Small Caps | Apr 10 2018
G Medical Innovations is a small medical device company with two key products it intends to distribute globally. TMT Analytics initiates coverage.
-Products to become available commercially in approved markets late in the June quarter
-Obtaining approval for Chinese manufacturing facilities crucial to tap into global market
-Should be able to generate strong gross margins over the medium term
By Eva Brocklehurst
G Medical Innovations ((GMV)) is commercialising a range of mobile monitoring systems for vital signs that should provide major cost savings for the health system. These monitoring systems allow patients to remain mobile in hospitals and at home.
TMT Analytics, in reviewing the stock, acknowledges its financial projections are steep but believes there is actually upside risk to the forecasts, especially if the company can manufacture and assemble its products in enough volume that enable the servicing of multiple large markets.
The first two products are the Prizma medical smartphone case and the G Medical Patch (GMP), which can measure vital signs such as heart rate, blood pressure, body temperature, respiration rate, body position, blood blood oxygen saturation and ECG.
Both products can wirelessly transmit patient data to physicians using 4G or Wi-Fi. The Prizma can mostly be considered a consumer product while the GMP needs to be prescribed by medical professionals.
The Israel-based company is targeting global markets including the US, Europe, China and India and has already achieved CE status for both products in Europe as well as US FDA approval for the Prizma. The products are expected to become commercially available from late in the June quarter in countries where regulatory approval has been received.
TMT Analytics acknowledges that the Prizma solution encounters competition from a variety of players, ranging from traditional health firms and IT/app developers to pure-play companies which are disrupting the segment. This has resulted in a highly fragmented market.
While these apps provide information, the majority lack the functionality to do more in relation to health and this limits the competition in the personal health tracking space.
In the case of the GMP product, the company is likely to compete against those that offer remote patient monitoring (RPM) solutions, led by publicly-listed medical devices company such as Medtronic and Biotronik. The analysts suggest G Medical can potentially look to partner with platforms to accelerate its presence in this segment.
Milestones
TMT analytics believes obtaining FDA approval for the GMP in the US, expected in the second half of FY18, and CFDA approval for the Prizma and GMP in China are critical to the company's outlook. Obtaining approval for Chinese manufacturing and assembly facilities will be crucial for the company to scale up its production to desired levels.
An expedited approval process is already underway in China and relevant approvals are expected in the June quarter. Not only will the facilities be crucial for the global supply they will also supply a significant target market in its own right.
The company will support the roll out of GMP through its Texas-based call centre that currently sells other third-party monitoring devices. It has commercial agreements in place with around 200 health insurance companies in the US. These relationships remain critical for the company from a reimbursement perspective.
TMT Analytics believes the centre will play a role in the commercial roll out of GMP, as it provides direct support to both patients and physicians. Also, the proprietary product allows a substantially higher margins compared with the third-party products the company sells through the centre.
Financials
The analysts estimate GMP will be able to generate strong gross margins from its hardware product of between 60-80% in the medium term while the long-term operating earnings margin should level off between 40-45%.
TMT Analytics anticipates GMP will require an additional US$10-12m in funding to cover working capital and capital expenditure requirements in 2019 and 2020. A substantial part could be debt-financed on the back of incoming purchase orders, thereby avoiding dilution for existing shareholders, the analysts suggest.
TMT Analytics believes a key element in the investment case is the company's track record in building a business such as GMP. Company CEO, Yacov Geva, has brought several key staff from LifeWatch to operate at the Texas centre. Dr Geva founded LifeWatch AG and listed it before it was acquired by BioTelemetry in 2017 for US$280m.
The analysts commence research coverage with a Buy recommendation and 94c target, based on the valuation multiples of NASDAQ-listed peers.
NB: TMT Analytics is being paid by the company for the research.
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