The sleeping beauty within Fisher & Paykel

Friday 27th October 2000

ASLEEP ON THE JOB: Obstructive sleep apnea sufferers can wake up 100 times a night

NICHOLAS BRYANT examines the jewel in the company's crown

Frustrated whiteware whizzes at Fisher & Paykel can breath a sigh of relief - their healthcare division is no longer the company's best kept secret. For years they felt the media and investors had undervalued the less glamorous but increasingly lucrative healthcare business.

But recent strength in Fisher & Paykel stock can be put down to healthcare success, analysts say.

On the strength of the healthcare division's sales, growing at 20% a year, institutional broker Merrill Lynch reckons Fisher & Paykel "is one of the highest quality stocks currently trading in the Australasian region."

Deutsche Securities rates it a "strong buy."

Ironically, given it has only just started receiving attention, rumours are also rife the healthcare division will be split into a completely separate company so as not to be hindered by a perceived weakness in the viability of whiteware.

Before Christmas, Deutsche Bank will release results of a company-commissioned review of how Fisher & Paykel can maximise value from its operation.

The review is expected to have some hard messages about the future of the business that made Fisher & Paykel the most solid of family names and businesses.

Fisher & Paykel bosses are staying tight lipped but they have admitted the high-cost, low-margin whiteware business could get a shake-up.

So if healthcare is the real business, how did it happen and what does it do?

Its main functions are respiratory humidification products, cosy cot infant warmers and mobility scooters for the elderly.

The latter two are relatively minor and describe themselves, while the big money is in the former, the mysterious world of respiratory humidification.

Fisher & Paykel entered the field humbly in 1969 when its first trial humidification unit was mounted on an Agee preserving jar.

Supported by founding director Maurice Paykel, now 86, humidification didn't pay its way for 15 years.

Now based on humidification, the healthcare division employs 430 people here and 140 overseas.

From November 8 the local operation will be housed in a purpose-built 23,000sq m facility in East Tamaki, Auckland, just down the road from Fisher & Paykel's head office and whiteware plant.

It cost $30 million to build.

Part of the reason the company had trouble lifting the healthcare division's profile was the complex ailments its most successful products treat.

One such product is the clinical humidifier - chambers and circuits.

Used in hospitals worldwide, with sales growing rapidly, the clinical humidifier is designed to cater for all humidification needs.

Another product is CPAP, or continuous positive airway pressure.

It treats obstructive sleep apnea, a condition which affects a surprisingly high number of people.

There are differing opinions about the overall size of the sleep apnea market.

According to the latest Deutsche Bank research, the market may include up to 24% of men and 9% of women with some form of the condition.

More severe forms are believed to affect 2% of middle-aged women and 4% of middle-aged men.

But it can strike anyone at all, young or old, and until recently has received little attention from the medical profession.

The Greek work "apnea" literally means "want of breath."

People with untreated sleep apnea stop breathing repeatedly during the night, sometimes hundreds of times and often for a minute or longer.

Obstructive sleep apnea, one of three sleep apneas but accounting for 85% of cases, is caused by a blockage of the airway, usually when soft tissue in the rear of the throat collapses and closes during sleep.

At the end of each of the periods without breathing the brain briefly wakes sufferers up in order for them to breathe again. Consequently sleep is fragmented and poor.

Untreated, sleep apnea can cause high blood pressure and other cardiovascular disease, memory problems, weight gain, impotence and headaches.

Moreover, untreated sleep apnea may be responsible for poor work performance and car crashes.

Because of greater recognition the sleep treatment market in the US was estimated to be worth $US288 million last year and growing 20% a year.

Sleep treatment product sales in the rest of the world last year were estimated at $US100 million.

In June Fisher & Paykel posted a $54.4 million profit, a solid chunk of it from the healthcare division which saw revenue grow, in line with the international estimates, 21% for the year to $133 million.

Much of that healthcare revenue growth came from the important US market.

One of the country's foremost authorities on sleep apnea, Dr Ken Whyte of Greenlane Hospital in Auckland, has worked with Fisher & Paykel on the development of its CPAP machine.

He believes the whiteware background of the Fisher & Paykel engineers has been to the company's advantage in producing revolutionary sleep apnea treatments.

"They come at a project like this in a completely different way from the medical approach - they can revolutionise the whole area of ventilation," Dr Whyte said.

And the company is going to need to do just that.

Although the sales growth has been impressive, further development will be important as the latest research shows Fisher & Paykel has 15 competitors with CPAP products, two of which have 77% of the market.

It is also a relative minnow in the field, ranked sixth and sharing 2% of the market with some big foreign players.

But Fisher & Paykel bosses aren't worried because they're confident about the effectiveness of their CPAP machines, if only they can get people to wear them.

A small problem is convincing sufferers to wear a mask with a pipe attached to a bedside unit, not a good look for singles trying to attract lovers back to their boudoir.

"It is a wonderful treatment in that it is guaranteed to abolish every form of sleep interruption if the air pressure is right.

"The catch is that it is not normal to sleep with a mask over your nose, so you pay a price in the sense that it does disturb sleep to some extent," Dr Whyte lamented.

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