Night terrors are over for sleep stock Somnomed

Optimism is returning to the sleep apnoea market as Somnomed (ASX:SOM) says the nightmares that prompted a $15.5m capital raising in March haven’t returned.

In fact, “trading has been better than expected and forecast” since the company raised that money, which it did to combat a massive drop off in sales as people stopped going to the dentist during pandemic lockdowns.

Somnomed sells a mouthguard, fitted by dentists, that helps combat snoring, tooth grinding, and sleep apnoea.

Sleep apnoea is a condition where a person stops breathing in their sleep until the brain realises and sends a ‘wake up’ call.

It’s a large market — the ASX is filled with high fliers like ResMed (ASX:RMD) which sells continuous positive airway pressure (CPAP) masks and machines, and upstarts like Oventus (ASX:OVN) and Somnomed which offer cheaper, less heavy-duty alternatives.

Somnomed alone sells into 28 countries and has treated over 500,000 patients.

Dark days

After a few false starts Somnomed appeared to be finally on the right track before the COVID19 pandemic hit.

It had extracted itself from a costly strategy of setting up a chain of direct-to-patient US sleep diagnostic centres and was seeing revenue growth increases of 17 per cent for January and February.

While trading was better than expected over the last two months, sales were still down by 61 per cent in April and May compared to last year.

“While we do not have any visibility on the future, we are very pleased with our levels of trading for the last two months,” said Somnomed CEO Neil Verdal-Austin.

“It is still extremely difficult to forecast how long it will take to fully restore the business back to levels pre COVID-19 and early levels of trade may be due, in part, to previously diagnosed patients now being treated with SomnoDent devices.

“We are cautiously optimistic as to the months ahead but will still continue to take a conservative view and slowly return the cost base commensurate to the volumes and revenues as they begin to normalise.”

The $15.5m capital raising in March was combined with Verdal-Austin taking a 50 per cent pay cut and salaries across the board being cut by 30 per cent. Director fees were reduced to nil, costs were cut, and new investments were frozen.

We’re back, baby

Most countries in Europe, North America and Asia are now re-opening after COVID-19 lockdowns and this is proving good for businesses reliant on individuals needing elective medicine.

Somnomed said there were slow signs of recovery in the US and Canada as dentists started receiving patients again, as in the Asia Pacific.

European countries have been reopening at different rates and Somnomed has seen “encouraging demand” from the Netherlands, Germany, France and Sweden.

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