I’ve spent a fair amount of time in Japan over the years and I remember reading a rather startling headline a couple of years back that by the end of the decade, sales of adult diapers will eclipse sales of infant diapers. Obviously, that’s not overwhelmingly positive economic news, but Japan is not alone. The UK is just a few years behind, frankly as is much of the industrialised world. It is, however, very good news for Simavita (ASX : SVA), a company that specialises in digital incontinence. Not digital incompetence – that’s the exclusive domain of ASX healthtech companies like iSonea – but incontinence.
I’m talking pee-pee.
Ok – enough wisecracks, I am going to be serious from now on, because this is a very interesting topic that is worthy of a little gravitas. Besides, by the time most people hit 50 the “seal” is starting to show a little wear and tear anyhow, especially for all the ladies who have been heroic enough to give us children. This is an important topic because urinary incontinence is a major life issue, and it’s a big factor in the cost of aged care. There is absolutely a need for technologies that enable continence care to be optimised for the individual – whether it be careful control of fluids and appropriate use of protective products – or more extensive therapeutic intervention. I don’t need to re-hash the business case or the cost impact of care if this done right, I think Simavita’s latest investor deck does a very credible job of articulating this.
So why isn’t Simavita’s SIM product making a bigger splash? Why is it that despite a strong technological position and a truly $Bn opportunity, is Simavita still a $30m market cap company that did $800k in sales last year? Well, I am not intimate with the company and its leadership, nor do I have any in-field experience specifically with their products, but as an outside observer I have five theories as to why this company isn’t more successful :
1) The company hasn’t demonstrated that it is serious about building a sales force in key markets. In my opinion – on spec – none of the sales “executives” that the company currently employs reflects the establishment of a credible commercial team in any territory. And there isn’t much point in doing a deal with hospital equipment distributors (i.e. per the recent Medline announcement) because the product basically just ends up being one more item in a catalogue. You don’t need a big sales force to push out a product like this because there are quite a few fairly concentrated low-hanging opportunities in the form of large-scale care organisations where winning a group purchasing contract is the name of the game. To be fair, the company seems to be doing this to a limited extent – for example the recent announcement regarding the QLD Department of Health contract, but far more can be done. I don’t really see any commercial profile on the management team that suggests meaningful experience in selling technology solutions into aged care.
2) The SaaS model is awkward. It’s yet another subscription, system, billing structure and annual service payment that needs to get added to the service offering structure of a retirement care / aged care facility. Anyone who has ever checked a loved one into an aged care facility knows that a challenging part of the process is adding up all the services and choosing the ones that make the biggest impact on daily life while not completely destroying the bank balance. We know, for example, from surveying the opportunity for emergency/fall monitoring solutions that this is a hugely price sensitive market. When aged care facilities onboard a new resident, they typically already charge for an evaluation process and as such it’s tough to push the cost of using Simavita’s products onto the customer. Yet, in charging annual subscriptions and deploying usage-driven billing, Simavita introduces a new line-item into the cost of service provision that demands a fairly sophisticated financial discussion as part of the sales pitch in order to fully justify the ROI. That’s why I would argue that distributors will pretty much never succeed for this product because they wont dedicate the time to that discussion. In fact I would argue that distributors have an incentive NOT to spruik this product too hard because it actually cuts back basic consumable product sales like diapers, liners, skin care products and odor control. Take a look for yourself.
3) There is too much focus on technology and an insufficient “grasp” of the consumable nature of incontinence care. Not only should the SaaS model be simply tied to the use of a diaper (more on that in a minute), but in my opinion, the entire product footprint needs to be disposable too. What do I mean? Well, we have the technology to embed a button-sized battery, microprocessor and transmitter into a diaper – along with the basic sensor – without having any devices hanging off. Because the sensor only has a limited shelf-life, the biggest design cost and product COGS – efficient power consumption – pretty much isn’t an issue. By all means sell a “pod” that proximally reads the data from the individual diaper/pad, but don’t hang it off the person. The “unlock” code for the SaaS service should be tied to the individual diaper, and should be invisible to the user. The company should run a dedicated recycling program for the diapers to recover batteries/devices. It’s not without additional regulatory headache but it makes the customer VERY sticky (I don’t mean pee sticky, I mean commercially sticky) and lends itself well to long-term, added-value supply contracts.
4) This leads to the general issue of what I call “wearable saturation”. I have a keen interest in wearable technologies and have collaborated / invested in the use of several wearable/embedded sensor technologies, including in the aged care setting. There is no doubt that wearable technologies are becoming an important – and exciting – part of healthcare. But as we wire up our elderly to better monitor and manage their basic vital signs, diabetes, mobility, capture emergency events (panic alarms, falls), one more clunky device hanging out of your underpants isn’t going to appeal. Just like the problem of incontinence, this needs to be essentially invisible.
5) Frankly, the elderly don’t like wearables and their carers know this. We know from other application areas (i.e. fall monitoring) that wearable devices simply aren’t desirable. In patient populations where there is also cognitive impairment, wearables really don’t work because they just get ripped off. In my experience, I think it is fair to say that the elderly don’t trust devices, they are fearful of electronics near fluids, they aren’t great a recharging things and they hate anything on their person that is going to set off an alarm. It’s got to be totally unobtrusive. Simavita should take a leaf out of P&G’s marketing strategy for Adult diapers – they are called “Always Discreet”. SIM is not.
So, to summarise, I think it is a brillliant idea and a huge unmet need. But I also think it is the wrong product, poorly branded/marketed and it is basically what engineers would come up with to solve the problem, not a healthcare professional. I also think there is one big missed opportunity, and that is the partnering strategy. With a CAGR of 10+% and a multi-billion dollar market size, selling consumable continence products is huge business. Simavita needs to turn that “pod” dangling off the patient into a “button” embedded in the seam of an “ordinary” adult nappy/pad and then partner with the best nappy players in town. Selling a premium/special use continence care product like this isn’t going to dent sales and if done correctly, has the potential to shift market share considerably by driving “portfolio” selling as part of the care optimisation process. Basically Simavita’s technology concept has the potential to not only massively improve the standard of care and save the healthcare system money, but also control the entire sales dynamics of the consumer continence care market.
I think SVA should something gutsy like do a strategic deal with Daio or Unicharm – and then go talk to P&G or J&J. You don’t irritate 800lb gorillas by giving them bananas, only taking them away…