The Covid-19 pandemic changed the way many industries did business. One of the most affected industries by the pandemic was healthcare. The much-needed and long-delayed digitization in the industry gained a significant momentum during the course of the past couple of years. This is why we have seen telehealth companies are hitting the roof in terms of valuations and also see some kind of consolidation within the industry. The purchase of digital health devices and monitoring systems is becoming more common at a consumer level with a long-term goal of lower healthcare costs. It is worth mentioning that several emerging med-tech companies with highly innovative solutions within this healthcare industry are not getting the attention they deserve from market participants. Today, we are planning to take a deep dive into one such medical equipment player with immense potential – G Medical Innovations Holdings Ltd. (NASDAQ:GMVD). The company’s medical device offerings cater to a vast addressable market and have received all the relevant regulatory approvals and are already generating revenues but the company is grossly undervalued by the market.
What Does G Medical Innovation Do?
G Medical Innovations is an early commercial-stage healthcare player in the domain. It provides FDA-approved mobile, digital medical equipment, and monitoring services, especially focused on chronic health conditions affecting over 60% of American adults. The data and reports transmitted from their devices support the real-time monitoring that improves outcomes for doctors as well as patients. Moreover, the combination of their physical device offerings and services result in a steady and recurring flow of revenues from health insurance reimbursement. Founded in 2014, G Medical Innovations invested its precious four years in research and development before launching its first set of revenue-generating products and services in 2018. It is worth highlighting that their products and services are approved by over 150 healthcare insurers like Medicaid, Medicare, BlueCross BlueShield, etc., and used by more than 150 hospitals, clinics, and doctors. Headquartered in Rehovot, Israel, G Medical Innovations’ core operations are focused on the U.S. market with some presence in China and Israel as well.
Strong Product Offerings
G Medical Innovations provides a variety of mobile remote monitoring devices, including chronic remote patient monitoring, cardiac diagnostic contentious monitoring, and data collection. Each of their product generates revenues with CPT-coded insurance reimbursement. The company provides its products directly to the customers and treads on the thin line between pure medical equipment and telehealth. Its two core products are – Prizma, a plug-and-play medical device that measures vital signs with electronic medical records (EMR) functionality and clinical-grade reporting standards; and the Extended Holter Patch System, a multi-channel patient-worn biosensor capturing electrocardiogram data round the clock.
The above extract summarizes the company’s product monitoring capabilities. Let us start off by analyzing the first core offering – the Extended Holter Patch System. This is basically a cardiac data and telemetry device comprised of two models, including an extended Holter type device for usage in hospitals as well as at home and a cardiac data and telemetry device that offers numerous features like auto-detect and auto transmission capabilities and support third-party device connectivity. The models continuously record and monitor cardiac results for 14 or 30 days. The device offers ongoing clinical monitoring and orchestrated emergency response round the clock for 24 hours a day. Moreover, it can record up to 6 EKG leads on self-transmits or SD cards. It is worth highlighting that the company earns around $300 per patient if activated for 14 days of monitoring and $750 per patient if activated for 30 days of monitoring which is a decent revenue model. Furthermore, the management expects the Extended Holter Patch System market to grow at a CAGR rate of 11.3% from 2020 to 2027. It is expected to be a major revenue earner for G Medical Innovations in the coming quarters.
Now, let’s turn to our second product offering, Prizma, a US FDA-approved data, and monitoring device that generates diagnostic data with EMR functionality. It is a remote, user-controlled device offering 24/7 online clinical monitoring and in call center facility for data interpretation and doctor engagement. This doctor-prescribed device is also cost-effective and is priced at around $249. It can help reduce readmittances and requirements for in-person follow-up visits. Moreover, the data monitoring device generates $55 per patient per month for every 30-day Recording Patient Monitoring (RPM) report. This device helps patients collect and store their own health reports that doctors can use to interpret and assess telehealth and telemedicine. Furthermore, it supports subscription-based clinical monitoring and call center interpretation of healthcare data.
It is worth highlighting that the company also offers a Wireless Vital Signs Monitoring System that looks to provides continuous real-time monitoring of vital signs and biometrics. This system is still in the process of being developed and the management has allocated $1 million from their recent fundraise to completing the development of this system and its commercialization. It should evolve to become the third core offering of G Medical Innovations. The company also has a decent R&D budget so we can expect many more product additions in the coming years.
Excellent Growth Model
G Medical Innovations has a robust growth model with respect to pushing its product offerings into the market. The company’s primary revenue stream is its services and CPT reimbursement from their medical call center (IDTF), including cardiac monitoring services like CEM, MCT, and Extended Holter services. Its continuous monitoring device leverages insurance approvals into trials and implementations at U.S. hospitals and clinics. In contrast, the quick implementation timeline depends on the size of the hospital or clinic network. In addition, millions of inpatients and outpatients use this device for monitoring. Furthermore, their remote monitoring device and data collection encompass more cost-effective monitoring and care options with faster implementation service.
It is worth highlighting that consumer demand for over-the-counter, diagnostic and monitoring solutions are increasing rapidly after the Covid pandemic, given the increased awareness of preventive healthcare. Moreover, their device purchase rate is increasing, which is creating an embedded consumer base with recurring revenues. 17 University Hospitals recently approved G Medical Innovations for their inpatient and outpatient care. At the beginning of Q4 2021, Guthy-Renker engaged for Prizma G2 Marketing and Social Media Outreach while G Medical innovations were busy launching the latest Prizma G2 Online Sales Platform and Video Media. The company also collaborated with LiveCare to integrate the Prizma device and monitoring services into LiveCare Remote Monitoring System. Furthermore, the increasing knowledge about its products and brands helped G Medical generate over $12 million in revenues from its offerings. The company’s annual revenues barely dipped in the pandemic as well and they are gaining back the quarterly traction which is why we can expect a solid 2021 result.
Lucrative Macro & Market Dynamics
As per the company’s research, G Medical Innovations’ patient monitoring devices market is expected to reach $55.1 billion by 2025 from $36.4 billion in 2020, at a CAGR of 8.6% during the forecast period. It is worth mentioning that the integration of monitoring technologies in smartphones and wireless devices is a key trend in inpatient care. As a result, mobile cardiac telemetry devices, remote monitoring systems, mobile personal digital assistant (PDA) systems, ambulatory wireless EEG recorders, and ambulatory event monitors are playing as key factors supporting the growth of the market. Also, the Covid-19 pandemic has led to a significant increase in the demand for remote monitoring and patient engagement solutions. Therefore, G Medical has gradually expanded its production to meet the increasing customer requirements for cardiac monitoring devices, respiratory monitoring devices, blood glucose monitoring devices, multi-parameter monitoring devices, temperature monitoring devices, and fetal/ neonatal, and hemodynamic/pressure monitoring devices. Moreover, wearable patient monitoring devices, including continuous glucose monitoring, blood pressure monitoring, temperature monitoring, and pulse oximetry, are driving the growth of G Medical Innovations. According to some reports, the number of hospital readmissions has decreased significantly because of the rising use of remote and home monitoring devices.
As we can see in the above chart, G Medical is already approved by a large number of health insurers and also used by a variety of doctors, hospitals, and private and public clinics. The company is in an excellent position to make the most out of the positive macro for medical devices.
Experienced Management Team
G Medical is spearheaded by Dr. Yacov Geva, the president and CEO who is an eminent pioneer in the medical technologies industry and remote patient monitoring services. He is also the founder of LifeWatch AG and successfully led the company to an IPO. Additionally, Dr. Geva was a member and the Chairman of the Board of Directors and Corporate CEO of LifeWatch AG. He holds a B. Sc degree in Mechanical and Nuclear Engineering, an honorary doctorate degree from Oxford Brooks University, and a Ph.D. (with honors) in Business Administration from the International School of Management, Paris. Yacov is also a senior member of the royal society of medicine in the UK (RSM). Besides Dr. Geva, Dr. Kenneth R. Melanialso helped the company grow as one of the largest and most diversified healthcare companies. He hasover30 years of experience as a supplier, provider, and insurer in the healthcare industry. Along with them, Professor Zeev Rotstein, Dr. Brendan de Kauwe, Mr. Urs Wettstein, and Dr.Shuki Gleitman, the non-executive directors of G Medical, also helped the company to reach new heights. Professor Rotstein is an internationally acclaimed cardiologist and expert in health management systems, with years of experience across academia and consultancy. On the other hand, Dr.Gleitman was the Chief Scientist and Director General of Israel’s Ministry of Industry and Trade and also served as the CEO of Ampal Investment Group. He holds a B.Sc. in Physical Chemistry, M.Sc. (with distinction), and Ph.D. (with distinction) from the Hebrew University of Jerusalem. Apart from the board of directors and members, the senior management team also helps the company manufacture innovative medical devices to reach the global customer base.
Key Risks
G Medical Innovations operates in a dynamic and rapidly changing industry that involves a number of risks and uncertainties. This is why investors should consider the risks and uncertainties carefully before deciding whether to invest in their shares. G Medical has a limited operating history which means they have generated little revenue from sales of its products and have experienced losses since inception. It is worth highlighting that the company has engaged primarily in research and development activities and the acquisitions of two companies in the US since their inception. Moreover, they have financed their operations primarily by issuing equity securities and loans and experienced losses in the last three years. The company also doesn’t know whether or when it will become profitable.
G Medical’s ability to generate revenue and achieve profitability depends upon their ability to accelerate the commercialization of their products and service offerings in line with the demand from new partnerships and aggressive business strategies. Furthermore, the management expects to continue to incur significant losses until they can successfully commercialize their products and services worldwide. Hence, you cannot rely upon their historical operating performance to make an investment decision regarding G Medical. Even if this offering is successful, the management expects that the company will need to raise substantial additional funding before they can expect to become profitable from sales of their products and services.
In addition, the company may delay, limit or terminate its product development efforts or other operations if it fails to obtain the required cash and cash equivalents when needed. As you know, G Medical has developed and is engaged in developing mobile and e-health solutions and services using its suite of devices and software solutions. However, its success will depend upon market acceptance of our products and services in the healthcare domain. Also, the company cannot assure that their latest products or any future products and services will gain any market acceptance. Moreover, if their current products in development fail to develop or develops more slowly than expected, or if any of the services and standards supported by the management don’t achieve or withstand market acceptance, their business and operating results would be significantly and adversely affected.
The key reason is the market for monitoring products and services is costly. And it also involves rapid technological change, changing customer requirements, and evolving industry standards may cause the obsoletion of their current as well as future products and services. Furthermore, the management says that their business will always depend on the success of their customer acquisition strategy. And therefore, if they fail to maintain a high-quality service or device technology, they may fail to retain existing users or incorporate new users. To sum up, think carefully before investing.
Valuation
As we can see in the above chart, medical technology and telehealth as a sector have gained phenomenal valuations particularly after the onset of Covid-19 in 2020. As a matter of fact, this sector is also seeing a number of mergers and acquisitions with the big one being Teladoc acquiring Livongo for a staggering $18.5 billion nearly 36 times its trailing twelve month revenues. Most of these companies are trading on an average at well above 10 times their revenues. Now let us see the valuation multiples of G Medical Innovation.
As we can see in the above extract, the company is trading at barely 3 times its last twelve month revenues. This indicates that the stock has the potential to triple merely on multiples expansion assuming that the company is able to maintain its current revenue levels. The next twelve month multiples are even lower and we see the company being valued at barely 1.13x the revenues of its coming twelve months. This indicator clearly shows that G Medical Innovation’s stock is heavily undervalued at current levels.
Final Thoughts
As we can see in the above chart, G Medical Innovations has had a topsy turvy journey since its recent IPO. For the public issue, the company had offered 3 million shares at $5 per share price in order to raise $15 million. The stock witnessed a heavy post-listing sell-off and trading under the $3 mark, which is extremely low.
We can see the detailed utilization of proceeds of the IPO and the good sign is that a large percentage of the amount is expected to go to pushing the Prizma and its other key products into the market through a higher sales and marketing expense. The company is also looking to invest close to $3 million in its future pipeline including $1 million in the high-potential Wireless Vital Signs Monitoring System which has a huge addressable market. It also has sufficient leeway for future acquisitions.
Based on their recent product and service offerings, the management aims to continue the development of their next-generation products as well as continue with clinical trials and other regulatory authorization processes. Hence, it is only a matter of time before the healthcare market realizes the actual value associated with G Medical Innovations. Overall, we believe that G Medical Innovations is an outstanding med-tech investment for microcap shareholders with immense potential for value unlocking over the coming quarters.