Australia | Jul 22 2020
This story features COCHLEAR LIMITED, and other companies. For more info SHARE ANALYSIS: COH
Covid-19 and lockdowns have accelerated the success of telehealth services with Australian companies among key beneficiaries
-Global pandemic has accelerated adoption of telehealth services
-ASX-listed healthcare companies among beneficiaries
-More telehealth small caps to IPO next six months
By Anastasia Santoreneos & Mark Woodruff
The covid-19 pandemic has wreaked havoc on the Australian share market, but one sector that’s skated around the major economic downturn is the health sector, thanks to the quick-thinking of medical tech companies.
The government’s swift action on social distancing measures meant regulatory changes came in thick and fast for companies like Cochlear ((COH)) and ResMed ((RMD)), as they could develop remote patient monitoring tools for medical professionals to continue their work without needing to physically be with the patient.
The adoption of these services was phenomenal.
As a direct result of Covid-19, the utilisation of telehealth, that is remote GP consultations, now accounts for 35% of government benefits paid for GP attendances, according to a report by Morgan Stanley.
We’re not in new territory
The shift towards remote patient monitoring isn’t new. In fact, the trend has been continuing for some time, with Cochlear and ResMed already invested in the technology to facilitate this trend.
For example, ResMed had been involved in remote patient monitoring for around 14 years, according to Melior Investments senior analyst Julia Bailey.
“Within their sleep apnea devices, they’ve been recording patient data and relaying that back to doctors for a long time,” Bailey said.
“They now have over 11 million cloud connected devices out in the world, and they’ve made a number of acquisitions of smaller companies in that space like Propeller Health.”
Smaller players have also been in the game for many years: Pro Medicus ((PME)) was one of the first remote medical imaging software providers, which allowed radiologists to access images through their devices, Jun Bei Liu, portfolio manager at Tribeca Investment notes.
“It’s lowered costs, improved efficiency and allows more people to look at the images, increasing accuracy too,” Liu said.
Bailey said there have been three key drivers behind the remote patient monitoring trend: an ageing population, higher healthcare costs, and consumers seeking more control of their health.
“You've got governments and you've got insurance companies around the world looking to contain healthcare costs,” Bailey said.
“And they are looking at value based models. And for a value based model, you need data. So there's pressure on all providers, whether that's doctors or pharmaceutical companies, or medical device companies sort of provide data on the cost effectiveness, and the value of the treatments and the products that they're providing.”
That’s not to say other remote patient monitoring services, in particular telehealth, didn’t gain a significant amount of traction because of the pandemic, however.
“This trend has reached a critical inflection point during this pandemic,” Liu said.
It’s an inflection point Liu believes we would have reached in the next two or three years regardless, but the pandemic was a major catalyst for driving that change forward.
“Patients needed convenience – they couldn’t go to a physical location,” Liu said.
The virus also forced the government to fast-track approvals and provide funding for remote patient monitoring tools, meaning companies had the support and the means to get new products moving, contributing to the surge in the trend.
Now, Morgan Stanley estimates Australians are saving up to $1.9bn in lost work time by removing the need to travel to their GP.
“It’s saving the operators as well – it’s reduced the costliness of inefficiency in the supply chain,” Liu said.
An opportunity like no other
While the health sector more broadly remained relatively unscathed throughout the pandemic, companies were impacted to some extent, Liu said.
“Obviously private hospitals were impacted because you couldn't have elective surgeries, and companies like Sonic Healthcare ((SHL)) had a bit of an issue as they couldn’t do normal testing.”
But a V-shaped recovery is in sight.
“Many other sectors will need to rely upon consumer demand, but the healthcare sector is one where the demand is not going to go away – it’s inelastic,” Liu said.
“People will still go to the hospital to get their knee replaced, and the backlog for a lot of those services is actually increasing.
“If anything but health care operators will do quite well in the next six months.”
And both investment experts believe there’s a large and “exciting” opportunity for investors interested in the space, and companies seeking to capitalise on the change.
Bailey noted the coronavirus “heightened” awareness of health across the board, particularly respiratory and lung health, meaning both ResMed and Cochlear have a bright future as a result of their remote sensing technology.
CSL ((CSL)) is also poised for success, Bailey said.
“We see an opportunity within their flu vaccine business because obviously, particularly for the northern hemisphere countries, there's an overlap of Covid-19 and flu season”.
“So that is a huge concern, and there's a big opportunity for the flu vaccine manufacturers.”
While Cochlear and ResMed are two big players staying at the forefront of new healthcare changes, smaller tech players that specialise in particular areas are also poised to enter the arena as listed companies.
Med Advisor ((MDR)), a smaller medical tech company, has created an app which, once downloaded, would send automatic reminders to users to order their medicine, making it convenient for both the individual and the pharmacy.
“And there’s a couple more coming through IPOs in the next six month in that telehealth space” Liu said
“You have this refresh of investment opportunities that are coming through, with enormous growth trajectories ahead of them.”
Digital health solutions
As a result of covid-19, Morgan Stanley has identified a significant shift in patient preferences towards digital health solutions. This trend was clear pre-pandemic and has been accelerated by what was initially thought to be temporary regulatory changes.
The new Australian telehealth codes for GP attendances were intended to expire on September 30 this year. Morgan Stanley forecasts that if extended to late March next year, telehealth could account for $2.8bn of the yearly total addressable market of $6.5bn. This would increase “visits” to 43% from April 2020 levels of around 35%.
At first glance, the pie for GP visits has merely been divided between telehealth and traditional visits. The good news hides inside the many hidden benefits.
According to Morgan Stanley's forecasts, patients win to the tune of $1.9bn Australia-wide, due to a mixture of reduced travel costs and the opportunity gain of staying productive at work.
Medical centres may also derive significant cost savings by reducing office space and reducing usage of consumables.
Finally, new capacity from time savings may help rectify a projected shortfall in GP numbers.
Cochlear & ResMed, key beneficiaries
In response to the pandemic, the US FDA awarded Cochlear approval for the company’s “Remote Check” solution.
Similarly, the US Center for Medicare & Medicaid Services introduced reimbursement changes to spur remote patient monitoring (RPM), from which ResMed’s Propeller is likely to benefit.
Formerly, the ability to on-board new patients was constrained by the ongoing demands of existing patients upon cochlear audiologists. This caused bottlenecks at cochlear clinics.
Remote Check will enable patients to complete hearing tests and prevent unnecessary clinic visits.
A synergistic combination with Cochlear Sycle software could increase capacity for Cochlear markedly, and accelerate new patient growth along with market share gains.
Propeller is a digital health platform for the management of Chronic Obstructive Pulmonary Disease (COPD) and asthma.
An inhaler sensor tracks medication usage via a smartphone app. This leads to a better understanding of the disease and increasing adherence to medication regimes.
ResMed has already demonstrated expertise in patient connectivity. This combined with current relationships and pharmacy agreements may see Propeller access around 50% of the greater than ten million COPD users of inhaled medicine.
Additionally, Morgan Stanley foresees many of these users progressing to use the company’s product in the portable oxygen concentrator (POC) market.
Already we have seen a rapid uptake of telemedicine for GP attendance in Australia. This trend is set to continue should current temporary regulations be extended.
However, the real benefit is largely unseen and extends to patients, medical centres and GP availability going forward.
At the company level, both Cochlear and ResMed look well placed with products likely to benefit from remote patient monitoring.
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