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  1. #601
    ... malus's Avatar
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    Quote Originally Posted by Lewylewylewy View Post
    Does anyone know what percentage of the profit the product they stand to lose rights over is worth?
    I assume you are referring to the Resmed action referred to below in the Company's first press release, unfortunately you aren't going to get such a definitive answer to your question at this very early stage, clearly this decision has not been taken lightly by the management and directors... they have evaluated the absolute need to protect the Companies patent rights against the cost of investing in legal action.


    FISHER & PAYKEL HEALTHCARE FILE PATENT INFRINGEMENT PROCEEDINGS AGAINST RESMED
    Auckland, New Zealand, 16 August 2016 - Fisher & Paykel Healthcare Corporation Limited announced today that it has filed patent infringement proceedings in the US District Court for the Central District of California seeking judgment that ResMed Inc’s AirSense 10 and AirCurve 10 range of flow generator products, ClimateLineAir heated air tubing for use with such flow generator products and Swift LT and Swift FX masks infringe patents held by Fisher & Paykel Healthcare.
    The company alleges that certain of ResMed’s continuous positive airway pressure (CPAP) devices and accessories used in the treatment of patients with obstructive sleep apnea (OSA), and certain of ResMed’s masks infringe on Fisher & Paykel Healthcare patents. Fisher & Paykel Healthcare is seeking all available remedies, including damages and injunctive relief.
    Lewis Gradon, Managing Director and Chief Executive Officer, said “Fisher & Paykel Healthcare has invested substantial resources in the research and development of its technologies over the past 45 years. The company has protected that investment through the development of a significant portfolio of more than 1,400 issued and pending patents, and takes infringement of its intellectual property rights very seriously.”

  2. #602
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    Quote Originally Posted by malus View Post

    The ASM yesterday was a pretty positive affair and using Percy’s words “the Company and its shareholders are well positioned”…
    Thanks for the very useful feedback. Most appreciated.

    Quote Originally Posted by malus View Post
    They believe it is a key strength of the company to have the R & D closely associated with manufacturing… hence the additional investment at the Tamaki site rather than offshore.
    I had wondered about the logic behind this arrangement. My position has always been that if the Tijuana manufacturing site is meeting or exceeding their required metrics in terms of volumes and quality, then perhaps manufacturing should occur offshore closer to major markets and at a lower price point, with R&D remaining in NZ. It does make sense to have manufacturing coupled with R&D, however 73% in NZ seems awfully high and hence carries significant risks along with the currency related issues mentioned.

    Quote Originally Posted by malus View Post
    Also interestingly for me, even allowing for the capital spend on capacity here and in North America, directors still expect to move to distribution of 70% of profits to shareholders, and continue to reduce their already low (7.7%) gearing. No financial help needed from shareholders at all, unless you would like to pop some or all of your dividends back in!
    Given the above, it would be useful to know whether FPH intend to retain the DRP scheme. I'll see what answer I can get out of them via email.

  3. #603
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    Quote Originally Posted by dagoldtoof View Post
    Bought in at $2.11...Sold two parcels for at the time thought nice profit...Watched it rise and thought will not do that again... will now just sit and hold...
    Learning is a great thing. Hopefully you are not about to get another lesson though.

  4. #604
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    Quote Originally Posted by malus View Post
    Good question limmy... my impression is that the manufacturing and R & D are very much integrated and are not separate 'silos' if you like hence their desire to develop capacity on the same site.
    Thanks malus. If it's a design centre, we're potentially looking at long(er) term increases in revenue. However if it's a manufacturing facility, it'll be a much shorter term.

  5. #605
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    I don't think we'll be too happy if what Winner is saying over on the Hallenstein's thread is correct. NZD/USD exchange rate heading to 75c and then possibly pushing up to 80c again, and beyond!!! Yikes!

    I too believe that the new building is a mixture of both r&d and manufacturing. Interestingly, I've heard this time they are building the car parks underneath the building, presumably to save space and perhaps an extra building in the future. Originally I think they saw 5 facilities at the Auckland site, but seems they are giving themselves extra room, just in case.

  6. #606
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    Attending the ASM gave me the opportunity to view and take in the Company’s products and explore their features and application with engineers and technicians… again a very positive experience. They showed me various aspects of their patented designs and the competitive advantages these provide in the market.

    For instance in the neonatal (new born) field where a baby is born not breathing or requires supplementary air, commonly a process of intubation (tube inserted into the lungs) is administered with potential damage to throat and lung tissue, or a mask is placed over the baby’s face, being clumsy and baby naturally resists. A Cannula (instrument that delivers humidified high flow air at body temperature up the nostrils) is another method used.
    FPH have developed a very soft cannula with a patented system that sticks to the baby’s face (a bit like a post it note to paper) without the need for taping in place which often damages sensitive baby skin when removed. A mini Velcro system then holds the cannula to the sticky pad. It’s gentle for the baby to wear, but quite robust so that parents can pick baby up and cuddle without fear of interrupting the forced humidified air flow being delivered to the baby’s lungs at a constant temperature of 36C (body temperature).

    The staff member I talked to said this was a very successful and popular Company product sold into 120 counties around the world.


    In simple terms FPH is a specialist in delivering consistent high flow humidified air at body temperature with minimal condensation. FPH is integrated, designing, manufacturing and delivering either directly to customers or to distributors, humidifying units and the equipment (referred to as the consumables – due to the need to change between patients) to deliver the oxygen rich humid air to the patient at a constant 36C.

    The consumables are a major sales item for the company.

    Figures I picked up are that FPH is reaching 10 million people annually with its products out of a conservative estimated pool of 100 million that is rapidly growing with aging population.

    Has a presence in 36 countries and selling into 120.

    Also putting wind in FPH sail is the increasingly positive research evidence confirming that delivering consistent high flow humidified air at body temperature either speeds recovery or significantly aids in relieving symptoms of respiratory illness. As was said to me after the meeting a heath equipment supplier lives or dies on the outcomes of collaborated independent clinical studies. Another area of core competency to co-ordinate, direct and link with R & D.

    Another field for the Company is delivering humid CO˛ for laparoscopic surgery at body temperature. For example, the abdomen is usually insufflated with carbon dioxide gas. This elevates the abdominal wall above the internal organs to create a working and viewing space. CO2 is used because it is common to the human body and can be absorbed by tissue and removed by the respiratory system. It is also non-flammable, which is important because electrosurgical devices are commonly used in laparoscopic procedures.

    However, a major issue for surgeons is the loss of body core temperature during surgery. If CO˛ is humidified and delivered at constant body temperature of 36C research evidence is suggesting there is major gains to be had in patient recovery. A field FPH is supplying and aims to research and develop.

    FPH measuring their performance against competitors - again this was a question at the meeting and one the Company executives assured shareholders that they monitored keenly.

    Interestingly, Mike Daniells said to me Resmed are not a competitor in FPH core products, but they are competing suppliers of face masks. They watch Respironics (Division of Philips), however, the financial performance of this competitor is less obvious.

    Other companies are Boston based Vapotherm which is privately owned, Teleflex listed on NYSE (TFX) and CareFusion, previously F & P distributor in the US.

    OK so to the issue of a moat!

    The company has proven unique intellectual property and having the best technology is the greatest barrier to competition.

    I was talking to Lewis Gradon after the meeting and he said FPH has the market leading humidifier, their newly released F & P 950… this from the 17 Aug press release:

    F&P 950 System:

    The F&P 950 will provide respiratory support across the care continuum of invasive, non-invasive and Optiflow™ nasal high flow therapies. It is a high performance system that is designed to be easy to set up and use, minimise condensate and provide optimal humidification for patients. The system consists of a heater base with new sensing technologies and consumable sets.

    The F&P 950 is the next generation of Fisher & Paykel Healthcare’s heated humidification systems, building on the success of the market-leading F&P 850™ system.

    “The F&P 950 system is the result of many years’ development work and we are pleased to be introducing this revolutionary new product to the market,” said Managing Director and CEO, Lewis Gradon. “The F&P 950 incorporates new design improvements, such as integrated probes, a touch screen, intuitive user support, and incorporates our patented Evaqua technology, which minimises condensation. It is an outstanding addition to our range of products and we expect to see positive uptake in hospitals around the world.”

    The F&P 950 system has recently completed 50,000 hours of clinical trials, and usability data has shown meaningful results, particularly in the ease of set up for clinicians. Customer feedback has been very positive with 81% rating it as better than, and 99% rating it the same as or better than, the world-leading F&P 850 system.

    The F&P 950 system will initially be available in New Zealand and Australia from August, followed by Canada and Europe. It will be available in the United States on receipt of US FDA clearance.


    Lewis also said to me after the meeting this unit is market leading, next best unit on the market is the unit it supersedes, the F & P 850.

    FPH has reached size in the US where it is able to negotiate with Federal Health Group Purchasing Organisations (GPO’s) to directly supply a US hospitals, a further core competency.

    FPH is profitable and can comfortably self-fund growth and it’s market leading, like all companies it must have strategies in place to ensure the owners moat remains in place.

    I asked at the meeting for comment on the company’s key areas of risk.

    Product failure and recall – an acute awareness of the need to supply rigorously tested proven equipment to the medical industry. Integrated control of R & D, manufacture and supply all help in mitigating this risk. Resmed have experienced product recall.

    Protection of Intellectual Property – see the need to manage risk as a core competency.

    Regulation – again needs to be a core competency and managed, particularly into the US

    Currency – A major item to manage given 99% of the product is sold off shore. Earnings, 47% US$, 21% €.

    SAP – Enterprise-wide Resource Planning System (ERP) – a large and complex systems update implemented over manufacturing this year. Global sales offices will transition over the next 2 years.

    Looking at the diversity of skills the directors bring to the board table, I believe management will be well supported in planning for and managing these areas of risk.

    As to performance, I like:
    · the operating margin of 22%
    · return on assets at 20%
    · return on equity at 26%
    · 7.7% gearing
    (gearing very conservative, one could almost argue that in the current low interest rate environment the Company could take on some debit and pay special dividend, however, given the business they are in, and capacity expansion planned I’m happy with status quo for now).

    I observe, based on revised FY17 guidance as announced, current shares issued and todays share price my calculation of Company PE at FY17 would be around 33 if you were to buy today.

    I’m a happy long term holder and pleased I was able to attend the ASM.

    Final note in reading this post and my earlier post I remind you to keep an open mind and ensure you do your own research.
    Last edited by malus; 26-08-2016 at 07:32 AM.

  7. #607
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    Did buy today... . I will make an exception for buying at that PE

  8. #608
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    Also went to ASM. So they have to payout 70% divis, spend $200m capex to increase capacity in the next two years, and they're committed to not borrowing by targetting 5 to -5% gearing. Also unfavourable NZD/USD and costly legal case which has penalties and rewards that are hard to quantify. Oh and still planning on doing R+D on 8-9% of revenue.
    I can see why price has recently dropped but my gut says the patent case's uncertainty has been overstated in the price.

  9. #609
    ... malus's Avatar
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    Quote Originally Posted by babymonster View Post
    Did buy today... . I will make an exception for buying at that PE
    Good on you... at yesterdays price and FY17 projected earnings by my calculation gives you a 3% annual return with the promise of Company earnings growth to come... whatever that might be, let say 20% year on year, by FY19 your annual return would be around 4.4% based on yesterdays price.

    As to capital value of your investment... that will depend on how Mr Market feels about the Company prospects as it reveals its activities leading onto FY19. Mr Market has been pretty bullish with recent PE based on current earnings touching 40.

    It's not yet a buy for me, but if Mr Market wants to temp me with price under $9.00 I'd look at it for sure!

  10. #610
    always learning ... BlackPeter's Avatar
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    Quote Originally Posted by malus View Post
    Attending the ASM gave me the opportunity to view and take in the Company’s products and explore their features and application with engineers and technicians… again a very positive experience. They showed me various aspects of their patented designs and the competitive advantages these provide in the market.

    ...
    Thank you for a great report - appreciated. You certainly make a good case for FPH having great products, a significant moat ... and being a well managed company.

    I suppose you don't work for their marketing team? Maybe you should apply ...

    Obviously - as you say yourself in some other post, even great products, good management and a moat does not mean the shares are cheap ... unfortunately the market picked already up on these desirable attributes.

    Still - I missed out for a long term in FPH gains, simply because I always thought it is too dear ... and than it went further up. I bought in during the BREXIT dip and believe that while FPH is probably not the best short term deal, it will be a good long term investment.

    DYOR;
    ----
    "Prediction is very difficult, especially about the future" (Niels Bohr)

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