The market cap of sleep apnoea device maker SomnoMed may undervalue its intellectual property in a huge global marketplace, writes tech expert Tim Knapton of TechVoyage.

Apnoea is a serious condition involves a temporary cessation of breathing during sleep.

It affects a quarter of men over 30 years old.

But it’s been a far-from-sleepy sector in terms of stock performance. The ASX features two groups that have successfully built a global presence for their treatment products: ResMed which is valued at $14 billion and Fisher and Paykel, worth almost $8 billion.

Now there’s an emerging small cap contender in the form of SomnoMed.

SomnoMed (ASX:SOM) has trademarked its ‘Continually Open Airway Therapy’ or COAT  technique of treating obstructive sleep apnoea.

Its core COAT product is SomnoDent, a Mandibular Advancement Splint (“MAS”) or mouthguard appliance.

It works by moving the lower jaw forward to maintain an open airway. Conventional Continuous Positive Airway Pressure therapy uses air pressure to prevent an airway from collapsing — but SomnoDent does not involve the patient wearing a mask or being connected to a machine.

Last year product sales rose 16 per cent to almost $48 million and the company grew its EBITDA by 69 per cent to $2.6 million.

The group has supplied 300,000 products to the global marketplace but its growth has been uneven geographically with strong sales in Europe (which accounts for almost 50 per cent of total revenues), modest progression in the US and poor penetration of Asian markets due to a limited cost reimbursement environment.

Sales performance had been augmented by strong uptake in new markets like Norway, Belgium and France where reimbursement levels are high.

That bodes well for sales in territories like Germany and Finland where reimbursement regulations are due to improve.

SomnoMed also supplies SomnoBrux, a proprietary MAS device that prevents teeth grinding, along with other specialised dental equipment.

Earlier this year, the group acquired Renew Sleep Solutions (RSS) which operates sleeping centres that diagnose, treat and monitor sleeping disorders, opening up a direct marketing channel for the company’s products.

This strategically smart vertical integration move means the group now has seven sleep disorder clinics operating across the US — which is expected to drive better Somnodent sales.

It will also build a growing base of direct customers that can be further targeted with care and product sales.

RSS is ahead of schedule in its roll-out which also means it will transition into profitability soon.

Research and development remains at the core of SomoMed’s corporate DNA and it can be expected to launch numerous new products and treatment innovations in coming years.

Recent examples have included digital screening and intra-oral scanning in its dental hubs.

Although the share price has more than quadrupled over the last 5 years it has corrected by about 10 per cent over the last 12 months, perhaps due to market impatience over earnings momentum.

But last year’s EBITDA margin of only 5 per cent should prove to be quite sensitive to further revenue momentum.

Furthermore the market cap of barely $200 million appears to undervalue the group’s commercialised intellectual property in what is a huge global marketplace.


Tim Knapton is the founder and CEO of online tech research and finance marketplace TechVoyage.   Its video/financial database and digital broadcast platform provide a more efficient way for investors to appraise listed and unlisted tech companies and for entrepreneurs to finance, acquire and exit them.   

Previously Tim was Head of Corporate Broking at Deutsche Australia and before that ran a research department for a leading broking house.  Tim has also been a freelance tech/finance journalist for more than 20 years and a columnist with The Australian Financial Review, The Bulletin, BRW, Shares and Australian Business.


This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.