The following is an extract from the report.
Highlights
iSonea is an emerging medical technology company with new and innovative products for continuous asthma monitoring, which address an unmet medical need in the growing US asthma market.
The company has already received a number of regulatory approvals, and is seeking more. All of KSX’s products are cleared by the US FDA, the Australian TGA, and carry the European Union’s CE Mark. KSX is also seeking additional regulatory clearances in China, Japan, and Korea.
KSX patent portfolio and regulatory approval successes have attracted interest from large companies in the respiratory device and services market. We would expect to see significant strategic partnership deals announced over the next 12 months.
KSX is planning near term clinical studies to confirm efficacy and improve reimbursement. KSX’s large scale clinical study will provide data for a potential upgrade to a Category I CPT code (from its current level III CPT code), which carries with it improved reimbursement. The data from this clinical study will also be leveraged to solidify reimbursement in other countries around the world (e.g. the UK, Germany, France, Australia, Japan, China and India).
KSX could be a potential take out target
As management executes on its new strategy, we believe KSX could become an attractive candidate for an acquisitive large device company looking to leverage KSX’s unique technology.
Consequently, at this stage we expect KSX’s value to be viewed more accurately through the lens of an acquisition vs. a multiple of future revenue or earnings.
Valuation
The shares appear to be undervalued considering KSX’s potential growth profile and acquisition attractiveness.
Successful emerging medical device companies with unique technologies designed to address unmet needs often trade at high revenue multiples based upon strategic partnership opportunities, patent portfolios, and clinical trial results.
As KSX positions itself as a technology leader in a large and growing market, and management executes its strategy (successfully concluding clinical trials, receiving Category I CPT codes, and engaging key strategic partnerships) shares should begin to trade in-line with peers over the coming 12 to 24 months.
Peer Comparison
Milestones achieved to date
- Securing 510(k) clearance from the US Food and Drug Administration (FDA) for all of its current products.
- Consummating distributor agreements in the US and around the world.
- Receiving approval from the US Centers for Medicare and Medicaid Services (CMS) for reimbursement under the American Medical Association’s (AMA’s) Category III (emerging technology) code in its “Current Procedural Terminology (CPT®).
Catalysts that might drive the stock going forward
- Initiate and complete clinically significant ”economic outcome” studies to establish the cost-effectiveness and clinical utility of using KSX technology to manage asthma.
- Use that data to file for a Category I (standard of care) CPT code, leading to more consistent reimbursement from healthcare payors.
- Execute strategic partnership deals with 1-2 global companies in the respiratory medical device and healthcare services sectors to accelerate adoption rates by physicians for KSX products.
Outlook on the Asthma Treatment Market
The asthma treatment market offers substantial potential as more than 300 million people in the world and more than 25 million in the US suffer from asthma.
Furthermore, the CDC reports that the asthma treatment market has grown over 21% during the past decade.
As with all paradigm shifting technologies, the potential for growth extends beyond traditional approaches as the technology enables new products and services not presently available.
In addition to traditional asthma medical device sales, KSX estimates that the technology can provide solutions such as cost effective, objective, and easy to use monitoring services that are currently not available.
Also, longer-term KSX expects to offer a consumer version of its WheezoMeter™ that leverages smartphones (e.g. iPhone, Android, BlackBerry) via a software application.
Current position
While KSX is positioned to generate revenue via agreements with distributor organizations around the world, the company plans to focus the majority of its efforts over the next few years on the US asthma market.
According to the CDC, the direct and indirect asthma costs exceed $56 billion per year in the US, or $3,250 per person.
Improving patient outcomes and reducing asthma costs has been a primary focus of third party payors (e.g. managed care organizations or MCOs), employers, disease management firms (e.g., Alere, Healthways), and Medicare over the past decade.
We believe that obesity, poor air quality, and an aging “baby boomer” population will continue to drive market growth for the next decade, representing a strong macro-demographic tailwind for KSX products.
Technology and Products
The technology. Currently available technology, such as spirometry, use a metric called Forced Expiratory Volume in one second (or FEV1) to demonstrate the severity of asthma in a patient.
The patient must breathe as hard as possible into a machine, which a snapshot of the patient’s breathing disorder severity.
The KSX technology uses a completely different, noninvasive, passive approach to measuring asthma severity which the company calls the “wheezeRATE™.”
Using wheezeRATE™ instead of FEV1 allows KSX to provide physicians with a more patient friendly, passive, objective measurement that doesn’t cause patient discomfort, is easy to use on children and the elderly, and also allows for chronic monitoring, as recommended by The American Thoracic Society (ATS) guidelines.
KSX technology works by using sensors applied directly to patient’s throat or through a set of well placed electrodes, depending on the product. Measurements from these sensors are then recorded.
The recording can provide either a quick snapshot or chronic monitoring of the patient’s condition.
In either case, what the doctor receives is an easy to read summary explaining the current state of the patient’s breathing.
The diagnostic precision of wheezeRATE has been illustrated in several scientific posters, which have compared the accuracy of using wheezeRATE vs FEV1; early data indicates that wheezeRATE has a linear correlation to FEV1 at the moderate and severe levels (see Exhibits 1 and 2 below).
The company plans to run pivotal trials, with the help of select strategic partners, over the next 12 months to validate the efficacy of its technology and use the data to move its Category III CPT code to a Category I code (see R&D section later on for more details).
The products
KSX has a portfolio of several products that help physicians and patients improve asthma management at a lower cost and at a greater ease of use/convenience to the end users.
The current standard of care for asthma diagnosis or severity measurement is spirometry.
This product is expensive (ASP at $2,200), uncomfortable, difficult for patients to use and is not easily portable. The peak flow meter, which is often used in the patient’s home, is inexpensive, but very unreliable and the values are difficult for the physician to interpret.
Most importantly, all of the current technologies fail to enable patients and physicians to meet The American Thoracic Society clinical guidelines requiring monitoring.
KSX currently offers four products: the Clinical WheezoMeter™, Personal WheezoMeter™, WHolter™, and Pulmotrack®.
The Pulmotrack® is a hospital based product, that may help the company to seed key opinion leaders KOLs at tertiary care centers. The company has been successful in its early efforts attracting KOLs, mostly pulmonologists, to test and purchase small numbers of KSX products.
If the company is successful in leveraging the sales force of strategic partners, KSX will have an opportunity to not only increase its penetration into the pulmonary market, but also later on may be able to make cost effective inroads into the primary care market.
Successful placement of devices at these institutions leads to rapid adoption by private practice specialists and primary care doctors.
The WheezoMeter
The WheezoMeter is a hand-held device that can be used in the physician’s office or patient home. Unlike spirometers or peak flow meters, it requires no uncomfortable coordinated heavy breathing by the patient.
Instead the sensors of the machine are placed over the patient’s throat, and in 30 seconds the WheezoMeter measures the occurrence and duration of wheezing. This product is light, battery operated, and easily portable. As with the spirometer and peak flow meter, it provides a “snap shot” of the patient’s condition at that specific moment.
However, given its portability and ease of use, we believe that it is likely to be used more frequently than current products such as the spirometer and peak flow meter.
If the company is successful in demonstrating that patient use of the WheezoMeter leads to a meaningful improvement in an asthma patient’s adherence to pharmaceutical therapies, reduction in emergency room (ER) visits, or overall improvement in the patient’s quality of life, we believe that the company will have a compelling case to third party insurers and Medicare for reimbursement of a service fee for the chronic monitoring of the patient’s asthma.
The WHolter
This product also helps patients and physicians meet the ATS guideline of “assessment, treatment, and monitoring.” The WHolter is a small device (not much larger than the first blackberries) that is attached with a pair of electrodes to the patient’s body.
It can be used for 24-hour monitoring in any situation, including when the patient is working or sleeping As with the WheezoMeter, the WHolter uses KSX proprietary technology to measure the presence of wheeze in a passive manner for optimal patient comfort.
The WHolter may be used for hours or days. At the completion of each testing period, the physician is provided with a short, easy-to-read report summarizing the patients overall condition and the key areas of concern regarding his or her wheeze.
It is the first chronic monitoring tool available to physicians and can be used on patient groups with challenging conditions or situations, such iSonea Limited 7 as patients with nocturnal asthma, patients with occupational asthma, young children (infants and toddlers), and the frail or elderly.
Originally published at: http://www.proactiveinvestors.com.au/companies/news/18757/isonea-consilium-global-research-analysis-points-to-undervaluation-and-takeover-potential-18757.html
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