Direct sales strategy, page-5

Over the weekend I re-read some of the broker reports on Nanosonics to get a sense of what they and the broader market would be expecting in the next two quarterly reports. The expectation seems to be slower sales growth for 2015 due to the transition to the hybrid model of direct sales in the U.S, but this should be offset in the near future by 1) the greater margins from direct sales in the US, 2) access to a larger customer base in the US (not just existing GE customers) and 3) improvements in manufacturing efficiency (see 19/02/15 Canaccord report).

The 'access to a larger customer base' is an interesting consideration, because I suspect GE Healthcare has been focused on sales to customers it knows - those that are using its ultrasound products, which we know while considerable, is only about a third of the overall market in the U.S. If this is accurate, the remain two thirds of the market have been comparatively neglected, which could have some interesting effects on sales as the direct sales force starts to ramp up their efforts in this space.

Here's some key points from the Morgans report, which also suggests that GE has been focused on sales to users of its own ultrasound equipment rather than the broader market:
Morgans suggests that "The 2HFY15 will see a higher level of costs as the new sales team are bought on board, together with costs relating to the relocation of the Australian head office. We are forecasting a small loss for FY15, however all the components for continuing sales momentum are in place for a strong FY16 and onwards."

"NAN is substantially de-risked with device approval gained in all major regions and a track-record of sales justifying the product’s end-user demand. Near-term share price catalysts include ongoing sales milestones and approvals in new geographies."

"NAN recently announced that they will move to a hybrid model in the US where NAN will sell directly through a beefed up sales team as well as continued sales through their current partnership with GE Healthcare (albeit at a presumed lower level). While we do not expect significant orders from GE over the next six months as they rebalance their current stock levels, we view this is as very positive for the long term prospects of the company. Direct selling will not only increase the sales margins (to c75% for trophon and c90% for consumables), the systems will be offered for sale outside of the GE Healthcare range – greatly expanding the market of the trophon."

While the focus remains largely on the U.S market, it will also be interesting to see the take up of trophon in Europe and Japan. Lets hope NAN can exceed their estimates.