As sleep patients stay home, Itamar Medical's time arrives

Gilad Glick / Photo: Eyal Izhar, Globes

Covid-19 has made sleep clinics risky, which is where Itamar Medical's disposable home sleep apnea diagnosis kit comes in.

23 years after its establishment, medical device company Itamar Medical Ltd. (TASE:ITMR) (Nasdaq: ITMR), has finally done it - and in accursed 2020. Since the beginning of the year, the company has doubled in value. The 170% jump in Itamar's share price over the past year gives a NIS 1.2 billion market capto the company, which is traded on Tel Aviv and Nasdaq (where its IPO raised $35 million).

For the first quarter of 2019, Itamar reported $8.4 million revenue, a 39% increase over the same period last year, a $2 million loss, and $50 million in cash.

The recent rise in the share price is based on expectations for the company’s second quarter financials, in which the company is expected to report a "dramatic" increase in revenue from the product which has become its main offering: a perishable product for diagnosing sleep apnea.

Itamar Medical's current upswing is due neither to a dramatic change in its operations, nor to the launch of a new product, or recognition by way of a significant contract, but from a large number of small changes in the market that gradually shifted in its favor. Covid-19 provided the last push needed to move the market towards the product, called WatchPAT, which enables patients to diagnose sleep apnea at home instead of at a sleep clinic.

"The coronavirus has created a significant shift towards home diagnostic activity at the expense of sleep clinics, which accounted for about two-thirds of the market," says Itamar Medical CEO Gilad Glick. "Sometimes, you get lucky. The sleep clinic is an extreme ‘corona effect’ victim. At sleep clinics, patients snore all night, dispersing aerosol droplets everywhere. During the lockdown, sleep clinics were closed completely; even after the lockdown was lifted, the directives were not to diagnose at the clinic, especially with an at-home alternative available. We have experienced 10 to 15-year leap forward in terms of change in the market in our favor. "If home tests previously accounted for a third of the sleep apnea test market, and within that home test sub-market we had a share of about 22% compared with our main competitors, Phillips and ResMed, now, the home test market is larger, and we have grown with it. "Phillips and ResMed's products are inserted into the nasal passage, after having been up inside another patient's nostrils. Our product clips on to the finger. What would you prefer? Besides, even before Covid-19, we’d already developed a disposable product. Today, the professional sleep associations recommend using perishables - and we’re the only ones that have that. "

Is there a link between Covid-19 and sleep apnea?

"The coronavirus and sleep apnea are both linked to heart disease, but not everything is clear yet in this context. Beyond that, Covid-19 reduces lung capacity, which causes less oxygen to enter the bloodstream. If air intake is physically blocked, oxygen can drop faster to dangerous levels."

And what will happen after the Coronavirus ends?

"We believe that the clinics will make up no more than 50% of the market, and that disposables will continue to be significant. In May, we announced that we weren’t able to keep up with demand, even though we’d increased our production rate tenfold. We’ve doubled our workforce to over 150".

Itamar’s edge over sleep sector competitors

Itamar Medical, owned by the Viola Group, Dr. Giora Yaron and Martin Gerstel, was established to develop diagnostic technology based on vasoconstriction patterns. Initially, its product was developed for two applications: one - a new method for detecting cardiac disease; the other. for detecting sleep disorders. In both cases, diagnosis is carried out via a thimble-like device clipped to the patient's finger.

Over the years, the company firmly believed the cardiovascular product, called EndoPAT, was its main breakthrough, and it viewed the sleep apnea product as a source of occasional income. Glick himself, in his early days as CEO, also put most of his emphasis on the cardiovascular product ("We could have saved James Gandolfini," he said at the beginning of his career at the company in 2013).

The problem is that, although a great diagnostic product, the EndoPAT does not change clinical outcomes. People with risk factors for heart disease know they need to eat healthily, quit smoking, exercise and lose weight. Even people without risk factors know this. The problem is taking action. Early diagnosis of behavior leading to acute heart disease failed to change treatment dramatically.

By contrast, in the area of sleep, the company’s offering was an improvement over the competition: sleep clinics could be replaced by a relatively simple home test. The problem was that sleep specialists were invested in clinics and preferred to refer patients to them, rather than recommend Itamar Medical’s product.

Glick's breakthrough was appealing to cardiologists, and pinpointing those patients with sleep apnea, which also affects their cardiological condition. After the product began selling in this channel, additional moves were made, such as improving the insurance indemnity for the product, introducing it into professional association guidelines, developing a disposable product, collaborating with the remote medicine company BioTel Heart, and more.

Revenue slowly built up via the cardiologists, but Covid-19 was what finally brought around the sleep specialists to Itamar. "Now they're our good friends," Glick says. "They call and ask to be trained within two weeks, when in the past it took months. Today, we’re their main partner, whereas in the past, they gave us the leftovers. Today, a patient who isn’t diagnosed through us is an undiagnosed patient."

So, what will the sleep clinics do?

"If it's a hospital ward, it might close or downsize. If it's a private clinic, it might go bankrupt, but most somnologists are also pulmonologists, so they’re making a lot of money these days in this area."

Glick sees great growth potential in the relationship between sleep doctors and his company. "We entered in a roundabout way, by making contact with cardiologists, but it’s the sleep doctors who really control this market."

Breaking even (more or less) every quarter

Itamar Medical will release its second quarter report in the second week of August. "We continued to grow the variable that interests our investors, which is revenue, but without the operating loss ‘running away’ from us, and that’s what sets us apart from most American medical device companies that are in the same stage of development. We continue to break even, more or less, every quarter."

Now with Covid-19 limiting flights, are you able to maintain contact with the US, like an American company?

"Our management still allocates a lot of time and attention to our investors, including the occasional virtual 'Non-Deal Road Show' that the banks organize for us. The number of medical equipment investors worldwide, of course, is several orders of size larger than in Israel and, overall, the entire health sector has profited from the coronavirus.

"We see new money flowing into the medical device field, and money flowing within that field to remote medicine. Medical IPOs on Nasdaq are a hot item these days, and our share performance and high level of activity also proves there’s interest. We were added to the Tel Aviv-90 index, but that doesn’t explain all of the increase in our the volume of trading in our stock. "

What's next for the company?

" "Sleep apnea is our market. We don’t currently intend to expand into additional markets. We have $50 million in the bank, so we may make acquisitions or do collaborations, but even if we only grow organically in the US and global sleep markets, that gives us a tremendous growth horizon from quarter to quarter.

"The question is: where else can we monetize the same patient now that we’ve already made contact? With our consumable product, our patient downloads an app. That's wonderful - other digital healthcare companies make huge investments just in having people download their apps, while in our case, doctors simply tell their patients to download the app, and they do it. After that, the sky’s the limit: monitoring chronic patients, disease management, monitoring treatment response, providing additional therapeutic tips, and more."

Are you ripe for acquisition right now?

"I believe in every fiber of my being that companies should be bought, not sold. Meaning that, if we build our company, and if it is excellent, it will be acquired. Today, our value technically makes it a possibility, should another company think our activity gives it control over the patient from a very early stage in the diagnostic process. But we also have a great deal of potential, and selling the company right now is not necessarily the best option for our investors."

Itamar Medical
Founded: 1997
Area of activity: Sleep apnea diagnosis
CEO: Gilad Glick
Number of employees: About 150 in Caesarea, Israel, and more in the US
Major shareholders: Viola Group, Giora Yaron, Martin Gerstel
Market cap: About NIS 1.2 billion
Revenue in 2019: $31 million
Loss in 2019: $5.3 million

Published by Globes, Israel business news - en.globes.co.il - on August 5, 2020

© Copyright of Globes Publisher Itonut (1983) Ltd. 2020

Gilad Glick / Photo: Eyal Izhar, Globes
Gilad Glick / Photo: Eyal Izhar, Globes
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