It turns out that the departure of a significant partner can be a blessing in disguise, as demonstrated by medical distribution company BTC Health (ASX: BTC), which has delivered revenue and earnings growth through a series of measures implemented through FY24 to reduce their reliance on their previously biggest supplier.
In April 2023, BTC confirmed it had received notification from Avanos Medical in the United States that it would discontinue the supply of its acute pain infusion products to Australia and New Zealand, of which BTC was the exclusive distributor. The products accounted for approximately 80% of BTC’s revenue at the time.
With the infusion products popular among medical professionals for their ease of use, BTC moved quickly to increase its warehouse stock levels while preparing a plan to transition its customers to alternative products. Such a task would be no easy feat, with BTC’s customers encompassing major hospital operators Ramsay Health, Healthscope, Cabrini, and more, as well as State Governments that operate public hospitals Australia-wide.
Reducing the single-party risk exposed by Avanos, BTC has since secured exclusive distribution partnerships with eight new product manufacturers from around the world. BTC specifically targeted these products as superior to products widely adopted by medical professionals in Australia and ripe for sales growth.
Three new strategic investors—Kingfisher Medical, Tau Medical, and GLK Medical—collectively acquired 15% of BTC Health in September 2023, first contributing to identifying such product opportunities and offering the proper networking.
Through those eight new supplier partners, BTC has expanded its catalogue of medical devices and products to 132 in FY24, more than double the 57 it carried 12 months ago.
This diversification of products that BTC can offer to its existing network of hospital operators has been encouraging for the Company’s financial results, driven by the higher margin contributions and disciplined cost controls.
For FY24, BTC Health reported $8.2 million in revenue, representing a 5.1% increase from the previous year. However, this had a more substantial impact at the earnings level, with a $0.5 million improvement to a $0.2 million loss as the Company eyes break even. Strengthening BTC’s financial position is the fact they carry no debt and have set the foundations for growth through a year of consolidating the product portfolio, having identified the products that would be most appealing to domestic hospitals that are not currently available in Australia.
“The last 12 months have been characterised by sweeping changes across the business. Having lost a major supplier in early 2023, we moved decisively to right-size the company, add two new growth pillars, establish new supply partnerships, and broaden our customer base,” said BTC Health Executive Chairman Dr. Richard Treagus.
“This suite of changes has been very positive and allowed us to create a more robust business with far greater prospects for meaningful and sustained growth.
“We are very pleased with the improved bottom line performance, having reduced the EBITDA loss by $0.5m, and we anticipate this positive momentum to carry forward into the new financial year.”
While BTC still has a stockpile of Avanos infusion pumps that it supplies to hospitals, most customers are in the process of transitioning to the alternative Rhythmic and Elasto-Q pumps. BTC has applied for both products to be listed on the Government-subsidised Prescribed List reimbursement schedule, with an outcome expected in November 2024. Upon listing, BTC expects sales to increase. However, with a much broader range of medical devices and products now distributed, BTC forecasts that infusion pumps will account for less than 25% of revenue in FY25.
BTC is also in the tender process with two public hospitals for extracorporeal membrane oxygenation (ECMO) devices. In 2022, ECMO devices were required on 439 occasions for critical care, each case costing hospitals an average of $305k per complex admission to the intensive care unit.
BTC Health is a registered Pooled Development Fund in Australia, which exempts shareholders from tax on the capital gains and income derived from BTC shares.
Alfred Chan is a Business Reporter at The Sentiment specialising in ASX-listed small cap companies, a bloodstock enthusiast and former equities analyst.
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1 Comment
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