Checking the pulse of Respiri

Mario Gattino is the CEO of Respiri Limited. When I first interviewed this company it was actually Mario’s predecessor, Leon L’Huillier. I said it was one of the most exciting stocks I've bought so far; I got a bit carried away. The share price then was about 4 cents, it then popped up to 16 cents so it was looking good for a while but now it’s back to around 8 cents but still double what it was when I interviewed Leon back in October 2017. Soon after that he stepped down and Mario Gattino took over in December last year and so he’s coming up for his first 12 months on the job. 

I still think Respiri is exciting, definitely exciting. Is it the most exciting? Possibly not, but it’s a very interesting business; it’s an asthma detection business selling products and subscriptions to manage asthma but as you’ll see with the interview I start talking about their cash situation which is dire. It looks to me like they’re about to run out of money and they’re going to have to raise some more fairly quickly because they won’t make payroll. I first question him about that and then we get onto how the business is going and what they’re doing. 

Here is Mario Gattino, the CEO of Respiri Limited. 

Mario, I think we need to start talking about cash because the quarterly 4C statement that came out for the end of September said you’ve got $800,000 or so in cash then, you’re due to get $1 million by the end of November from an R&D tax refund but you went through $1.6 million during that quarter so on that basis you’re not going to make payroll in January or February, so what are you going to do?

Alan, that’s something that obviously we’re very aware of as a board, we monitor our cash position very carefully and this was something that was expected.  You may recall earlier in the year in April we raised $3 million in a capital raising, so quite deliberately at that time we capped it at $3 million.  This was before we had a working prototype and we knew that there was still a significant amount of development required before we got to a product that we were confident was going to meet that medical device quality.  Quite deliberately the use of those funds was to complete the development process and to start working towards our commercialisation and launch plans.  That’s exactly what we’ve done, we’ve been very consistent with what was communicated in April around the use of funds and knocking off each of the major milestones that were presented at last year’s AGM in December.

We were always anticipating around this time of the year or potentially through to early 2019 calendar year where things are really starting to fall into place and knocking over these milestones and getting closer and closer to commercialisation that we would then look at our options and be able to tell a really strong positive story about Respiri and the potential of its new technology.

Yes, I understand.  The capital raising in April was, as you say, $3 million done at 8 cents a share.  After the shares popped up to, I think, 16 cents but they’re back at 8 cents now and I suppose what you seem to be saying is you’d be keen to raise some money by getting the shares up some more.  I guess that’s what you’re looking for, isn’t it?

That’s ideally what we would want.  At the time in April, and as you said, we were going very nicely after that knocking over these milestones.  We would have hoped that we would be in a stronger position however the reality is, as you pointed out, we’ve got to preserve our cash, we’ve got to also anticipate our needs in terms of commercialising the product and the technology.  Absolutely, we’ve got to look at all options that are available to us in terms of funding that.  Clearly at this point we are intending to launch this product and commercialise it so we absolutely will succeed with that claim.

How much of the company does Bruce Matheson own?

Bruce’s shareholding now is around 15% to 16% so it was a little diluted after the previous capital raising but he still remains by a very significant margin the largest shareholder in the company.

Didn’t he come into that capital raising?

In April?

Yeah.

No.

Did you ask him to, did he say no?

No, we were trying to bring different investors into this company and into the opportunity and we were able to find that relatively easily at the time.  As I said, we wanted to be mindful of the share price and also the existing shareholders in order not to dilute their positions in the company.  Once we’d achieved the targeted amount and it met our requirements to get to the position we’re in now and in November that pretty much closes the process for us.

Just before I finish talking about cash and all that do you think you’re going to have to go to the market again now soon at 6 or 8 cents to raise some more?

We obviously will need capital, we will need capital whether it’s going to the market or whether we find some kind of development deal.  We’ll be looking at all options that are before us but I think it’s pretty clear to move sooner rather than later, don’t really want to go through the holiday period without having some commitment and some certainty.  We want to keep the plan and the project on track which is well defined and we know what the key success factors to the launch will be.

Is there any prospect on the horizon of some sort of licensing deal with a major company that’ll get some cash in the door?

I can’t really comment on that, there has been some discussions.  I think to put it in context, Alan, it was only until September that we had a medical quality device product that we were very comfortable in terms of the development of that product and that in combination with the smart app and algorithm which was completed is what we are taking forward to the market as our new product which is now going to be called Wheezo.  It’s not until that stage that you can really start to have meaningful discussions and you get the attention of these larger companies.  Plus, it sends a very clear signal to anyone who’s interested in this space that we are already there, we are going to be the first company that commercialises this kind of technology and they really can’t catch up because you can’t just create an algorithm overnight or certainly not a robust algorithm with thousands and thousands of files and years of data and development.

We believe our app is also going to be extraordinary compared to what’s already in the asthma space and how it compliments the sensor and it has the potential to really become a personal asthma coach for these children.  That’s when you start to get people’s attentions, I have had some discussions with companies that fit that description but it’s still very early days.  I think as much as we can we’d like to control our own destiny and our plan very much is aligned with that but obviously once we start selling and people see that this is very much a product in demand with the target customer group, the price point is acceptable, there is profitability as we anticipate, that’s when you start to get the interest of larger potential partners.  They’re happy to pay a premium at that time.

You put out a really excellent 100 day update in September.

Thank you.

Which was, I must say, one of the best kind of updates of a new CEO I’ve ever seen, it was fantastic.  Just perhaps you could take us through the changes you made to the company, what did you have to do during those 100 days?

Just to clarify it was 100 days version two because I started in December last year and I promised the shareholders and the market that after about three months I would come back and provide a typical CEO 100 day update, because that gave me enough time to review the company’s history and where we were at.  I did that in March and that’s when we really defined the major milestones that we’ve been communicating all year long around development, manufacturing and regulatory pathways and then ultimately commercialisation.  Just recently the version that went out in September is an updated version of that 100 days, so adding things that have happened and giving people the opportunity to really be brought up to date on where we’re at in terms of the journey towards launching the product.

I think if there’s a few things that I’ve done clearly I’ve tried to introduce a mission for the company that goes beyond just simply launching this first product.  The reason why my small team gets up in the morning and we’re doing what we’re doing is because we really want to profoundly improve the quality of life to millions of families who are affected by asthma.  You need to remember that depending on the expert any child under the age of 12 or 15 years of age really has no alternative in terms of monitoring their asthma, they can’t use heat flows, they can’t use things that require them to blow into the device with spirometry, so they’re a completely unserved population and parents that are anxious and scared to death about what a serious asthma attack is going to mean for their child.

That’s the one thing that we want to change and we believe this combination product will do that.  Then ultimately this should reduce people needing to go into hospitals and the overall economic burden of asthma on society which is enormous and is becoming a real issue for governments and health authorities around the world.  Under that umbrella the first product is the Wheezo which is the day time monitoring and smart app.  When I started there was probably an over-emphasis on this just being a consumer product and all you needed to do was just get regulatory approval and you just start selling it.  Having come from a big pharmaceutical background, having worked in healthcare for nearly 30 years now I understand the limitations of that if you don’t bring the medical community and asthma associations and key experts along with that journey and you get them to validate and see the merit and value in the product that we’re bringing to market. 

A big objective and a big priority for us since I’ve come on board is to build that expert panel that is going to help us put the scientific data and the pillars in place not only to sell the first few but for this ultimately to become standard of care in home monitoring of Asthma.

Are you saying you’ve had to change the distribution model from direct from pharmacies to through doctors?

Not at all.  This will still be a consumer product that the families will be able to buy at their discretion and most likely they’ll have access to it online.  We will be looking at a bricks and mortar approach too if that makes sense, we’re right in the middle of gathering the market research and talking to our target customers to understand their needs.  That doesn’t change but you can understand, Alan, if a family buys this product and is all excited, catches their data and then the first time they go and see their GP for a routine check-up the GP knows nothing about it, doesn’t understand what information it’s providing and doesn’t support that family and that patient in continuing to use the device and the technology.

In a typical approach you start with the experts and we’re very lucky to have just brought on board professor Bruce Thompson here in Australia who is the head of the largest lung function unit at the Alfred Hospital in Melbourne but also happens to be the President elect of the Australia and New Zealand Thoracic Society which is a tremendous endorsement and honour for us as a small company to have someone with his reputation working closely with us and helping us develop the portfolio. 

Last week I was in London with, again, eight of probably the top respiratory people across the UK again discussing what is the value proposition and what information is going to be required in order for this to get universal acceptance and ultimately over a two or three year journey with the right kind of studies and results was something that the NHS over there will reimburse because they see the value that it brings not only to the families but also financially in terms of the costs and use of healthcare resources.  The go to the market hasn’t changed.

Right.  You’ve got a product as well that now doesn’t need to be connected to an app, is that right?

This is now a completely Bluetooth wireless but there’s two components to it.  There is a sensor which again is state of the art, a lot of knowhow and knowledge has gone into that, we’ve added noise cancellation, we’ve added mems microphones which allows us to capture the information and put it into the cloud and the promise of big data.  There’s a lot of innovation in the sensor itself but that’s only part of the story, that’s what records the sounds from within the lungs in an analogue format and that’s not easy to do but we’ve cracked that.  We’re really excited by that, it’s taken quite some time.

It’s like a little stethoscope, isn’t it?

It will be, yeah, it’s like having a digital stethoscope at home only Wheezo looks more like a pebble or an egg and he is the character that we’re using in the app to engage the children.  That then becomes digitised in the smart app and with the algorithm it provides a wheeze rate measurement which is a percentage of wheeze in 30 second recording.  Then in that app you’ll be able to capture the symptoms you’re feeling at the time, the triggers you believe may have caused your asthma, exacerbation as well as the medication that you’ve taken, when you took it, what kind of reaction you’ve had once you’ve taken your medication and we’re also from day one, and I think this is one of the key features since I’ve come on board working again with a really talented team and third party developers, we’re putting machine learning into this app so that it will start to understand that your asthma is caused by something specific because of the patterns it’s picking up.

It might be every time you exercise, it might be pollen and allergens, it might be a new pet, there’s 60 different triggers for asthma so it’s really hard for people without some kind of objective monitoring to get a sense of what causes their asthma.  This will start to figure that out and it will start to then give you advice and warnings that on this particular day air quality is terrible, there’s lots of allergens, dust out there, be careful, take your medication, try to stay indoors.  This could be life saving if we look at what happened a few years ago here with the thunderstorm asthma episode and 10 people lost their lives in a half an hour when there was a huge storm and dust and allergens were kicked up.  They just didn’t realise how dangerous that situation was for them.

Tell us about your pricing model, Mario?

We are planning to launch the sensor and one years’ worth of usage of the app.  We’re looking at somewhere between $200 to $300 in Australia.  Obviously for each market we’ll conduct pricing sensitivity and we’ll get a sense of what is the appetite if I just use Australia as an example.  A year later as we continue to add more bells and whistles and more capability to the app we would charge a subscription fee of around $10 or so per month to the families who will continue but we believe it’s really important that people in that initial purchase get the opportunity to use the combination technology of the sensor and the app and live with that and see the influence and impact it has on their lives during that first 12 months. 

We’ve looked at things like Fitbits, we’ve looked at Apple Watches and all kinds of devices, even digital blood pressure glucose monitoring.  We believe we’re in the right kind of ballpark and it’s a reasonable price point.

Did you think of wholesaling it to doctors so they could sell it to patients?

That’s something that we can consider but it’s not really the primary option at the moment.  Having worked in an industry where we’ve always relied on the intermediary of the doctor or a hospital or a pharmacy in order to provide the product it’s kind of nice for people to have the choice to buy this without the necessary need for a prescription or some kind of extra hurdle of access.  The doctor having one or two in their surgery, the hospital sending kits home after they’ve been hospitalised and see how they go after a few weeks because there’s a lot of rehospitalisation for kids once they’ve been discharged.  We could see that happening and they’ll buy it themselves.  That’s probably a secondary phase depending on what has been the response from the market place once we launch.

Are you going to recommend all of your clients or customers share their data with their doctor?

Yeah, they’ll be able to do that, through the cloud they’ll be able to e-mail their information with the doctor in real time.  The promise one day, Alan, is when we do have a universal healthcare electronic medical record that all the software talks to each other and in absolute real time, as information is being added to that medical record anyone who needs to know will have access to it.  There’s two components to that.  One will be at a personal level, so everyone will know about what’s going on with that particular individual but then as you say by capturing millions of patient data in an anonymised way the value of that data, which exists today – let’s not kid ourselves, it exists today but it’s in paper base, it’s in medical records all over the place or discs or one hard drive.  The ability now to be able to analyse that data, that’s the promise.

We’ll be able to slice and dice this data base and we believe there’s going to be tremendous value.  Governments, health insurers, pharmaceutical companies, hospitals, they’d love to get their hands on that information at a population base just to answer very simple questions like in November for kids under 15 years of age what is the most common trigger.  We can’t answer that question today, it’s just guess work.  That is the promise, we believe, of big data and that’s another monetisation opportunity but it’s early days.  You can see the potential and promise of that in time.

When are you going to launch?

We are on track and we’ve been communicating that we expect to launch firstly in the UK because the first regulatory approval – and we have to get regulatory approval before we can officially start selling.  That is expected to happen within the first half of 2019 at the latest.  Australia will follow within a period of six weeks to eight weeks through mutual recognition, so we’ll then have the Australian approval, we can start selling here.  Singapore has a similar kind of process so they’ll accept the European CE and we expect to have Singapore. 

We’ve very deliberately, Alan, as a small company I didn’t want to pretend that we were going to be able to provide this to the world on day one.  We’ve tried to bite off something that we can digest and chew and that will be the UK, Australia and Singapore which presents a total population of about 8 million asthmatics, 25% to 30% of that is 2.5 million kids.  That’s our target audience and that becomes really our pilot and our experimental place where we can test all of the things that we want to try in terms of commercialising the product, our go to market strategy, is it being accepted by families, what are the experiences, what support do they need before they buy it, after they’ve bought it, can we build a community and forums where they talk to one another, they support one another.  Facebook is out here, mummy blogs, there’s so many opportunities in this online and digital world where we can get people to talk to one another and share experiences.

Once we really are confident that all elements of our commercialisation, of our product management, manufacturing, etcetera, are really going on all cylinders that’s when we turn to the real pivotal markets of the US, China where the populations go up incrementally and then we want to make sure when we launch in those markets we really are on the top of our game.

Just finally then when do you expect to get some cash flow from sales in the door?

We’re looking at a bunch of ideas around that.  As I said your regulatory approval is the last milestone and so we have to let that process play out.  The dossier should be completed by the end of this year, early 2019 at the latest, and then it’s really in the hands of the European authorities.  The best advice we’re getting is around the three month or so process if everything goes smoothly but again we’re relying on a third party to do that.  We’re looking at things like pre-orders, we’re building a database of potential customers and we’ve just had some fantastic market research which we announced just a couple of weeks ago, some preliminary market research with around 600 families with asthmatics in Australia, the UK and Singapore. 

As you would expect seven or eight out of ten of them said they would buy this as soon as it’s available and a startling 60% of those families have given us their contact details by just purely an online initial contact.  We’re going to start building on that and building a database of potential customers which we expect to be in the thousands.  If they’re comfortable as we engage with them to put in pre-orders for experiencing the product before it’s approved and providing feedback to us these are the things that we’ll be able to do and that might provide an even earlier window to try and bring cash in but it won’t be a big number at that point.  It really will be once we have regulatory approval.

By building this huge customer base, building a relationship with them over the six to nine months until launch, we expect then the take off to be far more aggressive and accelerated than if we hadn’t have done any of that activity.  Then the green light just purely becomes the regulatory approval in each market.

Okay.  Great to talk you, Mario, thanks a lot.

Thanks, Alan.  Appreciate it.

That was Mario Gattino, the CEO of Respiri Ltd.