To me when investing in healthcare, its crucial to opt for the best technology. Why? Well typically most government and private reimbursement systems want the most effective products, provided the economics are justified, which means that, ultimately, these tend to become ‘winner takes all’ markets.
One innovative firm that fits the bill is Belluscura (BELL) , a developer of Portable Oxygen Concentrators (POCs) that are transforming the treatment of COPD and other chronic respiratory conditions.
In 2022, the company sold 1,226 units (against broker Dowgate's estimate of 2,000) of its FDA approved medical device, X-PLOR, via a range of US online, physical store and direct-to-consumer channels, a real-life endorsements of the science. Moreover, in December, the company signed its first non US deal with MedHealth Supplies of South Africa, which has already ordered more than 1,000 units.
That marks another major milestone towards fully commercialising its patented POCs across Asia, Europe & Africa, hypothetically doubling it's total addressable market within the $1.6bn global secto, which is set to grow at more than 14% a year. Almost 100m people in China alone have COPD (400% higher than the US), on top of another 50m in India and 5m people in Japan.
The shares appear to be materially undervalued, too, trading at 44p - giving a market capitalisation of £54m - against Dowgate’s 150p a share target price. Investors have perhaps been spooked by the decline in net cash, which stood at $1.8m at the end of December 22 against $11.3m in June, following H2 inventory build and cash burn.
But as supply chains ease, I’d expect some of the $10.1m stock position to unwind, especially since Dowgate predicts unit sales of 12,000 and 30,000 respectively over the next 2 years, with the company expected to close 2023 with manageable net debt of $7.5m and become cashflow positive in 2024. They also estimate the FY22 adjusted LBITDA came in at -$6.2m, coupled with a strong opening orderbook.
Based on these projections and in the absence of any M&A, then I suspect the Board may seek some traditional invoice discounting, trade finance or top up working capital facility at some point, reflecting the future growth trajectory and first half launch of its next generation DISCOVR-R model which weighs 40% less than any comparable dual flow POC, and produces nearly 3 times the oxygen by weight than its competition.
Elsewhere, once its new Chinese contract manufacturer (Innomax) comes on stream in Q1 23, then this should double production capacity (it assembled 536 units in December 22), and create opportunities to sell its POCs to the possibly thousands of sick Covid patients who urgently require oxygen support as the local economy reopens.
CEO Bob Rauker added: “During the year we have enhanced our production, quality & supply chain, as we expand our distribution & geographical reach. We are very excited about the upcoming launch of the DISCOV-R, which we believe will be a transformational product, and we look to the future with confidence”.