Demand for Respiri’s (ASX: RSH) wheezo asthma management device has continued to grow following the platform’s recent commercial launch in Australia with sales orders increasing and a new banner partnership announced.
The respiratory health management company today revealed its distribution partner Cipla has increased its initial wheezo order by 250% from 2,000 to 7,000 units to meet expected demand.
Taking into account feedback from pharmacies since the platform’s launch, the partners have also chosen to lower the price of the wheezo device from $299 to $99.50 to make it more accessible for a higher number of patients.
“Although this will result in significantly lower product gross margins for Respiri in the short term, as volumes are expected to increase at the lower price point, the manufacturing supply price to Respiri from its exclusive contract manufacturer Entech Electronics will decline,” the company said.
“The targeted reduction in costs of goods sold (COGS) in calendar year 2021 of 85% of Respiri’s current year COGS remains on track,” it added.
Meanwhile, Respiri has secured a new supply deal with retail pharmacy banner group, Pharmacy Platform and said discussions are “advanced” and ongoing with other key pharmacy banner groups.
Cipla increases minimum orders of wheezo device
In July, Respiri signed an exclusive deal with global respiratory pharmaceutical firm Cipla for the sales, marketing and distribution of its wheezo device.
The five-year agreement focused on a minimum order of 2,000 wheezo units but this has now been increased to 7,000 to meet expected demand.
And while the device cost has been reduced by about a third, the monthly Software-as-a-Service (SaaS) fee has been increased by 24% to $9.95 per month following recent feedback that showed customers were more willing to pay a higher monthly subscription.
“Although patient non-renewals (churn) is estimated by the company at 11% per annum, Respiri believes this may be conservative as patient stickiness is expected to increase over time as the valuable monitoring data for wheeze is progressively reported to a patient’s treating clinician and integrated into their asthma management plan,” the company said.
New supply deal
Banner groups are groups of retail pharmacies similar to franchise groups, where they operate under a larger brand name and usually benefit from joint marketing and promotion.
Pharmacy Platform is a recently merged group with more than 350 pharmacy members across Australia and an additional 800 pharmacy clients serviced through the new entity’s specialised business units.
The pharmacies will initially just stock the wheezo devices, although Respiri said it is continuing to work alongside Pharmacy Platform to develop an in-pharmacy asthma clinical program.
The company is also progressing talks with additional pharmacy banner groups regarding the supply of its wheezo devices and confirmed “a number of independent pharmacy groups are now stocking the device”.
Revenue guidance maintained
Respiri has maintained its wheezo revenue guidance for the 2021 calendar year of between $6-$8 million, despite lowering the unit pricing of the device.
The company’s justification is the projected increase in sales volumes as a result of the lower unit pricing, as well as increased revenue through the higher SaaS component and an anticipated expanded subscriber base.
According to Respiri, the expected customer average gross margin is expected to increase by 9% over 24 months and by 18% over the forecast life of a customer.