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G Medical Innovations (ASX:GMV) – The strong pulse of mHealth

Article written by Pitt Street Research.  For the full report click here:

Mobile monitoring of vital signs is the new Black

G Medical Innovations Holdings (ASX:GMV) is an Israel-based company that is commercializing mobile vital signs monitoring systems that provide major cost savings for the Healthcare system while allowing patients to remain mobile in hospitals and at home. The company is targeting global markets, including the US, Europe, China and India.

The company’s first two products, the Prizma Medical smartphone case and the G Medical Patch (GMP), can measure vital signs like heart rate, blood pressure, body position, body temperature, respiration rate, blood oxygen saturation and ECG. Both products can wirelessly transmit patient data to physicians using 4G or Wi-Fi. While the Prizma can mostly be considered a consumer product, the GMP needs to be prescribed by medical professionals. They are expected to become commercially available for hospitals, clinics and through direct sales (Prizma) from late Q2 (June quarter) onwards in countries where the products have already received regulatory approval.

Proprietary diagnostic facility to support US roll out

Simultaneously, GMV will support the GMP roll out through its own, Texas-based, call center (Independent Diagnostic Testing Facility, or IDTF), which is currently already selling other, third-party, monitoring devices and has commercial agreements in place with a large number of health insurance companies in the US. These relationships are critical for GMV from a reimbursement perspective.

The IDTF is a key strategic asset

We believe the IDTF will play a key role in the commercial roll out of the GMP as it provides direct onboarding, diagnostic and analytical support to patients and physicians. Additionally, GMV’s proprietary GMP product allows for substantially higher margins compared to the current, third- party, products GMV is selling through its IDTF. In our view, the IDTF’srecurring revenue model will really come into its own on the back of the GMP becoming commercially available in the very near term.

Relevant regulatory approvals expected very near term

GMV already achieved CE status for the Prizma and the GMP in Europe as well as FDA approval for the Prizma in the US. However, obtaining FDA approval for the GMP in the US (exp. 2HY18) and CFDA approval for the Prizma and the GMP in China will be critical. Most importantly, obtaining CFDA approval for its Chinese assembly facilities will be crucial for GMV to scale up its production to the desired levels.

China is a crucial piece of the puzzle

Given that the Prizma and the GMP have received Green Channel approval in China (an expedited approval process), GMV expects the relevant CFDA approvals to be obtained in 2Q18.

This will clear the way for the company to kick start its global monetization strategy as it will be able to start producing large volumes of the Prizma and GMP in China.

Not only will China’s facilities be crucial to GMV’s global supply of the Prizma and GMP, it is also a very significant target market for GMV’s products in its own right, as we will elaborate on in this note.

Ahead of CFDA approval, initial production runs are conducted out of GMV’s Israeli facilities.

Management team has been there, done that

We believe a key element in the GMV investment case is management’s track record in building and exiting businesses like GMV. Company President and CEO, Dr. Yacov Geva, founded LifeWatch AG and listed the company before it was acquired by BioTelemetry (NASDAQ:BEAT) in 2017 for US$ 280M (A$ 364M).

He has brought on several key staff, many of which were formerly at LifeWatch, and who now operate out of the company’s IDTF in Texas. We believe this prior experience of founding, building and subsequently exiting a business similar to GMV is extremely valuable and should help to expedite GMV’s commercialization process.

Conclusion: Starting coverage with a Speculative Buy rating

We believe GMV has developed an initial product range of Vital Signs Monitoring Systems that has global applicability during a time when mHealth is seeing fast-growing adoption rates in major markets.

Crucial milestones are expected to be met in the very near term, which we expect will enableGMV to rapidly roll out its monetization strategy. Specifically, CFDA approval of GMV’smanufacturing facilities in China will allow the company to ramp up production and start selling in geographies where regulatory product approval has already been received. CFDAfor the Prizma and GMP as well as FDA approval for the GMP will open up two of GMV’slargest addressable markets.

While we refrain from publishing a full financial model at this time, and thus a valuation andprice target, we believe there is strong upside potential for GMV’s shares from current levelsfor the aforementioned reasons. Therefore, we start our research coverage of GMV with a Speculative Buy recommendation.

We will endeavor to publish a full financial model, a company valuation and price target as soon as the company is able to demonstrate the commercial potential of its products, e.g. through Purchase Orders from customers, which should translate into revenues.

Disclosures

Pitt Street Research has been commissioned to prepare the Content. From time to time, Pitt Street Research representatives or associates may hold interests, transact or hold directorships in, or perform paid services for, companies mentioned herein. Pitt Street Research and its associates, officers, directors and employees, may, from time to time hold securities in the companies referred to herein and may trade in those securities as principal, and in a manner which may be contrary to recommendations mentioned in this document.

Pitt Street Research receives fees from the company referred to in this document, for research services and other financial services or advice we may provide to that company. The analyst has received assistance from the company in preparing this document. The company has provided the analyst with communication with senior management and information on the company and industry. As part of due diligence, the analyst has independently and critically reviewed the assistance and information provided by the company to form the opinions expressed in the report. Diligent care has been taken by the analyst to maintain an honest and fair objectivity in writing this report and making the recommendation. Where Pitt Street Research has been commissioned to prepare Content and receives fees for its preparation, please note that NO part of the fee, compensation or employee remuneration paid will either directly or indirectly impact the Content provided.

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