Marjan Mikel, the CEO of asthma monitoring device manufacturer Respiri, tells Alan Kohler about why the US market is such a bigger and more promising market for the company's Wheezo product than Australia. print
By Alan Kohler · 10 May 2022 Twitter Facebook Linkedin Marjan Mikel is the CEO of Respiri, which is the asthma monitoring device manufacturer. Now, I got a bit excited about this company a few years ago when I first encountered it and that was wrong because the share price has gone absolutely nowhere since then and it’s really just had to remake itself, really. Towards the end of 2019, the CEO at the time, Mario Gattino, was moved on and this bloke, Marjan Mikel, was brought in and he redesigned the product, redesigned the business model, restructured the entire company and now they’re focusing on the United States and trying to get somewhere with a product that is reimbursed by Medicare and Medicaid, so that’s the current strategy.
He reckons they’re starting to get somewhere. I’m speaking to Marjan Mikel in Boston at the moment where he’s talking to potential customers. He and the chairman spent the entire month of March in the US talking to potential customers and investors and so on and they’re now spending the entire month of May there as well, just trying to get somewhere. They’ve just raised $1.6 million but they’re still burning $500,000 a month cash and they’ve got that much in the bank. He reckons they won’t run out of money because they’re about to make some sales.
Anyway, this is a risky business, but they haven’t given up, they’re plugging away and they’ve brought this bloke in, Marjan Mikel, to fix the business up and he reckons he has done that.
So, here he is, Marjan Mikel, who is the CEO of Respiri.
Table of contents: Good Position Cash-Wise Very Different US Marketplace Manufacturing Wheezo at Scale Approvals Across the Globe Insurers, Hospitals on Board 4,500 Children with Asthma Drop-Out Device Rates Redesigned the Business Model Focus on Reimbursement Market
Marjan, we always start these interviews talking about cash and cash flow. What’s your current burn rate? Your negative in the March quarter was $1.2 million, is that roughly where you’re at?
Yeah, so we’re burning, Alan, around about half a million a month at the moment and that burn rate is basically getting us ready for – well, not getting us ready, but getting us into the US marketplace. We don’t anticipate that burn rate increasing any time soon. Obviously, there is a need for building inventory at some point in the future, but currently we have almost 20,000 units of Wheezos available to us and they’re all paid for. We’re in a very good position cash-wise, we just successfully completed a small raise, over-subscribed, just under $1.7 million and with another million dollars in the bank.
As you say, it was a small raise. You’re really going hand to mouth at the moment, aren’t you?
Well, I wouldn’t say hand to mouth, we’re actually looking after the interests of the shareholders. The share price for the entire sector has been a little less than desirable. Our share price at the time of the raise was certainly not where we’d want it to be and we wanted to make sure that we would minimise the dilution to our shareholders by getting what we need to make sure that we continue to be successful in the US and not get too much more than that, if that makes sense. So we’re looking after the shareholders’ interests and that’s certainly at the forefront of our thinking when we went through this process.
Yeah, but how long will it last you, not very long?
With the money we have in the bank, it’s five months’ worth and let’s just say there is a very strong interest from investors here in the US in what we’re trying to do in the United States with Wheezo – a very, very different marketplace to Australia, not just because of the size of the marketplace, but also the dynamics. It is the only marketplace in the world where it’s not me that gets the money for remote patient monitoring reimbursement, but it’s the actual doctor. So there is a financial incentive as well as the healthcare incentive to the doctor to provide these services to their patients.
On top of that, of course, they are also at liberty to outsource the entire process to a third party and those third parties are our remote patient monitoring partners, Access Telehealth and also mTelehealth. So, the money is what we need to get us to the next phase and as I said, I’m currently in the US, as you know, in Boston at the moment talking to a number of institutions up here due to the high interest levels around Wheezo and remote patient monitoring for respiratory disorders and, as I said, I’ll be talking to quite a number of investor groups in the United States who are very interested in our story.
Let’s just take it one step at a time. You spent all of March in US as well, right? And now you’re back again, is that right?
I certainly am. We have three priorities, the first one’s the US, that’s followed by the US and the third one is the US as well. We have a very, very strong focus on a marketplace that is actually made for remote patient monitoring, which is our sweet spot with our technology. So, yes, all of March was in the US and we had a wonderful time at the American Academy of Allergy, Asthma and Immunology Conference in Phoenix and we had quite a number of qualified leads from that with some major institutions and doctors. We’re back here this time round to follow up on some of those and close off a number of the deals that we have in play, but also attended the Accountable Care Organisations Conference in Baltimore and more recently here in Boston, the American Telehealth Association Conference as well.
There is a very strong interest in what it is that we do, particularly given that in the United States remote patient monitoring has been available for quite a number of years now, but typically in cardiovascular medicines. The people in respiratory have not had anything available to them to allow them to, I guess, provide the same services to their patients and get remunerated for doing that. Wheezo provides that opportunity for them and for us.
But have you made any sales yet?
Yes, we have, we’ve already sold just under $US200,000 worth of services and devices here in the US and we launched in the US in mid-December, so it’s only been a few months since we’ve been here and we’re making some great headway in the marketplaces here. We’re very pleased with where we’re at, remembering of course that our original plan was to be in the US in quarter four, this year, so we’re well ahead of schedule…
How original is that? I mean, just taking you back a bit, just before you started, in February 2019 there was a path to market timeline that was published by your predecessor talking about a launch in the UK in August of that year, 2019, and then launch Australia and Singapore in September that year. Those things didn’t happen and then Mario Gattino was gone and you’re CEO at the end of that year, right, November 2019?
Correct.
So, what happened? Why didn’t those launches take place?
To be clear, that was well before my time and a lot of those things were dependent upon being able to manufacture product at scale and at a price that made it a commercially viable opportunity and that certainly wasn’t the case when I took over the organisation.
What did you take over, what shape was the business in then?
The technology was one which attracted me and that was the reason I took the job, because I thought we could make a material difference to the lives of patients with asthma with the Wheezo device. The issues around the organisation were that the devices were not designed to be manufactured at a rate that was making them commercially viable. We subsequently…
Really? Hang on, so you’re saying the design of the product was not such that it could be manufactured at scale commercially?
At the time, yes, correct. We worked in 2020 to get a design that allowed us to manufacture at scale and at a price or a cost, I should say, that made it a commercially viable opportunity.
So, you had to redesign the product?
Well, not redesign the product, redesign the way that it was put together. The way it was designed originally was very labour intensive and that’s where most of the costs came from. We managed to not change what the product did or what it looked like necessarily, but just change the way that it was put together to make it more manufacturing friendly and managed to reduce costs by 85 per cent. We’ve got the product down to a situation now where we’re manufacturing the product for around about $US35 per device and in the United States we sell products for between $US50 and $60, so we’re making…
$35 dollars per product, per Wheezo device, that’s a drop of 85 per cent on the cost?
Yes, correct.
Crikey, that’s terrible! What was going on?
Alan, I’d rather not talk about what was but what is and we’re in a position now where we can manufacture the product at rates that allow us to take the opportunity commercially and we’re always looking to make sure that we reduce costs as much as we possibly can.
Where are you getting it made?
The company that we work with is an Adelaide domiciled company called Entech and they have a mass manufacturing facility in Shenzhen in China, but they also have one in Adelaide. The device is being made in Shenzhen as I speak, but have the opportunity and the contingency plan to manufacture it back in Australia if need be, for whatever reason.
And you’ve made 20,000 of them, right? So, they’re sitting in a warehouse somewhere? They’re not a big product, so…
That’s right, yes, we have product in Australia and the US and product with our partners and product in the hands of patients now, which is really important to note as well so it’s a pretty exciting time for us.
Have you got approvals for the UK and Europe, or you’ve only got approvals for the US?
No, no, we’ve got TGA, CE and FDA approvals. We have the approvals across the globe in all the major jurisdictions. We’ve chosen to focus on the US for the reasons I described previously. We’re doing quite a bit of work in the UK, but it’s more clinical work in the UK and some very exciting developments in the UK which we’ll make public in the not too distant future, one being a Government-funded study that was a competitive bid and Wheezo was one of the products that was actually successfully accepted by the NIHR, and our partners in London and ourselves will be starting a study on first patient in September/October this year and it’s an outcomes-based study, so it’s basically looking at how Wheezo can potentially improve the outcomes for patients who have asthma and, in this case, the patients are children.
It sounds like the potential for you at this stage is you’re selling it to hospitals, is that right?
Well, in the US, it’s selling it to people who provide remote patient monitoring services to patients, often that is transition care from hospital to the home. As you know, Alan, there is a huge financial incentive for insurers in the US to make sure they keep people out of high-cost health scenarios and one of those high costs in the health scenarios is the hospital, of course. From the hospitals' perspective, they also have a very vested interest in making sure that they don’t become serial readmission offenders because there are consequences from the insurers if that is the case. They want to keep people out of hospital to make sure they keep their three-star rating and basically making sure that they keep getting reimbursed by the private health insurers here in the US.
So, it’s not just approvals that you need though, right? You need to get the insurance companies and the hospitals kind of onboard, right?
Yeah, we do, but the reality is that remote patient monitoring today is already reimbursed by private health insurers and Medicare and Medicaid, and that’s important to note. Out of the 50 states here in the US, 28 states have mandated the remote patient monitoring CPT reimbursement codes be reimbursed. That means private health insurers have to pay for it. Now, we work with private health insurers from a different perspective and that is, they can often work to mandate that devices like ours be made available to their high cost patients who are costing them a lot of money because of the conditions not being as well managed as they could do and we’re working with about five of those at the moment that cover the lives of – the smallest one’s about 800,000 people, the largest is 5 million people.
They’re reasonably larger organisations in the US that have a vested interest in making sure that they keep patients out of hospital, because unlike in Australia, private health insurers here pay for admission into a hospital for an asthma attack and that’s not the case in Australia because in Australia, as you know, if you’ve got an asthma attack you end up in our best hospitals which are public hospitals and the states pay for those. Or if you end up in a GP’s clinic, the Medicare pays for that. So, they have a vested interest in making sure that patients stay out of hospital, they understand preventative medicine and they can also, as I said previously, mandate that people who are high-risk patients in respiratory disorders get these devices and use these devices to, I guess, mitigate the chances of them actually being put back into hospital. It’s a big opportunity for us.
But to be clear, at the moment we qualify for reimbursement with Wheezo. Our first customer is the Michigan Children’s Hospital in Detroit and they are already looking at introducing Wheezo to their children patients and being reimbursed for that through our partners, Access Telehealth.
Can you give us a sense of what that would mean? If the Michigan Children’s Hospital took your product onboard, what sort of revenue does that involve? It’s a SaaS subscription, software as a services platform, right?
Correct.
So, how many subscriptions would you get?
To put it in perspective, Michigan sees about 4,500 new children with asthma every year and our partners actually purchase our devices from us upfront, so that’s between $50 and $60 for each device that they purchase and then we make a click of the ticket per patient, per month. We’re talking, each hospital’s probably around about half a million dollars in device sales and also the SaaS platforms per month.
How much of that $50 or $60 do you get? When you say, your partners, they’re presumably distribution partners, are they?
Yeah, they are. The $50 or $60 bucks is what we charge them depending on the volumes, so we get all of that. Then typically, our partners will – for instance, in the instance of Access Telehealth, they actually provide an outsourced service where they provide the patient interaction on behalf of the doctor and then they claim the relevant CPT codes for remote patient monitoring around what they’re doing for the patient’s software that it offers patients. They charge somewhere between $30 and $75 a month and click of that ticker every month as well.
What’s your click?
That’s commercial in confidence. It’s somewhere between $5 and $20, depending on the service that they’re actually providing.
When you sign up a hospital, do you then get all of their asthma patients or some of them or how does it work?
Well, it really works on what the doctor thinks is the appropriate approach for the patients they’re treating. I’d be lying if I said that I knew it would be 100 per cent or if I knew what percentage of patients would actually be put onto the Wheezo, but let’s just say that from the discussions we’ve had with the customers – and Michigan’s just one of them, we’re in discussions with about 30 at the moment who are well advanced and they see this very much as something they would give to all of their severe patients and a good majority of their moderate patients as well. We’re talking probably at least half of their patient population and I am having a guess at that one, but that’s basically the discussions that we’ve had with our partners with our customers in hospitals.
How long do you think each patient would be monitored with a Wheezo for? Is that forever or is it just for three months…?
It is forever, but there are drop-out rates, as you could imagine. But the Wheezo device is there to make sure that the patients and their parents understand how well their asthma’s being managed and asthma doesn’t disappear. Being able to understand symptoms worsening before they become a problem is one of the wonderful things that Wheezo does in this instance. We are in a position where we can provide insights about how well a patient’s being managed before they become an issue and it’s one of the issues in medicine generally. Compliance is always an issue and we know that we’re going to have drop-out rates. It’s too early to tell what that drop-out rate will look like, but if you look at other areas of remote patient monitoring, we’re looking at probably a 20 to 30 per cent drop-out over a 12 month period.
But the patients themselves aren’t paying for it, are they, or are they? I’m just wondering, because obviously if a family’s paying for it then they’re more likely to drop out. I just wonder if the health fund, Medicaid or Medicare, is paying for it then do they then decide when somebody drops out?
No, no, they don’t, because it’s an in perpetuity reimbursement from Medicare, Medicaid and also the private health insurers that follow Medicare’s lead. There is a small out of pocket payment, but not anything like in Australia or anywhere else in the world. But basically, those reimbursement agencies, whether they be Medicare or the private insurers, will continue to pay for this for as long as the patient uses it.
Right, okay, so presumably the patients drop out because they can’t be bothered using it anymore, is that right?
It’s like anything else. I’m an ex-pharmaceuticals guy, we know that within six months patients on chronic disease medications, 50 per cent of them drop off in six months’ time. It’s not quite that bad with devices, but we do know that patients – I don’t know if you call it fatigue or apathy or whatever you’d call it, but they do drop off and we need to make sure that we do what it is we can to keep them on there, which is one of the real important reasons behind our partners, Access Telehealth, in this instance, because they’re in constant contact with the patients using Telehealth. Many of the hospitals that we’re dealing with will outsource that particular service to Access Telehealth and they can then claim the reimbursement codes for that particular service.
The reimbursement codes for the data in Wheezo being delivered to a doctor is about $US60 a month and for every 20 minutes that a designated person from the doctors surgery, whether that’s an employee or an outsourced provider, is another $50 a month as well, so it’s $110 just in those two services and there are many other codes available to the doctors that they can claim using the reimbursement codes.
If the patient drops off, presumably Medicare or Medicaid is told, is that right?
Pretty much. To give you an example, with remote patient monitoring, there’s also remote therapeutic monitoring, which we qualify for both but you need to collect at least 16 days’ worth of data in a given month for the doctor to qualify for that reimbursement code to be paid to them. As I said, that’s one of the reasons why the model that we’re using with Access Telehealth who are actually actively engaged with patients, and we know from the work that we’ve done in Australia with the RAMP, the Remote Asthma Monitoring Program, that when we do have telehealth interventions we get a very, very high level of compliance when it comes to using Wheezo, so we’re talking over 90 per cent.
Okay, I’m just trying to get a sense of – clearly the amount of churn that you get or the drop-offs that you get is going to be important to you long-term?
Absolutely, Alan.
I’m just wondering how you’re going to make sure that happens? Because it’ll come down to, I guess, the quality of the service that you provide.
Pretty much, and that’s why we’ve been very particular about the partners that we have in the US and the quality of service that they provide to patients on behalf of doctors. We know that being engaged with patients beyond just the Wheezo device is very important for a couple of reasons. One, is to keep them compliant and adherent, but the other thing is also to make sure that we get a better understanding of how well the patients are being managed. The doctors like it because they get an exceptions report from our partners, so those people who are being controlled well, they don’t need to worry about too much. It’s those people who may be tinkering towards something resembling an asthma attack, those patients that our partners would give reports to the doctors about. It’s really important to engage with the customer and we know that when we do that in Australia it really resulted in a high level of compliance and a low drop off level, so we do know that it works and we’ve been, as I said, very particular about the partners that we’ve chosen here in the US based on the work that we did in Australia.
Speaking of Australia, have you got Australian approvals to start selling it yet or not?
Yeah, we have. We’ve had TGA for some time now. Our focus really has now shifted to the US for the reasons we’ve described and discussed today and we really are remobilising all of our resources to make sure that the US is and will be a success for the company.
Yes, well you’re spending a lot of time there as well, aren’t you? When you took over, as well as kind of redesigning the way the product is made, did you change or redesign the business model?
Yes, we did. We introduced the whole notion of the SaaS revenue stream and not just the device sales, so that was part and parcel of the strategy change that we made. We also in-housed much of the IP generating functions that the organisation was outsourcing prior to my engagement with the place. For instance, R&D is insourced now, so everything we do is done with our team and in Australia, for that matter. We also took inhouse the marketing function as well to make sure that we kept a very tight control over what it is we were doing and how it is we were doing it and doing it in a much more cost-effective manner. We’re currently in the process now of doing the same with the IT engineering as well around the app design and the iterations moving forward.
Anything that is important from an IP perspective, we have and are in-housing and our strategy, as I said, changed from a device sale only to a device sale plus the SaaS ongoing revenues. That was 2020, so 2020 we re-engineered the organisation.
Yeah, you did. What does marketing involve?
Marketing involves making sure that we get the right messages that align with our listings in the various jurisdictions where we operate, so we provide the assets necessary for our partners to actually sell the product here in the US and basically provide them with the support that they need to be able to convey a compelling message around remote patient monitoring in the respiratory area with Wheezo as the core offering to make that happen. That’s what the marketing guys do and as I said, what we don’t want to do is I don’t want to build a salesforce here in the US because it’s too costly, takes a lot of time, it’s high risk and we partner with people who have already developed the relationships with the payers and the other customers and have the ins that we need to be able to demonstrate to them how well Wheezo can help them with their patients with asthma.
Yes, well, because in a marketing sense the company shifted since you took over from trying to sell to the public at large, to focusing on hospitals, right, and larger organisations?
You’re absolutely right, the reimbursement market’s one that we are now very heavily focused on and as I said, one of the major reasons for the US launch is not just because it’s 30 times the size of the Australian marketplace, but the market dynamics in the US just lend themselves to a model like the one that we have when it comes to remote patient monitoring. As I said, it’s the only reimbursed market in the world where it’s the actual doctor that gets paid for handing out the device. We also have a situation where there’s very little out of pocket expense for the patients and we have another situation, as we discussed previously, where private health insurers have a vested interest in making sure that patients don’t get admitted to hospital for an asthma attack, because they pay for it. So, those three things come together quite nicely to give us a compelling argument when we actually sit down and talk to the various stakeholders and it’s one of the big reasons why we’re here in the US and another reason why I’m here in the month of May, to make sure that we bring home some more of the bacon that we’ve started frying earlier in the year.
Yes, very good. Okay, thanks very much, Marjan.
My pleasure, Alan, thank you very much.
That was Marjan Mikel, the CEO of Respiri.
RSH Price at posting:
3.5¢ Sentiment: Buy Disclosure: Held
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