Healthcare equipment firm LiDCO Group makes a range of monitoring devices that are designed to provide a practical, early warning of cardiovascular change. The London-based business was founded in 1991 and its shares have been quoted on the London Stock Exchange’s Alternative Investment Market since 2001, after having been backed with private equity from a number of investors that included the Merlin Biosciences Fund.
Cardiovascular health is, of course, an important medical market. The human heart, during its average lifespan of 70 years, will pump more than 400 million litres of blood. Monitoring of the key cardiovascular parameters – blood pressure, cardiac output and oxygen delivery – can provide a practical, early warning of cardiovascular change and potential adverse events in surgery and in critical care patients who are monitored both during and after surgery via an arterial line inserted in the radial artery.
According to LiDCO, every year there are at least 10 million surgery and critical care patients who are involved in such monitoring procedures, but a significant majority of these patients are currently monitored only for blood pressure and not for cardiac output or oxygen delivery. So, the group has developed a minimally-invasive product, disposables and other monitoring equipment that it believes will improve the standards of care and monitoring of high-risk patients both during and after surgery, reduce the incidence of adverse events in hospitals and reduce costs.
LiDCO’s technology was developed out of research conducted at London’s St Thomas’ Hospital.
Today, the group’s current principal patent-protected technologies are a sensor device (known as the LiDCO System) and its monitoring software (the PulseCO System), which when used together provide a range of data concerning the performance of a patient’s heart and blood circulation.
This is line with its strategy to apply a multi-disciplinary combination of physiological expertise, materials technology, computing and software to monitor and display the relationship between linked physiological variables at appropriate intervals and at the point of care; LiDCO’s products are designed to be minimally invasive, portable and easy to use at a patient’s bedside.
In 2003, LiDCO launched LiDCOplus – its haemodynamic monitoring product for intensive care units. This makes use of the PulseCO software mentioned above as well as a proprietary method of calibration that uses a small amount of lithium chloride. LiDCOplus is able to provide a continuous accurate measurement of the hydration status and cardiac performance of a patient.
According to the group’s house broker, FinnCap, the invention of LiDCOplus represented a step change in cardiac output monitoring. The broker says that previously, the procedure used involved placing a catheter into the heart, which was risky. Instead, LiDCO’s technology used a sensor placed in a catheter external to the body.
However, although there have been many circumstances where haemodynamic monitoring has had a positive clinical outcome, it can be an elaborate procedure. In addition to its physical size, a complex graphical user interface and additional training requirements limited LiDCOplus’s acceptance outside of the intensive care environment. So in April 2008 the group launched LiDCOrapid, which interfaced with a standard wrist catheter and did not require calibration.
To support these technologies LiDCO has launched software in the form of LiDCOview, which is a PC-based toolset allowing users to download and analyse the data as well as generate reports, and LiDCOlive, which allows remote monitoring of a patient.
But the group aims to make its key revenues from the sales of consumables. With LiDCOplus the consumables are sensors and lithium chloride solution, while for LiDCOrapid the consumable is a patient-specific smartcard that retains specific details of the patient and allows a limited number of hours of monitoring.
For the 12 months to 31 January 2009, LiDCO reported that revenues were up 12% at £4.5m, while its pre-tax loss was down 10.9% at £1.8m. The company’s cash balance fell from £2.2m to £243,000 during the year.
More recently, LiDCO reported in a trading statement released in August that it had enjoyed a strong sales performance during its first half and that revenues would be significantly greater than those it achieved in H1 2009.
Although there still remains a challenging environment for capital equipment sales in LiDCO’s markets, the group said its revenue growth represented an increase in market share and, in particular, reflected record sales of disposables.
Meanwhile, earlier in the summer LiDCO signed an exclusive distribution agreement for its LiDCOrapid monitor with Aspect Medical Systems. Aspect has one of the biggest anaesthesia medical product sales teams in the US and the deal gives LiDCO full access to the US anaesthesia and surgery markets. Aspect paid LiDCO an upfront licence fee of $1.2m, while the agreement also saw Aspect taking over most of LiDCO’s US sales team, which will reduce the group’s costs.
For the current financial year (which ends on 31 January 2010) FinnCap forecasts that LiDCO will generate revenues of £5.6m and produce a pre-tax loss of £1.1m. But the broker sees LiDCO’s revenues and profitability improving markedly during its 2011 and 2012 financial years as sales are boosted by recurring revenues generated by the group’s installed base of monitors. So, 2011 should see revenues and pre-tax profits of £7.9m and £1m respectively, while 2012 is expected to generate £9.6m of revenues with £2.3m of profit.
The earnings per share estimate of 1.4p for LiDCO’s 2012 financial year means the shares, currently 19.75p each, trade on a punchy earnings multiple of 14.1 times. Should the group slip up during the next couple of years, it would likely have a significant impact on earnings which in turn could knock the share price severely.
LiDCO is due to announce its interim results for the six month period ended 31 July 2009 at the end of October, so potential investors will be able to see if the business is on track to meet FinnCap’s profit forecasts. The broker has set a price target for the shares of 27p