Vapotherm (VAPO +0.00%) is that rare company that not only had a good start to the year, it's seeing things get even better because of the coronavirus pandemic.
The Exeter, N.H., medical technology company specializes in products to treat respiratory diseases. Here are five reasons why the stock jumped by as much as this past week and why it could keep climbing.
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1. Revenue grew last year and is accelerating
The company's net revenue in 2019 was $48.1 million, reflecting growth of 11.9% over 2018. When COVID-19 hit, though, sales of the company's high-velocity nasal insufflation (Hi-VNI) technology really took off. Vapotherm's first-quarter 2020 revenue of $19.1 million was a 55.4% jump over the same quarter in 2019. On its earnings call Tuesday, the company's CEO, Joe Army, said in April that Vapotherm has already surpassed $19 million in revenue this year. Even more importantly, doctors who are using the company's products to treat COVID-19 patients are gaining a greater familiarity with Vapotherm, setting the company up for better long-term name recognition.
Investors have noticed, pushing the company's share price to more than double where it was six months ago. But there's still plenty of upside to Vapotherm.
2. The company's Hi-VNI technology has some big advantages
Vapotherm's Precision Flow systems bypass the need for an oxygen mask for many patients who need respiratory aid, providing high-speed heated and humidified oxygen through a small, noninvasive nasal interface. That means patients can eat, drink, talk, and take oral medications while receiving supplemental oxygen therapy, all things they can't do with an oxygen mask on.
The company's biggest sales aren't from the Precision Flow Hi-VNI units themselves, but from the single-use disposable products employed by the systems -- think delivery tubes, small-bore nasal interfaces and adapters, and patient circuits. Last year, 72.9% of Vapotherm's revenue came from disposables related to its proprietary Precision Flow systems.
The big question for Vapotherm is how big an effect it can have on clinical practices. Can it bring more hospitals to using Hi-VNI technology and feeling comfortable doing so?
3. Insurers may see a cost benefit to its technology
Insurers looking to cut costs traditionally related to respiratory distress may see a benefit to Vapotherm's Hi-VNI methods because they may reduce the length of a patient's hospital stay. In a study published in the October issue of the Journal of Clinical Respiratory Diseases and Care, patients with dyspnea (shortness of breath) who used Hi-VNI technology saw a 32.5% decrease in recovery time compared with those who used traditional methods.
4. The FDA recently gave the company good news
Last month, the U.S. Food and Drug Administration (FDA) gave Vapotherm's Oxygen Assist Module (OAM) a "breakthrough device" designation, similar to the "breakthrough therapy" status it confers on some drugs. This means the OAM, for use with most versions of Vapotherm's Precision Flow systems, will receive priority review of its marketing application. This came on the heels of a November 18 study in the Archives of Disease in Childhood -- Fetal and Neonatal Edition that found the OAM was more effective than manual adjustments in administering oxygen to preterm babies.
5. The company just issued more stock -- and in this case, that's good
Buying Vapotherm stock, like the purchase of any equity, is a risk. Founded in 1999, the company hasn't turned a profit since its initial public offering in November 2018. It lost $55.1 million last year and $47.4 million the year before. While Vapotherm does have $60.4 million in cash, it needs more if it's going to grow. For that reason, on Wednesday, management announced the sale of 3.35 million shares of common stock to the public at a price of $26 per share.
Normally, a secondary offering like this can be a bad thing for investors because it dilutes the stock's earnings per share. In this case, however, the offering is priced very close to Vapotherm's going price and will give the company the capital it needs to ramp up production.
Looking long-term, Vapotherm is in a good position
In the U.S., an aging population -- and the accompanying growing prevalence of heart failure and pulmonary disease -- will drive up the need for the company's products. Combine these patients with the number of people recovering from COVID-19 who will need continued respiratory care, and there's plenty of growth possible for Vapotherm.
