SomnoMed has announced Derek Smith will be its next chief executive after Peter Neustadt resumes the role of non-executive chairman in September. Smith was previously chief executive of the Hospital to Home Business division of Philips Healthcare.
Before that Smith was President of Respironics Hospital Group, which competed with ResMed in the market for continuous positive airway pressure (CPAP) devices for sleep apnea (Respironics was acquired by Phillips in 2008). Other posts include various senior roles in sales and marketing at Respironics after he joined that company in 2005.
Announcing the appointment, Neustadt said ‘with over 90% of our business being outside Australia, predominantly in the US and Europe, SomnoMed needs an executive leader based in the US. As a senior executive with extensive global experience and a proven track record with larger companies, Derek is ideally suited to continue this work and take SomnoMed to the next level as a global medical device company’. Smith will be based in Denver, Colorado.
We’ve been cautious of current management’s changes to SomnoMed’s business model earlier this year, which proposed opening five new sleep treatment centres in 2017 and 10 more in 2018. This would allow the company to sell its SomnoDent mouthguards direct to patients (see SomnoMed’s shifting business model).
Unfortunately management's profit forecasts for the new centres are based on a limited amount of data. What information is available is from similar sleep centres based in Texas, while SomnoMed’s licence to operate is for every state other than Texas. The strategy change undoubtedly adds risk.
We look forward to hearing more from Smith himself, including his own ideas for the business, at the shareholders meeting in November. The stock is up 18% since our last review and we continue to recommend that you gradually take profits to maintain a maximum portfolio weighting of 2%. HOLD.