Vivos Therapeutics: Not So Deep Dive
(Ryan) What they do: Vivos Therapeutics is a medical technology company that is focused on developing treatments for mild-to-moderate OSA (obstructive sleep apnea). For anyone that doesn’t know what OSA is, it’s a sleeping disorder where breathing repeatedly starts and stops and roughly 1 in 15 adults have it. Apparently this tends to be a result of under or overdeveloped upper or lower jaws and then because of the jaw positioning when you sleep the airway gets narrowed or relaxed.
Sleep apnea can be very serious. People can die from it, but beyond that interrupted sleep can also cause depression, pain, constant headaches, or even heart disease. Snoring tends to be a big symptom. Well the Vivos System is designed to treat this and it’s the first solution that’s non-surgical or non-invasive. So it’s not like one of those big CPAP machines. It literally looks like a retainer and it’s just designed to alter the shape and position of the tissues around the airway.
Vivos has two products, but I’m going to focus on the Vivos System. This is the retainer thing that I mentioned. If your dentist prescribes Vivos to you, you would start by taking a sleep wellness test (w/ an in-home sleep study), they would then use an oral scanner to sort of map your jaw, then a Vivos doctor arrives at a specific treatment plan, and they will build a custom oral appliance for it. They also have the Vivos Score
(Ryan) History: Vivos was originally founded in July, 2016 as Corrective Bio Technologies. It looks like Kirk Huntsman (CEO) and Dr. Dave Singh (CMO) are the founders. Dave Singh is pretty well-renowned in the industry it looks like, he’s written a book called Pneumopedics and Craniofacial Epigenetics, which basically covers facial development.
The history of the company is a little messy and it looks like it was born out of a reverse acquisition and recapitalization of two companies, BioModeling Solutions and First Vivos. About 4 years later they went public. It was in December of 2020.
We are looking at the Sleep Apnea Market, but they are trying to expand it so sort of building out their own niche.
Estimated 10% of US adults have OSA that should be treated, they think it is 43 million in the US/Canada
With average selling price of $1,600 (to dentists) this amounts to $69 billion opportunity
One big competitor is the CPAP machine. Resmed makes them, it does $3 billion in sales a year (so existing market is there to treat this stuff)
CPAP is currently a bit cheaper than Vivos, but requires a lifetime of use
There are also surgical procedures, which are a bit expensive too
(Brad) Management and Ownership:
There are some related party transactions to check out —
Founder CEO Kirk Huntsman:
– Founded Dental one which grew into a leading dental service org in the nation → 15 states & 165 practices
– CEO of ReachOut HC America which is a Morgan Stanely PE portfolio company
– Lots of experience as a head executive at other companies like Ortho Ventures as well
– 100% Glassdoor rating! 21 views so basically 0 data but off to a good start
CFO Brad Amman
– CFO of a cleared medical device company & CFO of a med imaging company → was the CFO of LifeVanTage & saw it to its IPO
CMO Dr. Dave Singh
– Founder & President
– Board of Examiners, Royal College of Surgeons of England
-”Outstanding professor” via Harvard and the University of Michigan
– Led a National Institute of health funded research program
– former CEO of BioModeling solutions
Singh and Huntsman together own 23% of the company with the remaining insiders having 1% in additional ownership
Proxy statement doesn’t mention any institutional holders but 3rd parties have that at 5% pretty consistently
Market cap of $93 million, ticker VVOS
EV a bit lower but they are burning cash so market cap probably the best bet, and likely want to “budget” for mor share dilution
P/S of 7
P/GP of 8.7
2.5 million options outstanding, 2 million in warrants, so expect some dilution coming down the line
In FY 2020, Vivos had $13.1M in revenue, up 15% YoY
Gross margin was 80%
They’re spending $16M on G&A expense
Had ~ negative $6M in OCF
Total operating expenses grew 23% YoY in Q1
There isn’t much to talk about really
(Brad) Balance sheet and liquidity:
14 million in cash on hand
Do have those options & warrants as Brett mentioned
22.8M shares& 4.5M options & warrants 20%
1.1 million in current debt
105K in non-current debt
Convertible notes outstanding come with a 6% interest rate
Virtually 0 interest expense as convertible shares were converted in connection with the IPO
(Ryan) None with this product specifically, but I’ve heard really positive reactions from family members who have different variations of CPAP products. They’re quiet, they get way better sleep, and their wives are happier because they don’t snore.
Future growth opportunities:
(Ryan) Vivos Score. This is basically a sleep-monitoring ring someone wears around their finger and is apparently FDA cleared. It’s powered by sleep image and is basically designed to monitor someone’s breathing, then the results get uploaded to the cloud and people can see their breathing at night. This is much cheaper than traditional in-home sleep tests and apparently has 98.9% accuracy. They talk about selling adjacent products, and this is one of them.
(Brett) Billing Intelligent Services (BIS). BIS is revenue management software that goes along with selling the machines, and is used by the dentists. It costs $750 – $1000 a month. Apparently it can help outsource an employee, so the cost is worthwhile. For every 1,000 dentists that use this it is around $10 million in sales, likely high margin. $200k in revenue last quarter
(Brad) It seems like this could be an extremely impactful product for many, many people. & international expansion is in the cards when that’s true
Highlights and lowlights:
(Ryan) Highlights: This technology sells itself as a fix to the actual root of the problem and doesn’t require wearing a mask at night. Lowlights: They have a chief evangelist. And in 2020 a group of shareholders accused the board of breaching their fiduciary duty and insider self-dealing. They settled on this and had to pay out 300,000 shares of common stock which have a lock-up on them. Also the Washington Department of Financial Institutions launched an investigation this year into the company about certain stock sales. I get red flags from management.
(Brett) Highlights: The tech/product seems better than CPAP for patients, love how they are attacking through the dentist office with the comprehensive product, and it looks like margins are great and should only get better. Lowlights: Follow on offering right after the IPO was a bit confusing but seems fine, need to confirm the technology actually works (CMO has a book so if you really want to find out, check that out). Related party transactions that need to be figured out. Otherwise surprisingly small amount of lowlights for a microcap healthcare device company.
(Brad) Highlights: value prop Lowlights: Little bit too early even for me. We talked last week about how Matterport risk/reward could be better in a few years & I feel the same way about this one.
(Ryan) Not going to apply to everyone, but if they can have connections to dentists offices everywhere the market is huge. Estimated that 1 billion people around the world have some form of sleep apnea. Not much math needs to be done here. If they get a larger referral network, they should be much bigger than a $90M company.
(Brett) Very simple here: winning more dentist offices, training them to identify OSA, and getting more patients on the Vivos cycle. If the product does work wonders like they claim, path to hundreds of millions in revenue is there.
(Brad) The bull case is that this becomes ubiquitous as CPAP 2.0 & can expand globally to fix this common issue
(Ryan) Management is self-dealing. They’re selling a story and not a product. They’ve treated 15,000 customers over their company lifetime. That’s not much. If dentists decide that they prefer to recommend CPAP machines, this company could run out of cash pretty quick.
(Brett) Product isn’t as good as the CPAP in the patients mind, and since Vivos gets sold at a higher price, they lose and never build out the market share. Heavy share dilution.
(Brad) We see it with Butterfly & GE → this could invite unwanted competition with deeper pockets & larger r&d teams to try & create a competing product.
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Disclosure: The authors and podcast guests are not financial advisors. Brett Schafer and Ryan Henderson are portfolio managers at Arch Capital. Clients of Arch Capital may hold securities discussed on this podcast.