Respiri — Investor recap of Respiri’s strategic focus

Respiri (ASX: RSH)

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Research: Healthcare

Respiri — Investor recap of Respiri’s strategic focus

Respiri’s recent investor presentation recapped management’s strategic rationale for and the merits of the company’s proposed acquisition of Access Managed Services, its US remote patient monitoring (RPM) and chronic care management partner. We maintain that the acquisition will provide further impetus to Respiri’s US commercialisation plans for wheezo, diversify the company’s operations and expand the addressable market. Importantly, the post-acquisition RPM monthly annuity will rise to US$70–100 from US$10–20 per patient, allowing break-even to be reached at 9,000 patients (by end-CY24) versus 30,000 patients previously, a target we see as more achievable. The decision to pay out the US$3m deal consideration over three milestone-linked tranches is also sound, tempering the financing risk, in our opinion. We will present our revised estimates and valuation following the deal closure, which we expect by early July 2023.

Soo Romanoff

Written by

Soo Romanoff

Managing Director - Head of Content, Healthcare

Healthcare

Respiri

Investor recap of Respiri’s strategic focus

Acquisition update

Healthcare equipment

7 June 2023

Price

A$0.038

Market cap

A$32m

US$0.66/A$

Net cash (A$m) at end-March 2023

0.9

Shares in issue

843.2m

Free float

79.6%

Code

RSF, RSUF

Primary exchange

ASX

Secondary exchange

OTCQB

Share price performance

%

1m

3m

12m

Abs

(24.0)

(38.7)

2.7

Rel (local)

(23.0)

(37.0)

4.3

52-week high/low

A$0.07

A$0.03

Business description

Respiri is an Australia-based medical device and SaaS company focused on respiratory health management through its integrated wheezo platform. The device is a breath sensor that works with the Respiri mobile applications to record data such as wheeze rates, breath recordings and other environmental factors and medication usage, which can be accessed by physicians in real time. wheezo received FDA clearance in March 2021 and launched in the US in December 2021. In May 2023, Respiri announced the acquisition of US RPM partner Access which, after deal closure, will make it one of the few RPM companies with its own IP (wheezo).

Next events

Access acquisition completion

July 2023

Analysts

Soo Romanoff

+44 (0)20 3077 5700

Jyoti Prakash, CFA

+44 (0)20 3077 5700

Respiri is a research client of Edison Investment Research Limited

Respiri’s recent investor presentation recapped management’s strategic rationale for and the merits of the company’s proposed acquisition of Access Managed Services, its US remote patient monitoring (RPM) and chronic care management partner. We maintain that the acquisition will provide further impetus to Respiri’s US commercialisation plans for wheezo, diversify the company’s operations and expand the addressable market. Importantly, the post-acquisition RPM monthly annuity will rise to US$70–100 from US$10–20 per patient, allowing break-even to be reached at 9,000 patients (by end-CY24) versus 30,000 patients previously, a target we see as more achievable. The decision to pay out the US$3m deal consideration over three milestone-linked tranches is also sound, tempering the financing risk, in our opinion. We will present our revised estimates and valuation following the deal closure, which we expect by early July 2023.

Year

end

Revenue
(A$m)

EBITDA*
(A$m)

PBT*
(A$m)

EPS*
(c)

P/revenue
(x)

P/E
(x)

06/21

1.4

(8.4)

(8.5)

(1.22)

22.3

N/A

06/22

0.8

(6.2)

(6.3)

(0.87)

41.5

N/A

06/23e

1.7

(4.2)

(4.2)

(0.51)

18.7

N/A

06/24e

5.9

(1.1)

(1.1)

(0.13)

5.5

N/A

Note: *EBITDA, PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Access deal to springboard Respiri’s growth

We believe the proposed acquisition of Access to be an extension of the already successful collaboration Respiri has had with the RPM provider since February 2022, with improved oversight likely to expedite new customer adoption and patient onboarding. The wheezo health portal is already integrated with Access’s RPM platform, Remotli, and we see potential for further synergies to be unlocked. We also note that Access’s presence in other disease areas such as cardiovascular conditions, diabetes and obesity provides upside growth opportunity for Respiri (three times the current addressable market, according to Respiri) with potential for incremental revenues under the chronic care management (CCM) codes.

New funding to offer additional headroom

Based on the Q323 operating cash burn rate of A$1.2m (end-March 2023 net cash of A$0.9m), we expect the A$6.5m capital raise (including a A$2m share purchase plan and A$4.5m in convertible notes) to provide up to a 12-month cash runway, including payment of the first two tranches (total US$1.5m/A$2.3m) of the acquisition consideration. This includes US$1.25m upfront and US$0.25m three months post deal closure. An additional US$1.5m will be payable 12 months post deal closure, contingent on the monthly RPM patient enrolment exceeding 6,000.

Valuation: Unchanged pending deal closure

Our valuation remains virtually unchanged at A$164.2m (A$165.5m previously) or A$0.2/share after incorporating the latest net cash figure and pending completion of the proposed acquisition of Access and the fund-raise. We will present our revised estimates and valuation following completion of the proposed acquisition, which we anticipate will conclude by early July 2023.

Acquisition of Access strategic to future plans

Potential to improve recurring RPM revenue by five- to 10-fold

Respiri’s partnership with Access has been the lynchpin in growing its commercial footprint in the United States to date, with 10 healthcare clients signed, several of which are onboarding patients for wheezo prescriptions and RPM services (over 200 patients have been onboarded; 3,500 additional prospects in the pipeline). While Respiri and its differentiated respiratory device wheezo have been garnering significant market interest, management notes that patient onboarding has been slower than anticipated and we believe this to be one of the core reasons for Respiri to acquire its commercial partner in the United States. We also maintain that this acquisition accords Respiri multiple growth opportunities, including potential acceleration of new customer acquisition and patient onboarding with a more direct oversight of operations, as well as an increased monthly RPM annuity stream – US$70–100 per patient per month versus US$10–20 currently. This involves a broader coverage of RPM current procedural terminology (CPT) codes versus what the earlier business model entailed (see Exhibit 1). Note that RPM reimbursement in the United States is physician led (ie reimbursement is directed to the healthcare provider for providing the monitoring services), although since 2020 these services are allowed to be outsourced to third-party providers such as telehealth companies. These companies assist healthcare providers in implementing and running the RPM programme, eg with patient enrolment, monitoring, compliance and billing in return for a share of the reimbursement pie (as a pay-for-service fees). Whereas earlier Respiri was eligible to receive a proportion of the reimbursement under the CPT code 99454 (automated data transmission from the medical device to the provider’s RPM platform), the acquisition of Access should allow it to tap the other RPM codes as well, increasing the potential annuity stream by five- to 10-fold. This should also allow the company to reach break-even at a much lower number of recurring patients – 9,000 versus 30,000 previously. Management anticipates reaching this target by H2 CY24. We see this as achievable, provided the revised business strategy is implemented and executed as per plan.

Exhibit 1: Relevant RPM reimbursement codes under the expanded scope

Source: Respiri investor presentation, June 2023

Further upside potential from chronic care management

Further leveraging the acquisition in the longer term, we expect Respiri to position itself as a diversified and differentiated RPM provider with an in-house intellectual property (wheezo), which we anticipate will be used to spearhead discussions with relevant stakeholders and hospital networks. We note that Access already has an established footprint in managing other chronic indications such as cardiovascular conditions, diabetes and obesity, and expect subsequent discussion to focus on the entire suite of services across indications, led by the wheezo programme. We believe that this can materially increase the revenue opportunity from each client and potentially generate customer stickiness for Respiri. According to the company, the acquisition will result in a threefold expansion of its US addressable market, from the current c 50 million asthma/ chronic obstructive pulmonary disease (COPD) patients to c 150 million including other chronic indications currently tracked and monitored under RPM programmes (see Exhibit 2).

Exhibit 2: Post-acquisition growth in addressable market

Source: Respiri investor presentation, June 2023. Note: 1. CDC. COPD (accessed 29 Nov 2022). 2. CDC. Asthma (accessed 29 Nov 2022). 3. May S & Li J. Allergy Asthma Proc. 2015. 4. YooJ, et al. Aust J Gen Pract. 2019. 5. BednarekM, et al. Thorax. 2008. 6. https://www.rand.org/blog/rand-review/2017/07/chronic-conditions-in-america-price-and-prevalence.html. 7. https://ncoa.org/article/get-the-facts-on-chronic-disease-self-management

A broader coverage of chronic conditions should also allow Respiri to become eligible for reimbursement under the CCM codes, which involve care coordination and management for patients with co-morbidities or multiple chronic conditions (Exhibit 3). According to the US Centres for Disease Control and Prevention, over 50% of the US adult population has at least one chronic condition with c 27% of the population having multiple co-morbidities. This figure stands at 47% for the population over the age of 55.

Exhibit 3: Incremental revenue opportunity from potential CCM services

Source: Respiri investor presentation, June 2023

We also believe that access to real-world data from a broader number of disease areas should allow Respiri to develop more robust artificial intelligence driven algorithms and programmes over and above those used with wheezo to detect abnormal breath sounds, which should aid in developing improved products and services in the future for the company.

The proposed acquisition will be headed by Respiri’s newly appointed head of US business and chief commercial officer, William Sigsbee, with Access continuing to operate under its own brand and workforce.

Deal economics – a c A$4.5m priced tag…

Total acquisition consideration for the deal has been pegged at US$3m (A$4.5m) to be paid in three tranches:

1.

Upfront payment of US$1.25m at completion of the proposed transaction.

2.

US$0.25m payable three months after deal closure.

3.

Up to US$1.5m payable 12 months post deal closure contingent on RPM patient enrolment exceeding 6,000 per month.

The transaction is subject to conditions, including Respiri raising a minimum of US$2.5m in funding. We believe that this milestone-based payment reduces the financing risk associated with the deal by spreading out the payment over a period of time. Access currently has 10 healthcare customers, including from large healthcare providers and smaller primary care physician clinics. In addition, management has indicated that a further six potential contracts are in the advanced stages of discussion, with several others in the pipeline.

…funded through a A$6.5m capital raise

Respiri plans to fund the acquisition, US commercial roll-out and near-term working capital requirements through a A$6.5m fund-raise. This includes convertible notes worth A$4.5m to a US-based institutional investor, Obsidian Global Partners (non-binding term sheet signed). In addition, Respiri aims to raise another A$2m under a share purchase plan (SPP), with each shareholder entitled to subscribe for up to A$30k worth of shares. The offer will include one attached free option for every two shares subscribed (offer closure expected by 20 June 2023, with the new shares entering circulation by 27 June).

The pay-out for the A$4.5m convertible note to Obsidian Global will be made in two tranches of A$2.5m (upfront) and A$2m (subject to mutual agreement and shareholder approval). Tranche one of the convertible notes will be issued after the signing of the definitive document. The notes will have a face value of US$1.15/unit with the face value on the remaining balance rising by 10% after 12 months. The maturity date will be 36 months from the date of issue (June 2026). The conversion price will be fixed at 30% premium to the volume weighted average price (VWAP) in the five days prior to the execution of the definitive document. If the VWAP after 90 days is lower than the fixed conversion price, Respiri will be required to redeem a specified number of convertible notes, either through cash payment or by issuing shares at a 10% discount to the average of the lowest five daily VWAPs in the 15 days prior to the notice date. Conversely, Obsidian Global would be bound to convert 50% of the remaining convertible notes if any month’s VWAP is a 75% premium to the fixed conversion price. This will be conditional on the average trading volume over this period being at least A$50,000 per day. The maximum number of shares to be issued on conversion of tranche one will be 117.8m shares (without needing shareholder approval). Obsidian Global will be entitled to a 25% option coverage as part of the deal (strike price of A$0.0650/unit).

Valuation

We adjust our valuation for the latest available net cash figure at end-March 2023 (A$0.9m) while keeping our underlying assumptions unchanged as of now, pending completion of the acquisition of Access and the concurrent A$6.5m fund-raise. Our valuation remains virtually unchanged at A$164.2m (A$165.5m previously) or A$0.2/share. We will present our revised estimates and valuation following completion of the acquisition and fund-raise, which we anticipate by early July 2023.

Exhibit 4: Respiri risk-adjusted NPV

Product

Indication

Geography

Clinical stage

Launch

Peak

Peak sales
(US$m)

NPV
(A$m)

Probability

rNPV
(A$m)

rNPV/
share* (A$)

wheezo

Asthma and COPD

United States

FDA 510(k) clearance

2022

2035

108.4

163.3

100%

163.3

0.19

Net cash at end-March 2023

0.9

100%

0.9

0.00

Valuation

164.2

164.2

0.20

Source: Edison Investment Research. Note: *Shares outstanding = 843.2m (excluding shares to be issued under the June 2023 SPP offer).

Exhibit 5: Financial summary

A$'000s

2021

2022

2023e

2024e

Year-end June

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

1,436

772

1,712

5,872

Cost of Sales

(1,263)

(259)

(134)

(541)

Gross Profit

 

 

173

513

1,578

5,331

R&D expenses

(1,387)

(1,463)

(878)

(1,094)

Sales & marketing expenses

(2,185)

(917)

(229)

(809)

General & corporate expenses

(5,032)

(4,371)

(4,630)

(4,508)

EBITDA

 

 

(8,432)

(6,238)

(4,159)

(1,079)

Depreciation

(80)

(82)

(40)

(26)

Amortisation

0

0

0

0

Operating Profit (before amort. and except.)

 

 

(8,512)

(6,320)

(4,199)

(1,105)

Intangible Amortisation

0

0

0

0

Share-based payments

(2,530)

(311)

(289)

(303)

Exceptionals

0

0

0

0

Operating Profit

(11,042)

(6,631)

(4,487)

(1,409)

Net Interest

1

7

2

1

Profit Before Tax (norm)

 

 

(8,510)

(6,313)

(4,197)

(1,105)

Profit Before Tax (reported)

 

 

(11,040)

(6,624)

(4,485)

(1,408)

Tax

0

0

0

0

Profit After Tax (norm)

(8,510)

(6,313)

(4,197)

(1,105)

Profit After Tax (reported)

(11,040)

(6,624)

(4,485)

(1,408)

Average Number of Shares Outstanding (m)

699.1

728.6

823.1

842.4

EPS - normalised fully diluted (c)

 

 

(1.22)

(0.87)

(0.51)

(0.13)

Dividend per share (c)

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

162

83

60

51

Intangible Assets

0

0

0

0

Tangible Assets

162

83

60

51

Investments

0

0

0

0

Current Assets

 

 

8,945

4,123

2,788

3,466

Stocks

537

2,651

2,262

2,520

Debtors

136

50

112

383

Cash

7,973

1,217

210

359

Other

299

204

204

204

Current Liabilities

 

 

(1,467)

(1,198)

(871)

(948)

Creditors

(1,295)

(790)

(674)

(751)

Short term borrowings

0

0

0

0

Other current liabilities

(172)

(408)

(198)

(198)

Long Term Liabilities

 

 

(71)

0

0

(2,000)

Long term borrowings

0

0

0

(2,000)

Other long term liabilities

(71)

0

0

0

Net Assets

 

 

7,570

3,008

1,976

568

CASH FLOW

Operating Cash Flow

 

 

(7,339)

(8,478)

(4,444)

(1,834)

Net Interest

1

7

2

1

Tax

0

0

0

0

Capex

(54)

(2)

(17)

(18)

Acquisitions/disposals

0

0

0

0

Financing

12,533

1,639

3,454

0

Dividends

0

0

0

0

Net Cash Flow

5,141

(6,834)

(1,005)

(1,851)

Opening net debt/(cash)

 

 

(2,835)

(7,973)

(1,217)

(210)

Other

(3)

78

(2)

(1)

Closing net debt/(cash)

 

 

(7,973)

(1,217)

(210)

1,641

Source: Company accounts, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by Respiri and prepared and issued by Edison, in consideration of a fee payable by Respiri. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by Respiri and prepared and issued by Edison, in consideration of a fee payable by Respiri. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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Research: TMT

Claranova — Potential sale of non-core Avanquest activities

Claranova has announced that it is in discussions to sell Avanquest’s non core activities in Europe. These activities make up less than 15% of Avanquest’s revenues and do not fit with the division’s strategy of developing proprietary SaaS solutions focused on three key segments. On a lower margin than the divisional average, the disposal should improve the profitability of Avanquest.

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