Shares in medical device business Somnomed Limited (ASX: SOM) have climbed more than 5 per cent this afternoon after the group announced record-breaking unit sales for the month of September. For the full quarter ending September 30 2016 total revenues were $10.9 million, which is up 13 per cent above the prior corresponding quarter.
North America continues to be the key market for the company which is delivering strong growth partly on the back of new product launches that aim to make compliance even easier for patients being treated by continuous open airway therapy for various sleep disorders including snoring, sleep apnea and bruxism.
Despite the strong sales growth the company posted an operating cashflow loss of $1.6 million for the quarter and had $16.3 million in cash as at September 30. The market values the business highly given the growth rates and global potential for sales of its medical devices. The key to justifying the rich valuation will be turning an operating profit as this is likely to comfort investors that they are on to a good thing.
Risks exist as SomnoMed has some big-hitting competition in the sleep treatment space from the likes of ResMed Inc. (CHESS) (ASX: RMD) and Fisher & Paykel Healthcare Corp Ltd (ASX: FPH). Both of which could eat its lunch if they were to aggressively compete in its niche product space of mouthguard like medical devices.
Alternatively both would probably have the financial firepower to launch a takeover bid if they saw some value in buying SomnoMed and using their wide distribution networks to crank sales of its medical devices.
