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#Bull Case
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Last edited 3 years ago

Some background about OSA and and update from where @Shivrak left off a few months ago

 

Obstructive sleep apnoea (OSA) occurs as result the collapsing of the tissues of the upper airway secondary to muscular relaxation during sleep. As the airways close dynamically during inspiration, a person with OSA may not be able to breathe inwards as a result of the obstruction. This results in chronic low oxygen levels and high carbon dioxide, which overtime lead to a number of cardiovascular, respiratory and metabolic disorders. If you look at an MRI of the upper airways of an obese person, you can actually see fatty deposits within the soft tissues which narrows the airway, which is why obesity is primary risk factor for OSA. Alcohol relaxes the soft tissues even more so, which is why many people snore after they’ve had a skin full. The gold standard of diagnosis is with a sleep test which measures the apnoea-hypopnoea index (AHI), which basically tells you how much a person stopped breathing during the night. You can also measure the blood levels of oxygen, CO2 and bicarbonate which may be deranged. About 30 million adults in USA have OSA,

 

The gold standard of treatment is continuous positive airway pressure (CPAP). By delivering positive pressure via a mask connected to a small machine, the upper airway is splinted open, thus a person has a patent upper airway through which to breath. You put this on at nighttime while you sleep. A cardinal symptom of OSA is daytime somnolence, whereby you get an insatiable desire to sleep in the afternoon. After a fairly short period CPAP therapy, many patients will report feeling energetic, and the daytime sleepiness has disappeared. This clearly indicates a good response to treatment. 

 

While it works well, the key issue with CPAP is compliance. Many people (about 50% who try it) can’t tolerate the mask. They can’t sleep while it’s on due to discomfort. And sometimes their partners can’t sleep either due to the noise of some machines. Hence, the rate compliance of CPAP is ~50%. 

 

Other shortcomings are cost, timely access, slow access to government subsidies for CPAP machines (in Australia, not sure about other countries), and current global shortage. Hence, it can be difficult for some to people to access a CPAP machine. 

 

To date there have been countless other oral devices that have tried to treat OSA with varying success and limited scientific validation. So conventionally, if you have OSA, your options are:

-       Trial a CPAP machine, if you can afford one and tolerate it that’s great, if you can’t then too bad

-       Lose weight if the cause is obesity. Occasionally some people are motivated to do this, but I’d say on a population level the frequency of this is very low

-       Trial an oral device, which many don’t do

-       Carry on untreated, which is what many people do

 

So, you can see that there is a gap in current treatment options for OSA, which is a problem that companies like OVN are trying to solve. 

 

I like the story of OVN because a dentist with in-trenches-experience (current CEO Chris Hart) identified this problem with his own OSA, created a treatment for himself (O2Vent) and is now trying to solve the wider problem. The O2Vent sits in the mouth and physically splints the upper airway open. There is also a PEEP valve attachment with splints the lower airways during expiration resulting in better gas exchange. 

 

Looking at the small number of studies on the O2Vent to date, they have been positive by demonstrating reductions in AHI, however the patient numbers are low and there is no head-to head comparison with CPAP, or any other device. 

 

In medicine, when a new treatment comes a long which changes clinical practice, a few things generally happen: Via various avenues (literature, conferences, word of mouth, clinical experience) word gets around that patients are getting good results from the treatment, you’ll see an increase in prescribing or adoption of that treatment from relevant doctors in the field, and you see an increase in independent research to fill in the gaps and answer questions on the treatment that aren’t yet clear. Trends come and go in medicine, but if the literature supports it, and the clinical experience is positive, then the treatment will stick long term, generally speaking.

 

Thus, a key metric in my opinion in terms of the likelihood this is the next big thing in OSA management is the acceleration of prescription by sleep or respiratory physicians (and dentists in USA), and repeat prescription by these people. Because at the end of the day, if it doesn’t work or patients don’t like it, then they just won’t prescribe it, and the initial spike in sales because of people simply giving it a go will drop off. As it stands with OVN in their new business model, people can access the device themselves without referral from a clinician (Direct to consumer pathway). I am slightly wary of inferring the sales from DTC as genuine sustainable long-term growth. If anyone, with OSA or not can order an O2Vent, it doesn’t necessarily imply the product actually works. People by crap every day that doesn’t do what it claims. “Healing crystals” come to mind. So in my opinion, it will be worth keeping an eye on where the sales are coming from, and if clinicians or clinics are repeat prescribers over a sustained period. This would be a positive indicator.

 

The roll out of the device and the “lab-in-lab” model (face to face consultations) was unfortunately timed and got hammered by COVID. The company has pivoted to a “virtual lab-in-lab” model, which is essentially telehealth, as a response. The telehealth model is cheaper with predictable costs, and the plan is to only keep to stronger face-to-face patient clinics going forward, and shut the others. There’s little doubt in my mind that covid has demonstrated just how much more efficient (time and financially) hospitals and health provision can be via telehealth. So, I think this is a good move and you no longer to be physically near a provider to get access to a device, hence it probably opens the realistically addressable market right up and improves scalability. 

 

There are a number of competitors in the oral OSA appliance space (Resmed, somnomed, inspire medical, Vivos). I have done a little bit of work on Somnomed and will write up at a later once complete. It is a competitive space but the TAM is huge.

 

Of note, TIGA and Thornley have recently increased their ownership to ~19% each. CEO Chris Hart owns ~17%.

 

As expected, revenue and gross profit for FY 21 are up, compared to a tough 2020 with $9.2mil cash. Operating costs are down due to the advent of the virtual health model and the uptake has been good thus far. Report here: https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02415165-2A1319982?access_token=83ff96335c2d45a094df02a206a39ff4

I will be keeping keen eye on the coming quarters.

Not held.

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#Agreements & Pres 18/3/21
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Added 3 years ago

Oventus signs agreements with Connect DME and Circadian Australia (attached)

Key highlights:

  •  Virtual Lab in Lab agreement signed with Connect DME, a US-based national Durable Medical Equipment supplier which provides equipment directly to self-insured companies
  •  New distribution agreement signed with leading fatigue risk management group, Circadian Australia to offer Oventus devices to customers under the virtual Lab in Lab model

There were no $s mentioned in this announcement, but steps in rigt direction.

Oventus to present at virtual investor conference

Brisbane, Australia 18 March 2021: Obstructive Sleep Apnoea (OSA) treatment innovator, Oventus Medical Ltd or the Company (ASX: OVN), is pleased to share a copy of the investor presentation that it will present at the NWR Communications Virtual Investor Conference today.

The Company also invites investors to see Managing Director and CEO Chris Hart present an update at 10:45am AEDT.

Investors can register online to view the presentation go here:

https://us02web.zoom.us/webinar/register/WN_JkKiYlt5TDO5SIIm6g_lKg

For more information on the conference go here:      https://nwrconference.webflow.io/

For Full Presentation go here:

https://www.asx.com.au/asxpdf/20210318/pdf/44tsg4tzqcflbb.pdf

 

 

 

View Attachment

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#H1FY21 Results 22/2/21
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Added 3 years ago

Oventus delivers H1 growth, launches US virtual Lab in Lab program; signs new sites and provides update on VGM agreement

Key highlights:

  •  H1 FY21 booked revenue up 192% vs the prior corresponding period (pcp) to A$550k and cash receipts up 109% to A$415k
  •  Strong quarter on quarter (QoQ) growth across all leading indicators since Sept 2020 quarter, despite COVID-19 driven interruptions
  •  New Lab in Lab contracts signed covering four additional sites – two of which are an extension to an earlier agreement with Canada’s Careica Health
  •  Including newly contracted sites and optimisation of existing agreements, 68 Lab in Lab sites are now contracted, 40 have launched and 24 are scanning
  •  Onboarding complete and the first member groups expected to go live under agreement with VGM & Associates in the next 90 days, ahead of timing expectations
  •  Homecare extension with dentist-guided remote impressions now successfully piloted in the direct-to-consumer market; launched in the US via website, GoPAPfree.com

View Attachment

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Valuation of $1.080
stale
Added 4 years ago
$1.08/sh assumes half of pipeline (as at April 2020) is converted and doing mins within the next 2 years. Blended EV/Sales and EV/EBITDA metrics. Low case is $0.16/sh and high case is $3.32/sh.
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