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TIny Australian Company Going After $35bil Incontinence Mkt Without Competition

|Includes: Simavita LTD (GCHIF)

If you have parents or grand parents in an Aged care facility, you are well aware of the word Urinary Incontinence (UI). Loss of bladder control is the single most important factor compounding the cost of their care and deterioration in quality of life. There is no known cure for urinary incontinence and so called "management" of UI is antiquated and ineffective.

Simavita (OTC:GCHIF or local code: SAV AU) is Australia based world's first digital incontinence management solution provider. Their flagship product, SIM (Smart Incontinence Management) which they spent AUD$40mil and 7 years to perfect will play an important role in long term, fundamental trend of healthcare cost containment with a focus on the aged care facility sector.

The population aged 85 years and older is one of the fastest growing age group globally. The majority of this population will be urinary incontinent. Simavita has applied smart monitoring and patient informatics technologies to assist aged care facilities to manage this considerable burden, which affects staff morale, resident satisfaction and profitability. Simavita's technology is applicable worldwide and is protected by patent rights and other forms of intellectual properties including U.S. FDA "freedom to operate" approval.

Benefits of the SIM System

When new patient is admitted to a care facility, they must go through mandatory 72 hour incontinence assessment. Current assessment is expensive and labor intensive. An accurate care plan using the SIM technology can reduce the costs of adult incontinence pads by 23%. And knowing when to toilet and change residents also translates into a lower staff/resident ratio with better staff retention and less agency staff. Establishing care plans using manual means, checking pads every few hours, is labor intensive and is delivering 'utterly wrong' care plans. An accurate care plan for residents can translate into a 50% reduction in daily toileting when patients are assessment using the Simavita technology. Another advantage of incorporating the SIM technology into aged care facilities is that it can provide the operators with evidence of higher care needs being delivered to residents which can increase reimbursement payments to the operators.

The SIM technology is not used on a long-term basis, but over a 72 hour period for the assessment of residents' toileting cycles. This assessment procedure is also repeated when residents' functioning deteriorates and new care plans need to be formed. At the moment, care plans that have been set are generally not evidenced based and require regular manual checking by staff which is inaccurate and inconsistent.

The end game for Simavita is not just for use in assessments for long term care plans in aged care facilities. Simavita sees itself as a wearable sensor technology provider.

One of the technological challenges the company is working on is to reduce its cost of goods to allow wider adoption of its adult incontinence pads for every day use. To achieve this the company needs to reduce its cost of goods by 75%. By year's end the company expects to have reduced its product costs by 50%. However company's products will not compete directly against the budget adult incontinence pads. Company is aiming to maintain offering a premium, value-add product.

The Market

The aged care incontinence pad market is valued globally at over US$9 billion a year. However, Simavita is also seeking to offer its products for use at home, which is a market valued at over $20 billion a year. Every government wants to see people remain in their homes longer. The two main reasons that people are moved into aged care facilities is because of dementia and incontinence. Approximately, 50% of patients going into aged care facilities have dementia and 100% of them suffer from incontinence.

Potential New Applications for Simavita's Sensors

Having sensors placed within adult incontinence pads also does not have to just measure moisture content. Simavita is working feverishly to in-corporate other monitoring capabilities such as GPS, monitoring for falls, and for use in positioning patients in bed (to assist with recovery from injuries or bed sores for instance). They also plan to enter the baby market for daily monitoring of nappies, and for use in toddler training.

Sales cycle

In introducing Simavita's products into aged care facilities, the first step is generally to conduct a pilot study at a number of the operators' sites. In the US, aged care facility operators can have between 50 to 400 sites. If the pilot (site) study proves successful, then it can translate into annual sales of the Simavita product offering across multiple sites. In the US, over 25 pilot studies have been conducted in the last 12 months with some of these having been converted to sales. One appealing aspect of Simavita is that the company can potentially win a contract to service an operator's entire age care facilities. So for a major operator with 400 sites, this could generate annual revenue of around US$8 million.

Longer sales cycle means Simavita must reach decision makers quickly. Last month, Philippa Lewis, (NYSE:CEO) was invited to attend "Long Term Care and Senior Living CXO Conference, in Florida. This exclusive gathering is designed for "C Level" executives of top 80 aged care facility operators. Only 20 solution providers are hand selected by sponsors and executives to discuss issues and opportunities. Philippa had 24 1x1 meetings during two days and out of that, she obtained requests for follow ups and demonstrations with all 24 providers. Result was so good that sponsors asked her to be one of the presenters at the next gathering in the Spring. Reaction by healthcare executives confirmed what company has been saying for years that there is enormous opportunities globally for Simavita.

Addressable Market

U.S.

There are around 17,000 long-term aged care facilities in the US alone. At an annual average cost of US$20,000 per facility, this represents an addressable market to Simavita of US$340 million a year in the US. (This is extremely conservative figure which assumes 50 assessments per annum per facility which is rarely the case. Plus, each facilities experience 30%-40% turnover of patients and each new patients must go through 72 hour continence assessment) US market is also very fragmented. The largest nursing care facility company is Genesis Healthcare Corp, which has about 2% of the market, with 380 facilities and 44,805 beds. This makes the industry extremely competitive and digital solution to incontinence management will serve as key differentiation when marketing their services. Simavita has signed an exclusive distribution agreement with Medline, the largest distributor of medical products to aged care facilities with $6bil annual revenue. Simavita also has 8 dedicated product specialists to assist Medline's sales effort.

Integration with Major EHR Group in US.

Earlier this month Simavita made an important announcement that it would integrate its technology with a major electronic health record (EHR) provider in the US, MatrixCare. The two companies will integrate their technologies and effectively cross-market their products. MatrixCare's technology is deployed in over 6,500 aged care facilities in the US, which represents around 40% of the market. It is a non-exclusive arrangement. For Simavita it is important because more than 50% of aged care operators require Simavita's SIM product to be incorporated into an EHR, of which there are two main operators (the other being PointClickCare). Aged care operators do not want to double up on data entry of patients' information, hence the need to integrate into an existing system. The need to be incorporated into an EHR has been both an obstacle and an opportunity. In two of the pilot sites an EHR system was required as part of the product offering.

MatrixCare's mission statement is to 'Leverage Technology to Improve Quality of Life for Seniors.' Facilitating the use of Simavita's Smart Incontinence Management system is a very good fit for the two companies. MatrixCare provides many services to the aged care sector, including creating service plans to calculate the appropriate level of care and package for each resident. Other services it provides includes tracking of incidents and health issues, creating task lists for each caregiver and facilitating more efficient administration of medicines as well as automated billing. Matrix Care works with third party product providers through its Connections Partner Product Program.

Denmark

In Denmark, Simavita completed a pilot study late last year with positive results. The study found that after using the Simavita technology in a 72 hour assessment, 60% of residents were able to downsize their pads used during the day and 25% reduced the sizes of pads used at night. This results in cost savings for the operator. The trial also showed that there was a reduction in urinary tract infections and a reduction in falls as a result of better management of toileting of patients when the Simavita technology had been used to formulate daily care plans. Further pilot studies are underway in Denmark. Simavita is paid for the work conducted in the pilot studies. It appointed a distributor in January and sales are now being made for ongoing assessments outside of the pilot studies in that country.

Sweden

A pilot study is expected to start in Sweden in the fourth quarter of this calendar year, with pilot studies to commence in five other European countries in the second half of 2015. The company says it is in advanced discussions with a major European distributor for its products. Simavita has completed a pilot study in Canada, also with positive results, with a distribution partner to be appointed in the third quarter of this calendar year. Lewis expects the first Canadian client to be signed on shortly.

Australian Distribution Agreement - 70 More Sites

Also earlier this month Simavita announced a sales and marketing partnership with an Australian group, Bunzl Outsourcing Serv-ices. Bunzl distributes incontinence products to around 30% of the aged care market and will now start to sell the SIM product as well. Bunzl has initially set a target of 70 sites to start incorporating the SIM technology. Of significance was a comment by Bunzl's Man-aging Director who said "We see this as a breakthrough for the aged care industry." Simavita will continue to sell its product in Australia using its own sales force. Lewis says the partnership with Bunzl has effectively tripled its sales force in Australia. Currently two of the nine largest operators are using the SIM technology in Australia. Cost is not an inhibitor of adoption of the technology, according to Lewis. While the annual cost per site will be around US$20,000 a year, it can save operators around $100,000 a year in costs when residents are assessed accurately for their continence status and patterns. Incontinence pads are the second largest cost, after food, at aged care facilities.

Revenue Model

Simavita has SaaS (Software As A Service) revenue model. Care facility pays periodic software subscription fee which includes kits to perform set number of incontinence assessments. Simavita will train product champions and help them with data analysis. SVA's revenue mix will be 50%-50% between software subscription and products. (Sensors & special diapers) Current gross margin of 50% will move materially higher with economies of scale and 50% reduction in diaper manufacturing cost sometime next year.

SVA launched global sales middle of 2014 and numbers are slowing ramping up. For the first nine months of the year, Simavita generated receipts from customers of $.53million with net operating cash outflow of $6.1mil.

First Mover Advantage

Company has a first mover advantage in this field and has secured FDA "freedom-to-operate" license. In addition, with vast portfolio of intellectual property positions, they are in strong position to block other from encroaching in their space.

Summary

Simavita has a first mover advantage in the wearable sensor market for use in aged care. Recent partnerships with Australian distributor Bunzl and US electronic health record provider MatrixCare highlight the progress being made and interest in the company's technology. Simavita has the potential to secure large quantum contracts from aged care operators that manage multiple facilities (in the 100s) in the US, where incontinence management plans are mandated.

There is also the potential for the company to expand sales into wider daily use in the aged care area, as well as combining other value-add features into the products including location and positioning information.

Simavita is capitalized at AUD$54 million with $9 million in cash with negligible debt. They are burning through AUD$2mil cash per quarter so I anticipate a cash call by Q1 2016. They need to generate appx. AUD$15mil in revenue to reach break even point.

Company presentation:

sva.live.irmau.com/IRM/Company/ShowPage.aspx/PDFs/1015-10000000/SimavitareleasesUSinvestorpresentation

Disclosure: I am/we are long GCHIF.