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Research: Healthcare
To support an optimal roll-out of its US commercialisation strategy for its wheezo device, Respiri recently announced several cost-saving initiatives, the latest being a reduction in the CEO’s and executive chairman’s FY23 cash compensation by a combined A$180k. In exchange, the company will offer bonus/milestone payments, contingent on achieving certain patient recruitment targets (elucidated below). This announcement follows management’s recent establishment of a Centre of Digital Innovation Excellence in the Philippines to drive efficiencies with a lower cost footprint (estimated to reduce IT costs by c A$700k, along with a 30% improvement in productivity). All cost savings will be redirected towards onboarding patients in the US. We also note that Respiri recently raised A$1.6m through share placements to support its US roll-out plans (40m shares to be issued on 7 October versus 23 September previously). Our valuation remains unchanged at A$0.24 per share.
Written by
Respiri |
Focus on cost optimisation |
Cost savings update |
Healthcare equipment |
6 October 2022 |
Share price performance
Business description
Analysts
Respiri is a research client of Edison Investment Research Limited |
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To support an optimal roll-out of its US commercialisation strategy for its wheezo device, Respiri recently announced several cost-saving initiatives, the latest being a reduction in the CEO’s and executive chairman’s FY23 cash compensation by a combined A$180k. In exchange, the company will offer bonus/milestone payments, contingent on achieving certain patient recruitment targets (elucidated below). This announcement follows management’s recent establishment of a Centre of Digital Innovation Excellence in the Philippines to drive efficiencies with a lower cost footprint (estimated to reduce IT costs by c A$700k, along with a 30% improvement in productivity). All cost savings will be redirected towards onboarding patients in the US. We also note that Respiri recently raised A$1.6m through share placements to support its US roll-out plans (40m shares to be issued on 7 October versus 23 September previously). Our valuation remains unchanged at A$0.24 per share.
Year end |
Revenue |
EBITDA* |
PBT* |
EPS |
P/Revenue |
P/E |
06/21 |
1.4 |
(8.4) |
(8.5) |
(1.22) |
22.3 |
N/A |
06/22 |
0.8 |
(6.2) |
(6.3) |
(0.87) |
41.4 |
N/A |
06/23e |
5.0 |
(2.3) |
(2.3) |
(0.29) |
6.4 |
N/A |
06/24e |
8.1 |
0.4 |
0.4 |
0.03 |
4.0 |
121.3 |
Note: *EBITDA, PBT & EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. FY23 & FY24 EPS adjusted for new shares.
The A$180k reduction in FY23 cash remuneration consists of A$100k from CEO Marjan Mikel and A$80k from executive chairman Nicholas Smedley. To compensate for the forgone cash compensation, Respiri has established certain patient recruitment targets up until 30 June 2023, achievement of which will trigger bonus/milestone payments. Also as part of the salary restructuring, all outstanding vested options held by the two senior executives (totalling 22.5m) were cancelled.
FY23 milestone-led bonus payments
Marjan Mikel |
Nicholas Smedley |
|
5,000 contracted patients |
A$34,000 |
A$29,070 |
7,500 contracted patients |
A$34,000 |
A$29,070 |
10,000 contracted patients |
A$34,000 |
A$29,070 |
12,500 contracted patients |
A$48,000 |
A$17,790 |
Source: Company press release, 5 October 2022.
Given that two hospital clients have already been onboarded (patient recruitment expected to commence shortly) and the company has indicated a strong sales pipeline, we believe these targets to be achievable, provided feedback and early trends from pilot programmes are positive.
Respiri’s efforts to slim down its cost structure have already achieved savings through restructuring its manufacturing and marketing efforts. This includes a significant reduction in wheezo manufacturing costs following its collaboration with Entech Electronics (February 2020) and materially lowering SG&A expenses, courtesy of the partnered remote patient monitoring model it applies in the US. Offshoring IT-related activities to the Philippines is another initiative by the company to further reduce costs while accessing a wide specialist pool. Compensation cuts, in contrast, appear to be a more short-term fix to maximise the use of available resources during the crucial initial market push.
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Research: Healthcare
Quantum Genomics’ H122 results showed the company is on steady footing as it approaches a key inflection point. Top-line data from the Phase III FRESH study, investigating the use of firibastat in treatment-resistant hypertension (TRH), is expected to be presented at the American Heart Association (AHA) annual meeting on 7 November and, if positive, we expect data could form the basis of a global licensing deal. In H122, the company reported total revenues of €4.1m (including a €1.2m R&D tax credit), in line with our expectations. Lower total operating costs of €12.5m have led us to trim our FY22 loss before tax to €17.1m from €20.2m. With a net cash position at end-June 2022 of €16.5m, we see the company as funded to Q223, past key results from the FRESH trial and with time to negotiate a licensing deal. We value Quantum Genomics at €728.8m or €21.1 per share (previously €701.3m or €20.3 per share).