s previous disclosures to the market, and current reimbursement rates, imply an addressable market in the USA for Lymphedema and heart disease applications at around A$3,500m per year.
- Successful medical device companies tend to have high profit margins. For example, Resmed makes a net profit after tax of about 20% of its sales. In Impedimed’s case this would equate to a net profit of A$700m p.a for the US market alone.
- Successful medical device companies also tend to trade on high valuation multiples. Again, for example, Resmed’s market capitalisation is about 20x its profit. Impedimed’s market cap is currently around $500m, so the potential upside payoff for investors in Impedimed is many multiples of the current share price if they are successful.