BOURSE FACTOR RESEARCH ON COMPUMEDICS – MARCH 2009
March 2009 – COMPUMEDICS LIMITED (CMP)
Having successfully restructured its operations, Compumedics Limited, a global leader in medical diagnostics technologies, is once again ready to exploit the considerable growth opportunities that are emerging.
Compumedics is a global leader in developing,manufacturing and marketing medical diagnostics capital-equipment for applications in sleep, neurology and blood-flow monitoring.
The Company pioneered sleep-diagnostics equipment in 1987 and has since broadened its base to encompass associated specialised fields of neuro-diagnostics, brain research and Doppler ultrasonography.
Restructuring in 2005 and 2006 removed $5 million in annual cash costs and better positioned the company for new opportunities and accelerated growth over the next few years.
Profitability was restored in 2006-7 and the Company has been able to maintain profitability in the current uncertain economic environment.
Target Research & Development spending is about 12% of sales, currently around $5 million per annum.
Major new product releases and upgrades occurred in 2008.
The launch of the SomniLink® SPAP® autotitration gas-delivery device is a major advance on existing treatments for sleep apnoea and heralds the Company’s move into much larger downstream markets.
David Burton, Chairman
Dr. Graham Mitchell, Non-Executive Director
Mr. Alan Anderson, Non-Executive Director
Melbourne Head Office
David Burton, Chief Executive Officer
David Lawson, CFO and Company Secretary
Warwick Freeman, Chief Technology Officer
Dr. Kerry Hubick, Chief Legal Officer
Andrew Kegele, Business-Director, Australia and New Zealand
Gerald Lim, Global Marketing Manager
Gordon Ferguson, Regulatory Affairs Manager
Claude Buckles, Vice President – Sales Americas
Christoph Witte, General Man./Director, DWL
David Vermeiren, Business-Director, Europe, Middle East and Africa
Dr. Curtis Ponton, Vice President, Chief Scientist, Neuroscan
Markus Rosenstingl, Compumedics Germany Sleep Representative
Dan Pittman, Compumedics Germany Neuroscan Representative
Current Price $0.15
ASX Code: CMP
Shares on Issue: 159.9 million
Share Price Range since listing: $0.06 – $1.10
Market Capitalisation: $24.0 million
SUMMARY AND BACKGROUND
Compumedics is a global pioneer in the sleep devices industry supplying the equipment for Australia’s first sleep clinic at Melbourne’s Epworth Hospital in 1987. In 1995 Compumedics was selected to supply equipment to the US Sleep Heart Health Study, the world’s largest sleep study of its kind, currently exceeding 14,000 studies with 20,000 patients to have been completed by the end of 2008.
Compumedics supplies 80% of the Australian market for sleep diagnostic equipment, is one of the top three suppliers in the United States, and has a significant sales presence in Europe and Asia. The Company has corporate headquarters in Melbourne, Australia and offices in the United States and Europe.
In recent years the Company made two acquisitions that have extended its operations into complementary areas. In 2002, Compumedics acquired United States-based Neuroscan, the world’s leading supplier of instruments for brain research. In 2004 it acquired the business of German-based DWL Elektronishe GmbH, enabling Compumedics to expand its product lines into the neurovascular and cardiovascular diagnostic ultrasonography fields.
Sleep-disordered breathing is more common in people with high blood pressure, heart disease, diabetes, and a number of other common medical conditions. It is thought that the lowering of blood oxygen during sleep and the frequent apnoeic episodes contribute to vascular, heart and brain dysfunction (such as stroke and memory impairment) for people with these medical conditions. As the understanding of the links between sleep quality and normal function across the whole range of body systems increases, new and valuable insights into the mechanisms of many common diseases, and the potential role for improving breathing and sleep quality in the treatment of those conditions will be gained.
The Company has in place the capability to diagnose and gain valuable insight into a range critical body functions that have linkages in a wide range of diseases and disorders. Accordingly, the Company’s technology turns vast amounts of data into valuable information that leads to more accurate diagnosis, and consequently, more effective treatment and therapy.
During 2007, Compumedics announced a further strategic development in the evolution of the company. Compumedics joined with Medigas Italia SrL, an Italy-based member of the Praxair, Inc. group of companies to commercialise the SomniLink® SPAP® autotitration gas-delivery device as a major advance on existing treatments for sleep apnoea. The first commercial units were delivered in December 2008.
In supplying market-leading diagnostic equipment to sleep centres, the Company has in place a strategic advantage in building a significant position downstream in the much larger sleep-treatment market. In 2006-07, profitability was restored after 18 months of restructuring. Through this period, and despite the significant appreciation of the Australian dollar, relative to other currencies, sales levels were maintained. Through this period, there was significant operational restructuring, especially with regard to sales and marketing in the key United States market. Annual cash costs were cut by $5 million and the Company was well placed to achieve its growth objectives. Profitability in 2009 is expected to be at record levels, with a considerable uplift in the six-month period to 31 December 2008.
Underpinning the Company’s growth has been its commitment to research and development (R&D). This commitment has ensured that the Company’s products remain at the forefront of sleep-diagnostics technology whilst ensuring an active program of new product development, such as with the SomniLink® SPAP® treatment device. The SomniLink® SPAP® is the culmination of 10 years of R&D, and is protected by intellectual property rights.
Achievements to 31 December 2008
Record half-year profit of $2.5 million
Financial half-year revenue of $17.1 million
Cash-on-hand of $1.4 million at 31 December 2008
Bank debt reduced by 30% to $1.9 million at 31 December 2008
Significant carryover orders-in-hand of $2.0 million to current half-year
Results achieved following restructuring in 2005-2006 that removed $5 million in annual cash costs
Profitability sustained despite global economic turmoil
Launch of three new products, including entry into sleep-treatment market
Well positioned for new opportunities and accelerated growth in the immediate future and beyond.
Achievements table – Bourse
Current Performance and Core Businesses
Results over the past four years are shown in Figure 1 and Table 1. The results for the six months ended 31 December 2008 confirm the strong performance of Compumedics’ core sleep-diagnostics and neurology and blood-flow businesses notwithstanding the current economic downturn. The result builds on the previous four six-month periods in which the Company restored profitability. Compumedics is back on track as an industry technology and performance leader. Its cash and profit positive results were records based on likefor – like historical financial information.
Compumedics is the world’s largest independent sleep-diagnostic technology company with over 4,000 sleep systems installed globally. Sound growth outlook and performance sustainability continue to consolidate with imminent launches of a new suite of products, including the Neuvo®, a long-term revolutionary monitoring clinical EEG-technology platform. The Company also launched is new Grael™ replacement sleep diagnostic product to confirm its leadership in this technology.
Compumedics manufactures and sells its products in four global markets, each market worth over $1 billion in annual sales and each experiencing double digit annual sales growth. The Company has a unique position in three areas of new technology and product development: sleep diagnostics and treatment; neurology; and Doppler blood-flow ultrasonography. Its technological leadership in these areas is being proven as it strengthens its sales positioning in these areas to fuel its business growth into the future. A key component of the Company’s strategy is to underpin its sales leadership into the future with a broad patent portfolio covering its technologies to create formidable barriers for competitors to enter its markets. The Company continues to develop its technology and patent portfolio by its commitment to investing in a world-class R&D programme.
Until recently, and through the Company’s rapid growth phase, Research & Development spending has been up to approximately 20% of sales. The strategy is now to hold the annual dollar spend relatively steady at around $5 million and then at approximately 12% of sales in the medium- to long-term.
Performance Summary – Bourse
USA Regulatory portable monitoring changes open USA market for Compumedics’key portable monitoring strengths
Compumedics has the most sophisticated and advanced range of portable sleep-monitoring systems. It has been recognised as the leader in this field since winning the contract to supply the world’s largest sleep study of its kind with portable systems; the Sleep Heart Health Study coordinated by the US National Institutes of Health, will have completed in the order of 20,000 sleep studies using Compumedics’ portable monitoring equipment by the end of this year. This study now forms the basis of a standardised on-line research sleepstudy reference database accessed by sleep researchers throughout the world.
Strategic Business Trajectory into Sleep-Treatment Market
The Company’s debut into the sleep-treatment business commenced with the achievement of the European CE mark signaling regulatory approval in Europe for sale of the SomniLink® SPAP® autotitration gasdelivery device. The initial delivery of product occurred in December 2008 under a $2 million and cash advance deal with Medigas Italia SrL, an Italy-based member of the Praxair, Inc. industrial conglomerate. The SomniLink® SPAP® is an integrated positive airway-pressure system for the treatment of sleep apnoea. The system is a major advance over the traditional CPAP (Continuous Positive Airway Pressure) systems by providing automatically variable air pressure to a patient through a nose mask. The system is unique as it responds to both very subtle changes in the upper airway resistance, and also very subtle changes in delivered airway pressure. The response varies according to the detected change in the airway pressure. Accordingly, the systems can be customised for individual treatment, taking into account online feedback of sleep parameters to minimise arousals during sleep treatment. Arousals can make the difference between effective sleep and disturbed sleep and its consequences. The Company is clearly focused on the global sleep-treatment market with discussions in progress with large organisations wanting to accelerate their access and position in the lucrative and rapidly growing USD$3 billion per annum sleep-treatment device market. The sleep-treatment market can be a much bigger opportunity than originally envisaged and the Company is in the process of appointing corporate advisers to consult on various options to enable maximum exploitation of the opportunity at hand.
The Company is actively seeking to expand its board membership to position it to best exploit its entry to the sleep-treatment market.
Mr David Burton, Executive Chairman and CEO
David founded Compumedics Sleep Pty Ltd in 1987, and under his leadership, the Company has established a significant global presence and was listed on the ASX in 2000 as Compumedics Limited. Mr. Burton has an Associate Diploma in Electronics from the RMIT University, and is currently completing a PhD (Eng. Sc.) in the area of medical technology innovation at Monash University.
David has received many awards recognising his achievements, including: the Clunies Ross National Science and Technology Award in 2002 for his development of innovative sleep monitoring technology; the 2003 Centenary Medal for outstanding contribution to science and technology; the Ernst & Young Victorian Entrepreneur of the Year award in 2003 for technology, communications, E-commerce and life sciences; and in 2007, he was inducted into the Victorian Manufacturing Hall of Fame Honour Roll for pursuit of excellence in manufacturing.
Dr Graham Mitchell AO, Non-Executive Director
Dr Mitchell, 66, is recognised as one of Australia’s leading biological scientists. His expertise extends over a wide range of science and technology fields. He has a detailed knowledge of the academia and industry interface, has authored more than 350 publications, and received numerous awards for scientific achievement.
Dr Mitchell is a principal of Foursight Associates Pty Ltd., and Non-Executive Director of Antisense Therapeutics Limited, the Geoffrey Gardner Dairy Foundation and AVS Pty Ltd. He acts as a principal adviser to the Victorian Government through the Council for Knowledge, Innovation, Science and Engineering.
Mr Alan Anderson, Non-Executive Director
Alan is a partner shareholder of Briggs & Morgan, a Minneapolis-based law firm. Alan is a leading American attorney in the areas of commercial litigation, intellectual property and computer law. He has represented Compumedics for many legal matters in the USA since late 1998.
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