Rhinomed (ASX:RNO) is honestly the worst example of quasi-science and medical “devices” married with superb marketing. This is basically just another bit of plastic you can stick up your schnoz (and there are many), but it is a super-powered, whizz-bang, clinically proven, FDA-blessed nasal dilator, and that makes it truly special. The marketing angle around athletes and enhanced airflow is spot-on, and a really novel strategy for giving a medical device a split-personality in terms of product market positioning.
In short, I despise myself for the fact that I actually sort of admire this company.
I was so busy getting my knickers in a twist about Antisense, I almost missed Rhinomed’s big announcement of a UK distribution deal with ResMed (NYSE:RMD). There is no doubt that ResMed is the “King of Snores” and this is the prince of nasal dilators. So I guess it’s a good fit (pardon the pun). Plus, there isn’t much in ResMed’s product portfolio that is cheap and cheerful, so it totally makes sense as a product portfolio expansion experiment. To be clear, the UK market is a perfect test market for a product like this because you don’t need to do any documentation/packaging adaptation, the regulatory risk is low and the exposure for ResMed is also minimal. But if it is successful, it could be a great opportunity for RNO to build a broader relationship with a premium sales channel. It’s also clear that ever since the product definition firmed up a bit last year, they are seeking commercial partnerships and this is a doozie, no doubt about it.
Now, the stock surge was pretty spectacular but that’s the beauty of junk stock. When something is worth 2.7c a share, jumping to 5.2c a share is kind of neither here nor there. Of course, in analytic terms, this means the punters valued the deal at ~AUD $13.5m. Now let’s be generous for a few minutes and pretend that RNO is a Medtronic peer, and that its valuation is about 5x sales. Plus we know that ResMed isn’t going to be a cheap distribution partner so although the terms were (predictably) not disclosed, let’s assume a 40% distribution margin, which would be typical for this space.
This means that the punters expect, on a 3-year rolling basis (DCF 20-ish % for a product entrance like this) that the NPV of expected sales (top line) from this deal is ~AUD $5m. This means that in the next 3 years, ResMed is evidently expected to sell a boatload of this product to the overweight, beer and chips-nourished, nasally-challenged population of Britain. Let’s make the assumption of AUD $30 for a pack of three, it means that in the next short while ResMed is possibly going to stuff a million bits of Aussie-engineered plastic up British trumpets.
Awesome! Almost poetic…
Speaking from personal perspective, I think we also need to carefully consider the target population where this bit of medical-grade polymer is going to be a home run. This is obviously the male population from 35-45 years of age (I am 40, so this is not uninformed speculation). Men under 35 are too busy having sex all night to worry about snoring. Men above the age of 45 have pretty much already relegated themselves to the spare room in defeat. This means that according to current UK demographics, about 4.2m men are in desperate need of RNO’s technology. Let’s also assume half are a bit chubby and prone to nose music. So actually, what this means, is that possibly as high as 50% of the “sweet spot” patient population in the UK is probably going to get access to this technology because of the valuation bump implied in this deal.
That’s great news!
Anyhow, all mirth aside, I genuinely like this stuff. I figure if people are going to get rich out of a gimmick (plus a little bit more – I do like the nifty idea of nasal stenting for drug-delivery) then at least it should be well-marketed and classy. And it is. My only request of RNO is that if it were going to really show some class, then the trading halt was a bit of unnecessary melodrama. If a small company can’t keep its mouth shut under a CDA with a major business partner and knowingly time a press release when a distribution deal gets closed, then it is less commercially sophisticated than they’d like us to think.
This is just the usual bullshit ASX manipulation and and I hate it. Pull your head in.
As for me? Well, I’m still not going to buy stock in a company that sticks a bit of plastic up people’s noses, but I am going to watch with interest where the drug delivery program goes – if anywhere. I am, however, going to commit to doing two things:
1) I am going to make a contribution to RNO’s P/E by buying some “Mute” for my wife. I am so desperate for a good night’s sleep, I will try just about anything. I will let you know how it goes with an unblinded, non-randomised, N=1 clinical study. Hey, do you think RNO will request a trading halt when those results are out too…?
2) I am going to go out and buy stock in Reckitt Benckiser, the owner of Britain’s leading brand of condoms – Durex. I reckon with all the beautiful nights of rejuvenating sleep British men are going to have, there are going to be a lot more boners (at least 10 million more because I think you can use a single “Mute” about 10 times before the polymer hardens up and gets uncomfortable) and, very probably, a lot of grateful girlfriends, partners and wives.
Hey, here is a cool co-marketing idea. How about bundling a 3-pack of “Mute”, with a 4-pack of Durex? The Mute will last about a month, and so should the rubbers. Maybe a little longer if the polymer doesn’t get too stiff ;-).