When we last profiled medical device manufacturer Deltex Medical Group (LON:DEMG) , in June last year, the shares were trading for around 10.5 pence each. Today, they are some 150% higher at 25.75p. Behind the rise has been robust financial figures – including increased sales and the news that the firm was cash flow positive in the second half of 2010 – as well as a guidance from NICE (the UK’s National Institute for Health and Clinical Excellence) that specifically recommends the firm’s CardioQ-ODM device for use within the National Health Service.
CardioQ-ODM (oesophageal Doppler monitor) is a blood monitoring system that requires a new disposable probe every time the system is used on a new patient, meaning that Deltex gets a consumables-driven revenue stream as well as income from sales of the device itself.
The CardioQ-ODM system changes the way that doctors care for patients undergoing surgical procedures, helping the patients to recover faster and enabling them to leave hospital sooner and in better health.
It comprises a monitor and a single-patient disposable probe, which is placed into the oesophagus through either the mouth or the nose with the tip of the probe positioned so that it is close to the descending aorta. The speed of blood travelling down the aorta is then measured by using a low-frequency ultrasound signal.
Being able to measure blood velocity helps patients by enabling doctors to reduce the complications that arise from a medical condition that is common among almost all patients who undergo surgery, as well as many others in intensive care or arriving in an accident and emergency department.
This condition, known as hypovolaemia, is a reduction in circulating blood volume and it arises in surgical patients due to a combination of pre-operative starvation, anaesthetic agents and the blood and fluid losses associated with the surgical procedure itself. The body struggles to get sufficient blood to the tissues and vital organs, which are consequently starved of oxygen, which can cause medical complications including major organ failure that can in turn lead to severe long-term health problems and even death.
Clinical trials have shown that the use of oesophageal Doppler monitoring to guide fluid management in patients reduces complications and the length of hospital stay after surgery. Deltex points out that every randomised, controlled ODM trial has been positive.
By detecting a reduction in circulating blood volume early on, and in real time, Deltex’s CardioQ-ODM product allows anaesthetists to intervene quickly and safely, using a combination of specialised fluids and drugs, before the hypovolaemia becomes serious and potentially life threatening. The company says that the use of CardioQ-ODM leads to fewer patients needing to go to intensive care, while those that do tend to stay there for shorter periods. This in turn means that patient journeys through a hospital are more predictable, so CardioQ-ODM can play an important part in improving the efficiency and productivity of any healthcare system.
Deltex’s products have been used on more than 400,000 patients to date and they have been sold in more than 40 countries.
The UK is identified by the company as the market where some form of system-wide adoption is most likely in the short term, so March's recommendation by NICE is a welcome development.
After selecting CardioQ-ODM as one of the first products for review by its newly-established Medical Technologies Advisory Committee, NICE issued final guidance in March that recommended the device be used to cover "patients undergoing major, or high-risk, surgery or other surgical patients in whom a clinician would consider using invasive cardiovascular monitoring".
Nice estimates that its recommendation applies to 837,000 surgical patients each year in the NHS in England alone. Across the UK as a whole, the organisation’s estimated average saving per patient of £1,100 per hospital stay represents a potential £1bn annualised saving.
Speaking to Proactive Investors, Deltex chief executive Ewan Phillips said that the recommendation, accompanied by a business case, was “important because the NHS has historically been a poor adopter of new medical technology, being reluctant to spend even to save cost”.
Clearly, the widespread adoption of CardioQ-ODM by the NHS would be a significant boon to the firm, but the story would not end there.
Philips believes that the total worldwide market that Deltex is addressing is worth anything between $2bn and $4bn.
In 2010, the firm increased its sales by 11% to £6.3m and reduced its operating loss by 33% to £1.4m, while also becoming cash flow positive during the second half.
And so far this year sales of surgical probes have demonstrated robust growth in the firm’s UK and US markets.
At the end of December, the firm had cash of approximately £700,000, and Deltex raised a further £1m of equity last month.
The firm recently announced that it was continuing to make progress in export markets. In the US, it says, there is a growing awareness among leading teaching hospitals of the importance of active management of central blood flows during surgery and Deltex is “making inroads” into a number of influential hospitals and hospital systems within the country.
In France, the company is supporting its distributor’s efforts to capitalise on a Paris hospital system tender won in late 2010, while in Spain Deltex is supporting government-sponsored CardioQ-ODM evaluation projects. In other countries, including Australia and Canada, the firm is working with hospital systems to demonstrate CardioQ-ODM as a prelude to potential system-wide roll-out.
Deltex’s house broker Arden Partners forecasts revenues of £7.5m for the current year and a pre-tax loss of circa £400,000. For next year revenues of £9.4m and a pre-tax profit of approximately £400,000 are expected, with earnings per share expected to come in at 0.3 pence.
As we move into the summer months the next newsflow from the company should be a trading statement covering the six months to 30 June (H1 2010’s trading statement came out on 20 July last year), followed by more detailed interim results in the autumn.
However, investors should keep an eye out for news of further deals signed by the company.
Market: AIM
Symbol: DEMG
Price: 25.75p
Market cap: £35m