F&P Healthcare selloff 'overdone'

By Nick Stride

Friday 25th January 2002

Shares in Fisher & Paykel Healthcare (FPH) continued falling yesterday morning but analysts said investors were overreacting to a competition scare.

FPH shares on Wednesday shed 80c, or 4.8%, after Innomed Technologies of the US said it was introducing an obstructive sleep apnea (OSA) mask that had achieved a 98% preference rating over rival products in trials.

Innomed said it had signed up three US distributors for its Nasal Aire mask and was negotiating with "numerous" others internationally.

The product would reach the market in mid-January and already had sales commitments worth $US20 million.

Shares in FPH's Australian competitor ResMed fell even harder, wiping 10% from the company's market capitalisation at one point.

Malcolm Davie, an ABN Amro analyst, said FPH was far less exposed than ResMed as FPH had only started selling OSA masks in the last few months.

Masks account for up to 40% of ResMed's sales but Australian analysts said that company's share price fall was also overdone.

Mr Davie said it was important for investors to realise Innomed's mask didn't threaten an established FPH market.

Most of FPH's OSA sales came from humidification devices.

"The threat these guys are bringing I suppose is that suddenly the intellectual capital within this OSA treatment area doesn't look as bulletproof as it did before. A new product has come in very quickly which highlights that the intellectual property isn't quite as secure as investors had assumed."

Macquarie Equities said Innomed's device gained US Food and Drug Administration approval two years ago and had already been marketed by Breathing Technologies Corporation, without conspicuous success.

FPH chief executive Michael Daniel said Innomed's product didn't compete directly with FPH's nasal masks. "They're in a niche segment of the mask market."

Analysts estimate the US OSA treatment market - or, according to some, the global market - is worth around $US500 million annually and is growing at 25% a year.

The mask segment of that market is around 40% or $US200 million.

Some analysts said that left room to doubt Innomed could have achieved $US20 million of pre-launch sales.

Innomed says Nasal Aire is different from competing products in that it requires no headgear, virtually eliminating pressure points on the face and the bridge of the nose. It also claims one of the highest carbon dioxide washouts and virtually no breakable parts.

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