- Respirators and other home medical devices set to continue growth post-pandemic
- London options are riskier than global players, but are promising big things
We have all grown used to the new necessities in healthcare. Over the past two years, companies selling lateral flow tests, vaccines and hospital ventilators have seen revenues rise accordingly.
The next boom market now looks to be telehealth and home care. The former was a previously unloved technology allowing patients to see their doctor online through video appointments, which took off after patients were asked to stay at home rather than risk a visit to the doctor mid-pandemic. Shares in American firm Teladoc (US:TDOC) tripled in value over the course of 2020 but then tumbled back down again last year, showing there is still work to be done to convince investors. Teladoc’s revenues continued to rise 80 per cent year on year, to $522mn (£385mn) in the three months to the end of September 2021, with few signs of slowing, despite the valuation drop.
By April 2020, remote appointments accounted for a third of all appointments in the US, according to estimates by McKinsey. While this proportion has since fallen and surveys show the majority of patients prefer to be seen in person, the number of virtual appointments is still a good 38 times higher than it was pre-pandemic. The massive backlog in the NHS will mean this remains a theme domestically, too.
The device market looks more stable right now. In January, US medical supplies firm Owens & Minor (US:OMI) acquired Apria, a maker of respirators for patients with sleep apnea for $1.45bn (£1.1bn), saying the move would expand the firm’s “presence in the higher growth home healthcare market”.
The wider trend will involve people moving away from long, costly hospital stays and into at-home care. Even before the pandemic, ageing populations and rising rates of diseases requiring long-term therapy, such as diabetes and chronic obstructive pulmonary disease (COPD), had led to a rapid increase in healthcare delivered in the home.
In the US, McKinsey notes that $265bn of care that is currently provided in hospitals and clinics could be transferred to the home by 2025, causing up to a fourfold increase in spending on at-home healthcare in that time.
Major players in healthcare are now racing to break the home healthcare market, focusing on high-margin medical devices for home-use.
Respirators and ventilators – which help people breathe by increasing the amount of oxygen in the air – are a key battleground. Before the pandemic, ventilators and respirators were primarily used by patients with COPD and sleep apnea. This technology has been in high demand since the pandemic began, with the World Health Organisation making urgent calls for donations of the equipment to hospitals in low-income countries.
London’s small-cap respirator maker Inspiration Healthcare (IHC), brought in an extra £7.3mn in one-off sales of Covid-19 ventilators over 2021, prompting brokers to forecast a 14 per cent drop Inspiration’s revenues for the second half of 2022. It has also already carved out a niche in the neonatal care sector.
Meanwhile, another entrant into the respirator space, Belluscura (BELL) was in the right place at the right time when it listed in June 2021. Its share price has tripled since listing, boosted by the start of respirator sales in September.
Far from causing a one-off surge in oxygen therapy, the Aim-traded medical devices company’s chief executive, Bob Rauker, said the pandemic had increased the long-term demand for respirators due to the needs of long-Covid patients. If this novel coronavirus becomes endemic as with the common cold or flu, this could add a sizeable base of short-term respirator users in the coming years.
Demand for oxygen delivery machines is already higher than ever due to a major product recall by Royal Philips (NL:PHIA). The Dutch firm has recalled 5.2mn ventilators used by sleep apnea patients, because of a faulty component that left users inhaling allegedly cancer-causing particles. At the same time, market leader Inogen (US:INGN) has had to temporarily halt production of their oxygen concentrators due to the semiconductor shortage.
Rival ventilator firm ResMed (US:RMD) has made a bid for the open ground, as the Philips recall has spurred ‘unprecedented’ demand for its devices, which it expects will bring in an extra $350mn in the coming year.
London’s small-cap challengers will find it difficult to compete with these titans of US healthcare, with four companies currently controlling 80 per cent of the oxygen therapy market.
That said, while Belluscura has only sold 377 of its respirators since launch in September, house broker Dowgate Capital (which is also run by a major shareholder in Belluscura) predicts it will sell 4,000 units this year, rising to 14,000 in 2023 and 50,000 by 2025. This may prove optimistic, but Belluscura is well-positioned to take on the new dynamic in healthcare, which prioritises end patients rather than hospitals. The devices Belluscura sells produce oxygen more efficiently and are lightweight, making it easier for patients to move around while using them. The company is also releasing an app later this year allowing doctors to track their patients’ health data while using an oxygen concentrator.
This seems optimistic, but Belluscura is well-positioned to take on the new dynamic in healthcare which prioritises end-patients rather than hospitals. The devices Belluscura sells (under a licence agreement with Separation Design Group) produce oxygen more efficiently and are lightweight, making it easier for patients to move around while using them. They are also releasing an app later this year allowing doctors to track their patients’ health data while using an oxygen concentrator.
The agreement with Separation Design Group requires sales of its first model of oxygen concentrator to reach $20mn within four years of the launch, or it will have to pay out $3mn. The 377 sold so far brought in around $400,000, according to Dowgate's estimates.
This sector as a whole unfortunately has plenty of growth ahead, so investors may breathe easier with exposure to companies ready for this evolution of healthcare.
