Millions of people around the world regularly suffer through a terrible night’s sleep due to various medical issues such as sleep apnoea. Poor sleep is a widely acknowledged contributor to poor attention, diet and productivity – not to mention the declining sanity of its sufferers – so many companies are understandably on the lookout for the holy grail of treatments.
Yet even though there are a range of devices and drugs on the market, each comes with their own set of pros and cons and none as yet has a truly market beating moat. Let’s take a look at three promising companies listed on the ASX that use different approaches to tackle the issue and the investment case for each.
A global leader in the manufacture of CPAP (Continuous Positive Airway Pressure) devices, Resmed (ASX:RMD) has a well-established market with a high-quality range of products to treat a range of sleep related disorders. CPAP is the gold standard in OSA treatment, with a 100% efficacy rate when regularly used.
Double-digit revenue growth in 2019, healthy margins and a good amount re-invested in R&D means there could still be a long runway for Resmed to grow in FY20 and beyond. However at current levels, a lot of good news is already baked into the share price, and with a market cap of over $30 billion it’s by no means an undiscovered opportunity.
Furthermore, despite its healthy growth, CPAP treatment comes with a staggering 50% drop-off rate within the first year, so the question is, what happens to those patients who abandon treatment and can they be treated with a less cumbersome device
One potential disruptor at the other end of the risk spectrum is Oventus (ASX:OVN). Oventus have patented an airway management system called the O2Vent to treat OSA, but are yet to book any meaningful revenue. The mouthguard like device is unique in that it has an airway system running over the teeth and gums, giving patients a ‘second nose’ if their nasal passage gets obstructed. It’s a lightweight and less-cumbersome alternative to CPAP with a much higher retention rate based on clinical trials.
Founder and CEO Dr Chris Hart owns a large slice of the company and has publicly been getting very excited about their new ‘lab-in-lab’ model and the potential revenue the device could generate in the coming years.
Although the product has FDA clearance, it’s a relatively untested product in an already crowded ‘mouthguard’ market, so uptake may be less than predicted and the company is still a relative newcomer on the ASX. Nevertheless, sleep specialists in the United States and Canada are reportedly just as excited as the CEO about the potential here, and they are the ones who will ultimately sell the product.
Impression Health Care
For those with the highest appetite for risk, Impression Health Care (ASX:IHL) might also be worth a closer look.
Impression is currently working alongside Swinburne University to develop its own formulation of a man-made cannabis product, which can be taken as a simple pill. Whilst still in the clinical trial phase, there are nevertheless some early signs of effectiveness, and without question, taking a pill will be a far more attractive prospect for suffering patients than wearing a cumbersome facemask whilst trying to sleep.
An investment today might be considered premature, given FDA clearance and commercial revenue could be many years away, however if the drug proves effective and uptake is demonstrably better than CPAP and mouthguard devices, then the rewards for an early backer could be tremendous.
Time to sleep on it
Medtech and Biotech are not areas of investment for the faint of heart, but with high-risk comes the potential for high reward. The astute investor will also know that although OSA is a widely known problem, it is still very much an untapped market yearning for a smoking-gun solution.
There is a clear investment case for each of the companies here and each looks to have a promising future. But as with any deployment of your hard-earned capital, understanding the bear case better than the bears is the key – in the end, it may turn out to be the only thing that helps you sleep better at night.
Ben Stevens is a Melbourne-based private investor and Director of design studio Blendid. He specialises in working with passionate founders from innovative companies to establish their brand, find their voice and ultimately drive results.
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