Rhinomed : Long Tail, you can’t be serious…?

Guest Post : Peter Murphy

I was taken aback by the (maybe a little tongue in cheek?) endorsement given to Rhinomed (ASX : RNO) by The Long Tail in a recent review. I also don’t think this company belongs in the “green” category, I believe it belongs in the deep red, maybe even magenta category. So thanks for letting me post an alternative position.

First, some hard facts on the finance front. Rhinomed made a loss of $4.5m, $3,5m, and $19.6m in the last three years and during that time the share price has declined from 20c to around 3c. Their current cash is around $1.3m, and at current expenditure they will need a capital raising in the next few months. That’s probably all I need to say, but let’s look in a little more detail.

Their main products are the Turbine (nasal dilator for exercise) and the Mute (very similar product for snoring control). The Turbine is claimed to increase air intake by around 38% through the nasal cavity: there’s no reason to suggest it doesn’t do this and it appears to have been verified in a “clinical trial”. They used to claim that it increased overall power by 6% but they seem to have dropped this because … er… it couldn’t be demonstrated. The problem is that performance doesn’t just depend on air going through the nose. It depends on lung capacity, O2 uptake, muscle fitness, etc. I used to be a good marathon runner, and if I needed extra air I breathed through my mouth…that’s why I cannot see how the Turbine gives the claimed boost.

As for the Mute, it’s going through a clinical trial and that should give results. I’m skeptical about its potential, but perhaps The Long Tail can help….I recall you were planning to buy one for “Mrs. Long Tail”, have your nights improved? If you haven’t bought one yet could you please do so ASAP because they need the income! They’re going to have to sell a hell of a lot more Turbines and Mutes to break even.

Does the market even exist?

Now it’s been said that Rhinomed is good at marketing. They certainly have identified their market segments and have a good range of material to support sales. But I believe they have dropped the ball in two recent, and important, developments. Firstly, the ResMed relationship could have been a company maker. They were supposed to ship and start sales back in June. Unfortunately there’s no mention of the Mute on any Resmed website I can find – although I could have bought a Nasdil nasal dilator. In fact in Rhinomed’s quarterly update they dropped in the comment that their ResMed relationship is under review. Hmmm. And again, the Chris Froome relationship appears to have been a huge missed opportunity. He just won the Tour de France for chrissake.  And the interviews following the race? Where are the Froome comments about how Turbine helped him, maybe how it helped him improve his performance over his previous win? The pictures of him wearing it on the hill climbs?  Maybe it’s all to come?

Maybe not…

But its OK, Long Tail, they’ve applied for 56 patents, I know you love that. And they pay their CEO and Chair – Martin Rogers – extremely well, including options $429k and $301k respectively (annual report, p32), but that’s down on the previous year. They would, as the CEO sits on the remuneration committee. And just a final comment to congratulate the company on being one of the few to be fined by ASIC, $33k for failing their continuous disclosure obligations last year. But it was such a small fine they didn’t even bother fighting it.

And you like this company?

All opinions expressed in this post are those of the guest poster. Where external references are made, reasonable effort is undertaken by the Editor-in-Chief to verify, but the Long Tail makes no representation as to the accuracy, completeness, currentness, suitability, or validity of any information in this post.

12 thoughts on “Rhinomed : Long Tail, you can’t be serious…?

  1. Peter,

    Great post – you make some excellent points as always. I take your point that I may have been a bit seduced by the marketing, I am only human you know. Though in my defence I did say, utterly transparently, that it was a gimmick. I guess I just sort of saw the wildfire potential of a Chris Froome endorsement and this, combined with the ResMed angle (though I was aware they sell other bits of schnoz plastic) looked like maybe they were onto something.

    The financial situation is not totally unsurprising because they are spending big dollars, but I also agree that relative to the revenue stream, they are probably running out of cash. I don’t really know whether their accomplishments are going to make onward financing straightforward or not, though clearly Martin Rogers seems to have no difficulty wrangling cash out of people. He is – without a doubt – overpaid and it really irritates me when I see it. It’s one thing to have some founder equity because you start a company, but ongoing compensation needs to be reasonable and performance-based.

    Two other comments:

    Regarding the ASIC hand-slap, I actually think that this was overreach by ASIC. I think that there was no material impact to the fairly circumstantial delay in announcing the “deal” that got them fined. It is precisely this kind of behaviour that makes directors all jumpy about continuous disclosure rules and actually exacerbates abuse, in my opinion. Just because something has happened in a company, doesn’t mean it’s immediately commercially material – especially when it comes down to transactions that have little or no public relevance.

    Regarding the patents, I assume you are mocking me. They do disclose in their annual report a fairly large (mostly pending) IP portfolio, reflective of a relatively small number of patents currently undergoing national phase prosecution in the various key consumer health markets. I do agree it’s not cheap but I don’t see it as excessive either – especially if it wants to sell a global product brand. Of course whether or not the patents are any good is an entirely different matter. Frankly one bit of schnoz plastic looks like another bit of schnoz plastic to me, and probably does to the consumer. To be clear, I hate companies that make excessive patent claims (like UBI’s claim of 500+ patents).

    Thanks for writing,

    Long Tail


  2. Wonderful article Peter. I’ll take it a step further and say that the 2003 trial has never been published, was paid for by Rhinomed’s predecessor and the data relies on a combined sample size of 20 volunteers. Ergo, rubbish.

    Liked by 1 person

  3. Peter,

    An excellent guest rebuttal post, as I still scratch my head at TLT’s approval of RNO. Even though he acknowledges it’s a load of plastic, spin and some fairly tenuous efficacy claims, TLT has indicated a liking for companies with a product for sale (with a few notable exceptions).

    I didn’t get it when this thing listed and nothing has changed since then. RNO isn’t even in the biotech/life science sector! It’s a sports marketing company, flogging a gimmicky bit of schnoz hardware under a ‘medical’ enhancement guise…and that’s OK (after all, the glucosamine scam has been pulling ~$2Bn/pa for the past 10 years), it just doesn’t deserve/require an ASX listing much less inclusion in the Healthcare sector (and, by extension, the attention of TLT).

    Nonetheless, RNO aspires to become a Consumer Healthcare company. That’s great too, but authentic Consumer Healthcare businesses require canny, experienced leadership that is steeped in the nuances of consumer marketing, positioning, brand development and strategic partnering within the healthcare sector. That…and a lot of cash.

    The second part Rogers should have covered (though I think investors quickly lose their appetite for raising capital to fund day-to-day operations). On the first part, however, Michael Johnson and his team don’t even come close.

    Aside from the litany of commercial shortcomings (competitive landscape, tenuous cash position, even more tenuous clinical claims and practically indefensible ‘IP’), RNO simply hasn’t got the people on board to make this thing fly. By dressing up another ‘corporate advisor’ and ex Ad-man as a credible CEO of this business, RNO is simply another Martin Rogers special – lipstick…pig…flog.

    Chris, what were you thinking?


    • Well, it’s all ok to kick me when I am writhing on the ground… 🙂

      Look, I am not just a science nerd, I also think about product positioning. Sports marketing of an “FDA approved” product is intriguing to me and when you can combine luminary (i.e. Froome) traction with a regulatory approved product, that has a lot of marketing clout. RNO certainly does a far better job of this than most ASX healthcare companies, most of whom can’t even explain clearly how the technology works (usually because it doesn’t).

      We all know that it is non-trivial to get someone like Froome behind a product endorsement, and that it truly could have been a license to print money. Similarly, getting ResMed behind the product could have been huge for the company. These two drivers were the basis of my prior posts, and I stand by them. Had those two things moved ahead (i.e. Froome standing on the podium at the TDF saying that a bit of schnoz plastic made his race and left him with enough energy after each leg to bone half of the under 30 population of France) we wouldn’t be having this conversation, would we? Therefore, I stand by my prior assertions, noting that Peter has made some very clear and convincing arguments – very responsible and sensible arguments that I think are of value to readers thinking about putting their money into this equity.

      For the avoidance of doubt, I noted all the gimmicky aspects, and nobody can claim that I am a fan of Martin Rogers. I am not. But there are many ways to launch a venture and this one has (had?) some refreshing elements.

      That’s what I was thinking. N’est pas?


      • The trouble is Chris, there little fundamental difference between a sporting-celebrity endorsement and punters relying on ASX-celebrity-old-boy board appointments as endorsement. It’s still form over substance. Consumers are getting more sophisticated, it’s getting harder to make them dizzy with celebrity spin. The Rhinomed propositions remind me of the NZ Tech developed to assist correction of “cauliflower ears” in newborns a few years ago. That technology was given away, as while it was clever it was also so simple it could literally be copied anywhere by anyone. Just tracking infringement would have been a nightmare. Clinically, very successful though. When I see lots of patents I tend to be wary. Creating a complex “IP net” was popularised as a method to present an aura of IP cleverness a few years back. Now it makes a company look like its presenting an aura of IP cleverness; rather than some clever IP.

        You should stop writhing. You’re spilling your beer.


      • I never drink beer while I am writing in this forum, it is more of a scotch-type exercise.

        As for IP, we are having a violent agreement. I never rate a company solely on the basis of its IP, it is only one dimension of a commercial strategy. As for product endorsements, for the type of product that Rhinomed wants to sell, it’s very important. Without it, they probably have a lot less to be excited about. I may be many things, but naive is not one of them.


  4. Congrats Peter on the first Long Tail guest post – which sets the bar for those readers wishing to follow in your footsteps.

    And like all good articles it has attracted quality comments. I agree with Dick Johnson … and there quite a few of these public listed “biotechs” operating in the alternative medicine type space exploiting loopholes in the TGA listing rules. Where the difference between a publicly listed and private CAM properly lies is in who the consumer is.

    For the publicly listed company the consumer is not the general public but the retail investor. Sales of these devices to the general public will always be trivial. But a yarn is spun to retail investors about the big “deal” (all very confidential) and that there are serious medical breakthroughs happening. Hence a Professor (with a “clinical trial”) from somewhere or other is often co-opted to provide legitimacy. Essentially this yarn converts fish and chip shop revenues into a multimillion dollar gravy train; which can go on for years.

    Well done again Peter for an enjoyable read!


    • Southoz, you make a great point about the perceptual “validation” of a clinical trial. I have a post in the works that refers to several recent ethics approvals for clinical trails that are truly dodgy. More to follow.


  5. This is one of the best online discussions that I’ve seen regarding a “biotech” stock. Looking forward to the next guest post. Maybe somebody could write a glowing appraisal of one of the companies that Chris hates?


    • There are already takers for ADO. I will need to navel gaze deeply before I assent. But, to a first approximation, if anyone takes the time to write a structured, intelligent and “referenced” (ie substantiated rebuttal) I will be strongly inclined to allow it.


  6. Thanks to everyone for the positive comments. However, having accessed Rhinomed’s webpage, every time I log on I get a series of ads for the Mute. This is on top of the adverts for urinary incontinence pads. Do they really think they can wear me down to the point where I’ll buy one of the dam things?


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