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Device Maker Uscom's Time Finally Comes
BY JAMES DUNN - 02/12/2016 | VIEW MORE ARTICLES BY JAMES DUNN

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UCM - USCOM LIMITED


It’s been a long and occasionally tough road on the Australian Securities Exchange (ASX) for medical device maker Uscom (UCM), but the company is poised for profitability, with its three major product lines selling into world markets.

Uscom’s lead product gave the company its name – the ultrasonic cardiac output monitor (USCOM), which was invented by associate professor Rob Phillips at the University of Queensland School of Medicine, who is now the chief executive of Uscom.

The USCOM was – and is – a disruptive technology in heart monitoring, being a non-invasive and accurate monitor of cardiac output using continuous-wave Doppler ultrasound technology to measure, in real-time, cardiac output, which is the volume and rate at which blood is pumped out of the heart and into the vessels.

USCOM can be used in a wide spectrum of patients (adults and children) admitted to intensive care units, patients undergoing anaesthesia and those undergoing cardiac surgery, to confirm normal cardiac function, detect and quantify abnormal function, and to evaluate the effectiveness of cardio-vascular therapies.

The technology that USCOM can replace uses the standard pulmonary artery catheter (PAC), which is inserted into the patient’s heart: this is a painful process – sometimes dangerous to the patient – and Uscom says it is not as accurate. In critical care, early detection of changes to cardiac output can show if a patient is in heart failure or entering sepsis, both of which can be fatal.

A six-year study at the Bathurst Base Hospital reported a reduction in the rate of deaths from sepsis to about 6 per cent with use of the device, compared with an average rate of 24 per cent across the country. Transfers of septic shock patients to larger hospitals – which can cost more than $10,000 a time – fell significantly, too.

The first patents for the USCOM device were filed in June 1998, and the first USCOM 1A device was completed in October 2002. Uscom Limited listed on ASX in December 2003.

The USCOM 1A was approved for sale in the US market by the Food & Drug Administration (FDA) in February 2005, with CE Mark approval (for Europe, December 2003) and State Food & Drug Administration (now China FDA) approval for China (January 2004) following. Since then the product has received some major validation: it has been adopted as the standard of care at London’s Great Ormond Street Hospital for Children, the Kings College in London and the Paediatrics Department at the Pittsburgh University Medical Centre in the US. The International Space Station and the Russian space program both use the Uscom product to measure vascular and cardiac performance.

The second product arrived with the June 2013 acquisition of New Zealand-based company Pulsecor, which had developed the BP+ suprasystolic central blood pressure device and the CardioReporter pulse pressure wave analysis software, among other intellectual property. The BP+ product came with US Food and Drug Administration (FDA) European CE mark and Australian Therapeutic Goods Administration (TGA) approval, and brought further international and domestic sales to Uscom.

Like the USCOM technology, the BP+ device is a non-invasive and simple technology that measures central blood pressure at the heart, versus older methods, which measure the pressure in the arm or hand. With a simple upper-arm cuff, BP+ generates unique measurements that provide sensitive information about the health of the heart and vessels and are used to improve management of hypertension, which affects about 25 per cent of all adults worldwide: the hypertension market is estimates at more than US$15 billion ($20 billion).

The third product line is the SpiroSonic range of spirometers, which use advanced and novel ultrasound technology to accurately measure the direction, velocity and volume of airflow during inspiration and expiration. The patterns of this airflow can be used to diagnose diseases of the lungs including asthma and chronic obstructive lung disease (COPD), diseases that affect 500 million patients worldwide.

SprioSonic came to Uscom through the September 2015 acquisition of Hungarian company Thor Laboratories, which specialises in high-fidelity digital Doppler technology for measurement of respiratory function. The Thor products had received US FDA approval in June 2015. Thor founder George Ferenczi, a world leader in respiratory devices, joined Uscom as head of new product development.

Thor also brought with it world-class manufacturing facilities in Budapest, which give Uscom expanded manufacturing capacity to meet the increased demand for USCOM 1A, and both the US marketing of Uscom BP+ and the expansion of Thor products into the US following FDA approval. At present the USCOM 1A and BP+ units are manufactured in Sydney, with SpiroSonic made in Hungary: Uscom plans to move the manufacture of BP+ units to Budapest.

In October Uscom received the European CE Mark for its Uscom SpiroSonic digital ultrasonic technology, allowing sale of the device in Europe. Uscom is currently preparing to submit the SpiroSonic devices to the FDA and China FDA for regulatory approval.

SpiroSonic is an eHealth application that can be wirelessly connected to a mobile device loaded with the SpiroSonic app: this allows for high fidelity remote tele-monitoring of asthma and chronic obstructive pulmonary disease (COPD) by doctors, and replaces simple adherence monitoring and diagnostic alarm systems.

Currently, Uscom’s revenue ($2.94 million in FY2016) mainly comes from sales of USCOM 1A haemodynamic monitors, but the company now has three major product lines. With impending distribution agreements for all three, the company’s revenue opportunities have been boosted substantially.

But perhaps the biggest deal was the one the company signed in June with Shanghai-based China International Intellectech Corporation (CIIC), a Chinese state-owned company that specialises in importing high-quality medical devices into China. The deal will help with the China CFDA registration and distribution of the new Uscom BP+ and SpiroSonic devices, and CIIC has committed to import $65 million worth of Uscom devices over five years, giving Uscom a revenue target in China of $20 million a year.

China is already the source of up to 70 per cent of the company’s sales, and Uscom says the middle kingdom is by far the fastest growing medical device market in the world. With the population of China now more than 1.35 billion people, Beijing plans to
increase its health spending by approximately one-third in the next five years, raising it from about 6 per cent of gross domestic product (GDP) to 8 per cent.

In dollar terms, this projected growth will increase healthcare spending in China from an
estimated US$720 billion ($960 billion) to US$1.23 trillion over the next five years.

“We believe the CIIC agreement is the key to long-term business development and revenue growth, and our joint business plans are based on access to the rapidly growing, and increasingly health care conscious Chinese market,” said Uscom CEO Phillips at the time of the deal. “We currently derive approximately $1 million in revenue from China and believe we can rapidly increase this ten-fold with our new China strategy and two new product lines.”

The company has added former Johnson and Johnson’s Asia executive, Chao Xian He, as a director to strengthen ties with the Chinese medical market.

China is clearly the key for Uscom to crack profitability, which could arrive in the current financial year, with two new device series selling. In FY16, receipts from customers surged 94 per cent, to $2.56 million, having grown at a compound annual growth rate of 60 per cent for three years. Total revenue rose 44 per cent, to $2.94 million.

Uscom had $2.84 million in cash at 30 June 2016, which had come down to $2.1 million as at 30 September 2016. At 22 cents, which capitalises the company at $24 million, Uscom is a highly speculative buy, but at the same time, it could not have done much more to establish its path to profitability, with world-class products and credible market impact. There have been many corporate struggles and lessons learned to get to this point for Uscom and its backers, but that is in the past for investors coming to the stock now – they can see clear blue sky. 



View More Articles By James Dunn

James was founding editor of Shares magazine, and oversaw one of the most successful magazine launches in Australia. He has also written for BRW, Personal Investor, The Age and Management Today, and was subsequently personal investment editor at The Australian and editor of financial website, investorweb.com.au



 

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