- Regulatory approval for SLE6000 ventilator in Japan.
- Order received from Japanese distributor for immediate dispatch.
- Operational efficiencies from SLE acquisition likely to be achieved sooner than expected.
Crawley-based Inspiration Healthcare (IHC:125p), a fully integrated medical technology company with a strong focus on the high-growth neonatal intensive care market, has received regulatory approval in Japan for its enhanced SLE6000 neonatal ventilator. The company’s Japanese distributor placed a £400,000 order for the system, too.
SLE launched its SLE6000 range of ventilators in 2016 and was a key reason why Inspiration acquired the company in a £18m deal last summer. The SLE6000 offers high-frequency oscillatory ventilation which can be used on the most critical babies alongside conventional modes of ventilation such as continuous positive airway pressure (CPAP). Inspiration’s Inspire nCPAP and First Breath nCPAP (acquired with VIOMEDEX in 2019) breathing circuits can be used with SLE6000, thus providing an opportunity to bundle the products together.
Previously, Inspiration had been selling breathing circuits for use on third-party ventilators. In contrast, SLE’s main source of revenues is from the sale of its ventilator equipment, but it made little revenue from the distribution of third-party breathing circuits. Importantly, the VIOMEDEX breathing circuit is already distributed by SLE. So, by bundling consumable breathing circuits with the sale of SLE’s ventilators, and expanding market penetration for both product lines into a larger installed ventilator and consumable customer base, Inspiration can now introduce its breathing circuits to new customers who are using rival products. Penetrating the Asian market is an important step.
To put the scale of the Japanese opportunity into perspective, for every 50 ventilators sold at £10,000 per unit, Inspiration could generate an additional £0.5m of revenues and that excludes income from cross-selling consumables. Regulatory approval is expected in China, too. For the financial year to 31 January 2022, analysts previously anticipated £0.5m of additional SLE6000 sales in Asia. Clearly, with one order of £400,000 already booked then the risk to estimates is to the upside. Furthermore, analyst Chris Donnellan at house broker Cenkos Securities now believes that “operational efficiencies [from the SLE acquisition] are being achieved sooner than we expected”.
Inspiration’s share price has kicked on 39 per cent since I highlighted the investment opportunity at 90p (‘Five small-caps with earnings upgrade tailwinds’, 2 February 2021), and is 67 per cent higher than when I initiated coverage, at 75p (Alpha Research: ‘Profit from a medical technology winner’, 27 October 2020). Trading on a trailing cash-adjusted price/earnings (PE) ratio of 20, Inspiration’s growth potential is still not yet fully priced in and I raise my target price to 150p. Buy.
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