Curre and welcome to this episode of Shared Lunch, which we recorded at the headquarters of Fisher and pikell Healthcare and his Tamaki Auckland.
Fish and Pike is probably.
Best known for its design and manufacturer of systems and products to help with respiratory issues and obstructive sleep apnea. I'm Helen Madison and to talk about this milestone and Watson Storff for the next thirty years in all its plans and went on tour at the East Tomackie campus courtesy of Managing director Lewis Graydon.
Investing involves risk. You might lose the money you start with. We recommend talking to a licensed financial advisor. We also recommend reading product disclosure documents before deciding to invest. Everything you're about to see and hear is current at the time of recording.
So let us tell us about the site that we're on here in East Tommocke.
Sure, So this is one hundred acres. We've been here since two thousand and one. We're currently in the Daniel Building, which is the fourth of four buildings. Right now we have about four thousand people on this site, about nine hundred those involved in R and D couple of thousand involved in manufacturing. The fifth building is being planned right now. That's a hole in the ground over there that'll complete
this site. We expect that to occur in the five to six year timeframe and that will be six to seven thousand people on this site at that time.
Lewis R and D has always been a big priority for Fisher and Pikel and it's been pretty impressive given the short term things that companies that are listed, you know, need to focus on. Why is it such a passion for Fish and Pikel.
Well, our whole business is based on having a therapy, having products, having technology that other people haven't got. We're trying to improve outcomes. That's the core of our business. And to improve outcomes, to do better than what you get today, you have to do R and D. And in a medical device business that R and D is a five to ten year timeframe until it starts to
turn into regular, reliable and come people wise. R and D be about nine hundred people for us, and I think, as you said, it's roughly ten percent of revenue that we spend on R and D. But it's absolutely fundamental to our business model.
And in terms of where the company is going then, I mean to sustain that. You think of some of those UIs companies that have got very deep pockets. How does a company that's doing it's R and D from New Zealand, how do you keep going well?
First of all, anything we're doing, we'll invest whatever we think we need to do so on a global basis, these are relatively small, relatively niche things, and our R and D spend will be competitive with anyone whatsoever. And it's because we've chosen. If we've chosen what we're going to spend it on. Medical devices actually kind of suit New Zealand. We do have the skill set here. We you know, we have good I think we have a
good engineering and science education system. We have a good hospital system and those are the two things that you need, and we have a good environment here for doing I would say very early stage clinical research. I think New Zealand does well on all three of those elements.
One thing that we have at the moment, though, is what they call a brain drain. Our best and our brightest once they've graduated from university, they tend to be going off shore. How are you guys finding the ability to get the right people.
Well, I'd like to think we're a brain magnet. I'd like to think we're attracting them, and I think we do. You know, every year I forget the exact number now, but we might hire eighty to one hundred STEM subject graduates. We get over a thousand applicants in New Zealand for those jobs, and as our international profiles grow on, we are able to attract people from outside New Zealand who want to come to New Zealand because they want to
work for FISHERM Pikel. So we are able these days to bring people to New Zealand.
Well, R and D always be here or do you also thinking of offshore too?
It's something we're always thinking about. I do think we've got two things going. New Zealand is actually quite hard to beat for R and D in medical devices, and we always want to have our R and D closely located with clinical, closely located with manufacturing. Sometimes the R and D is maybe not the product idea. Sometimes the R and D is how do I make it at all? Sometimes the R and D is how do I make
it cost effectively? So we want that R and D totally linked to manufacturing, So when we're thinking about where we might locate, it's the whole package. It's not really just R and D by itself.
Now, if we think back to the beginning, when you've done your Bachelor of Science, you made it in physics, and you obviously needed a job. But the company you sure did, the company that you actually started in healthcare wasn't the main.
Focusing, was it. So talk me through that.
We had an applied technology division, was what it was called. That's what I started in, and that had a couple of technical products, and one of them was the respiratory hemaphorer. So that's what I joined in nineteen eighty three.
There will be a huge amount of things that have changed in that time.
Given we're now twenty twenty four.
Is there one thing that has remained constant in those forty one years, Oh my goodness.
I think the desire to improve things has stayed the same. The desire to innovate and be different that was existing in nineteen eighty three. I think that goes way back to the company's foundation that if you're going to compete globally from New Zealand, you're going to have to do something different and it's going to have to be better.
What was it like when Fisher and pie Call separated from Fisher and Pikeel Healthcare.
Is that two thousand and one?
Yeah, that was two thousand and one. The company split into two. Technically, Fisher and Pikele Healthcare was the we're the continuing company technically, So the way we think of it is we spun off appliances. It's not the common view, but that's how we think of it.
What would you say if we think now to twenty twenty four, what would you say is the problem that you're trying to solve and what is the potential for patients you can reach?
Worldwide?
We have a number of, let's say, therapies that the business has involved in, and they're all a little bit different, but what they all have in common is the idea that you want to improve outcomes. And for our business that can be a little more complex because for medical products, there can be someone paying for it, someone prescribing it, someone using it, and then of course the patient. So there's four different groups that we're trying to improve outcomes for.
So that's the consistent thing across all of the therapies.
Lewis let's break down what business does. I think hospital and home care are the two sort of structures if you like that you have and in terms of revenue, I think it's around sixty two percent for hospital and then home would be what about thirty seven percent.
I see that home care if that's the right word, or.
Just the home market if you like, is actually growing hugely. Is that because we're changing in what we need in our lives and what we can do at home, and it's taught me through the difference there.
That's probably a trend and for us, it's probably in our future. But when we think of the business and we think of hospital and home care, they're kind of selling channels and global selling channels, and then within them we have different therapies. And within the home care channel, we've got obstructive sleep app near where we sell there
we say masks. And then we've got a developing area which is in the early days, which is respiratory care in the home target at COPD chronic obstructive palm roy disease. And that's in the early days where we have a product, we have a therapy, we need to generate more and better clinical evidence. Well, you would expect more and more of healthcare wherever possible to be delivered in the home
because it's more cost effective. So we think we're really well placed to take advantage of that in that we have the hospital business. Patients generally will move from a hospital to home or they're going to go hospital and back sooner or later. And then you know, combined with the home care global distribution, we think we're in a real good place and we think, you know, there's good promising signs for some of our therapies in the home for chronic disease.
So you'd see the two still being parallel and you wouldn't see one overtaken the other like hospital obviously sort of dominates.
Now, yeah, there's ebbs and flows. I mean there was a time when we say home care dominated, then there was a time when hospital dominated and so on. So I mean, I think that's one of the strengths of the business is you do have some ebbs and flows and some natural sets.
Let's look at the home market too, because masks is one thing that you're quite well known for.
But I understand this. You've launched a few new ones lately.
I think this is solo and this is the micro nova I think number and is it even fuller one? I mean taught me through specialty there, because there's a real array now that you have.
So the whole point of our Osay mask business is that we'd like to have a product where the customer could be the prescriber could be, the patient could be, the payer can see a difference between what our masks do and what the competitors' masks do. And Solo does that for us by being the first mask globally that just automatically adjusts. You can put it on and it automatically adjusts. And that's important because patients are using these masks all night, every night, or they should anyway. And
that's all about, first of all, ease of use. You've got to be able to put it on properly, so it works properly and so it's comfortable. Solo does that and by adjusting automatically and then comfort and Solo does that again by adjusting automatically, and then the other masks you mentioned the Nova range, that's about some we're also kind of in a sort of a consumer market here now where people have preferences. Some people don't want something
adjusting automatically. They want to do it themselves, and so that's what the Nova range are doing for us.
In terms of hospital though, one of the areas I wanted to talk about was anesthesia. That seems to be a growing area. Can you talk me through where that's at.
So one of our therapies nasal high flowers of respiratory therapy, and that's been around for a good do you forget exactly now fifteen years or so, and it's always been available in anesthesia, and we didn't get as much uptake in a anesthesia as we might have liked. So we've done two things over the last three or four year time frame. And the first one is we've iterated the product offering with some consumbles that are specifically for anesthesia
and targeted at the anesthesia opportunity. And the second thing we've done is in our global salesforce, rather than having one hospital salesforce, we've split it into a specialist anesthesia salesforce in a respiratory salesforce, and that's getting us a better result, better growth than the anesthesia component.
You still see potential in that market.
Though massive, and across everything we do, we still see massive potential. We tend to think about number of patients globally that would benefit from our therapy and how and how many patients were addressing. So in that anesthesia opportunity, we conservatively, conservatively say at least fifty million patients a year would benefit globally, and we don't get anywhere near that. In respiratory opti flow nasal high flow, we'd say that's
at least fifty million. So combine that's one hundred million patients. Last year we treated about six million. So you know, we've got a long way to go.
And what is it you have to do? Is it talking to clinicians? How do you know?
Grow?
Yeah, this is the core of our business and I think it's one of the strengths. It's about changing clinical practice. You used to treat patients like this. Now if you treat them like that, you can get better outcomes. And that no matter what you do is really it does boil down to prescriber by prescriber, hospital by hospital, physician by physician. It's helped with clinical evidence. Stronger clinical evidence makes it a more efficient process to change clinical help
change clinical practice, clinical practice guidelines or another step. You know, when you have enough clinical evidence professional bodies or generate clinical practice guidelines. That helps, But it's just if you look at our penetration for nasal high flow, you know we're not even ten percent penetrated. It's fifteen years and clinical practice guidelines for respiratory applications first started coming out maybe three or four years ago. So it is a
long process. But you know, the upside of that is you've got a long runway and you know it's sticky once you've changed it.
Once you've done that. The other thing too, though, the people that are selling in your salesforce, that are selling in these therapies and products and systems and the like, they have to be pretty amazing if you like, I mean not just your average salesperson. If I can say to those tombs.
I mean, it sounds like they've got.
To you to you know, a clinician who may have restraints, absolutely right, actually politics, you name it.
Yeah, our salespeople are engaging with physicians and at different levels, they're engaging with clinical data and they're having debates with physicians. And we think one of the key strengths of our business is that that's really hard to do. It's quite complex and one of the hard and complex parts is upskilling and training your salesforce, and we think that's a core strength so that they're able and capable of doing that.
If we look at the worldwide markets that you're in, I think there's Asia Pacific, does Europe, There's North America.
It probably would be the big ones.
I mean, they're developing and developed country, so you've got quite a mix there. So how do you balance what is perhaps a quite solid cash cow with another market that's got potential and you're thinking about innovating products for it.
How do you strike that?
Really good question, and that's an ongoing topic for us. We've got a couple of underlying rules. One is sustainable profitable growth, and the whole business is built on that concept. Everything we do we want it to be sustainable, we want to be able to do it for a very long time, and we want it to be profitable and we want it to go. So one of the ways we balance that is by adding people, adding salespeople, R and D to match our revenue growth. Because you can
do that forever. It's when one gets ahead of the other you start to run into questions of sustainability. So we start off by matching our expense over the long term. We can't do it on every twelve months, but over several years we'll be trying to match our expense growth to our revenue growth. And then the debate is about where where to put it? Where to put it? Typically for the new businesses we will we will be adding expenses to match the revenue growth.
Still, are there particular markets is more potential or that you're more.
Interested in thom No, not really.
It's kind of interesting if you take the world's if you rank the world's countries by GDP and you look at the top fifty, that pretty much reflects our business in those countries. Yeah, pretty much the same order.
So it was with sleep at yea. Then what is the potential them? And how many people in the world suffer from that? I mean it's obviously something you've seen as a need, but what is the potential?
I mean very hard one to say. You see numbers are banded around around the hundreds of millions, nine hundred million people a year. We're a little bit more conservative and we say potentially one hundred million a year maybe.
And what about the respiratory aspects of the business. I mean, that's sort of a lot more broad well, it's.
A bit of a moving target. At the moment, we'd say over one hundred million, but it's a little bit of a moving target in that as you get more clinical evidence, you can expand that possible market, as you iterate the therapies and the products and the technology, so again you can expand the reach of that product. So you know, our main job is to make sure we're nowhere near penetrated and that's about clinical research and product development.
So we're looking at the manufacturing part of the site here it is Tamaki. Obviously this is the only place in the world you also manufacture in Mexico and China.
What do we have here though, So what we're.
Looking at right here is adult intensive consumables being assembled into kits.
And here we are in New Zealand.
But is this still somewhere which it's a real hub for manufacturer.
So the plan is that we'll continue to grow manufacturing in New Zealand, but for geographical risk mitigation, we'll grow our manufacturing outside New Zealand at a higher rate. So we'll keep growing here, but we'll be growing Mexico, China probably other places over time.
And how important is the aspect of the business of manufacturing.
Well, we sell things, so we make the things to sell, So it's an absolutely fundamental part of it. And then for a lot of what we do, it's how you make it and how you make it cost effectively. That is the challenging.
Part, especially from here in New Zealand.
Well, we do have the tyranny of distance in New Zealand, and that's raw materials and product out. Yeah, it's not super helpful.
Just lois thinking about the full year results, which the company released I think was the end of May, so only a couple of months ago. At the time, I think operating revenue was up ten percent, and then I think net profit after texts probably suffered a little bit. I think it was down forty seven percent. But there
was some abnormals there. There was the Korreka site being revalued, There was some accounting I think which was about nineteen point three million, and then of course you had a recall which I think was going to be twelve million and that became about twenty million.
So that we had a recall.
Yeah, yeah, so that was probably you were trying to get back to having that lovely gross margin that you talked about before as sixty five percent, And just for listeners, the gross margin is when it's a proportion of revenue after you've stripped out all the costs and the like. You were hoping to get back to that, but was it because of the abnormals.
Didn't quite.
So the first thing for us is when we look at revenue, you still got co effects going on. So for FY twenty three, the year we just finished, we're lapping FY twenty four and you've got some COVID coming in and going andy twenty three, so it's hard to read much into FY twenty four's revenue growth. And then the next thing, when we get to gross margin, that's the difference between what it costs us to make something and what we sell it and a game, we've still
got this long tail from COVID. Get sick of talking about it sometimes. Anyway, we've still got a long tail. We're during COVID. Our only priorities make as much as possible, as quickly as possible, and that's still hurting gross margin. But we think we just need to get back to our normal behavior and gross margin will get back to where it needs to be. So that's the lingering effect on gross margin. And then the next one down is when we take all of our operating expenses, that's the
one that turns into the operating margin. And then the next step down is your net profit after tax. The net profit after tax is the one that was affected by land revaluation and recall and building depreciation, kind of all financial things and a little bit unusual for us, you know, to have all these one offs.
Yeah, that's what I mean.
So we're kind of fundamentally for the business looking through all all of those. Actually, on a twelve month basis, we're looking through those counting one offs, and then on a three to four year timeframe we're kind of looking through the gross margin impact as well. We just expect it to naturally improve over the next few years.
And when you made the new announce the result you talked about, you did give a forecast at the time. I think it was between one point nine and two billion as an operating revenue, and that was quite impressive and also analysts seem to like that. One thing I did note though, that it doesn't take into account if we have another respiratory event.
If you and I would have thought.
Perhaps you're not going to say it publicly, but you'd be monitoring and you'd be predicting in the business you're in.
What could be happening, what's next?
We can't predict it, And you're absolutely right. In the guidance we said this doesn't include any respiratory events during the year this guidance, and that's because we can't predict it. You know, we absolutely can't. We could maybe see early signs, but then where it goes from there. I mean, the history over the last five years has been we can't predict where it's going. And as a business, you know, it's a case of you be ready for the worst and plan for the best.
Would you have any idea or you must have thought about what kind of things can happen to the world. I mean, you've got amazing scientists, innovation, lots of experience.
No, we can't. We cannot predict that. Look when you're trying to give guides for this business, are you're trying to predict hospital admissions? You're trying to predict seasonal respiratory hospitalizations all around the world, the normal variations in a business. That's you know, now, we can't do.
You see any other challenges or risks that we haven't probably covered. I mean, inflation has obviously been a big thing for many global businesses.
I don't think inflation is fundamental for us. I mean, we do have the ability to raise pricing, but there's always a lag. So I think inflation is actually fairly normal. It comes and it goes. We've just been through a fairly docile period, so we think of that as fairly normal, and it's not something that would really change our behavior so much in any way. Exchange rate can impact us, but that's in the same camp. You know. Again, you've
got to think over the long term. We're not going to modify our behavior over one years or two years or three years because of inflation or exchange rates or anything like that.
What excites you about the next phase for First and Pike or healthcare?
Oh, great question. It's kind of like picking your face child, so I can't go there. I think the exciting thing is we've got a track record. Every year it looks more and more challenging to maintain that track record, And I think the exciting thing is over the long term. Yeah, I definitely think we can.
You've got some ambitious targets.
I mean, doubling your growth every five years, that's something you're going to continue with. It's just a little bit there, yeah, okay, but that is something that the business still will that's what.
We aim at over and over and over and to do that, we've just talked about some of the time frames involved. You know, you've got to be twenty or thirty years ahead.
Lewis, we're here.
It is Tummocky and it's an incredibly impressive site. It's nearly near completion, but I know there's a next phase for Fisher and Pikeal Healthcare and you've actually got a very big site at Kraka, which is south of Auckland. Tell us about why you're doing that.
Well, we expect the site to be full in five or six years time. And the fundamental is if you're hoping to double your business in size every five or six years, we need to start thinking now about what happens after this site. So hence the Karraker site that's about two and a half times the size of the site. Once again, it comes back to that fundamental. If you're trying to double in size every five or six years,
this is one hundred acres. You're looking at pretty substantial size, which is kraker to continue that growth trajectory, and we much prefer the idea of being on the same site then scattered in little bits all over it, all out of the place.
So with that new site, then that will take some time to develop. I think it's three stages as the plan.
Well that I'd call that an early stage plan. But you know, one of the challenges there is how much to do at once and how much to do and how to stage. I think that's one of the bridges we're yet to.
Cross because thirty years out, how does anyone in this day age plan for that given how quick?
Yeah, so the way we think it is we try and keep our options open. We want to have the option.
Okay, so that's the reason for getting the site now and thinking ahead.
That's right, that's right. And you know we're building time frames in New Zealand, are building like this. When we start building, it's about a four year timeframe, so you've got to be thinking ahead five or six years because the last thing we want is for our growth to be compromised because we haven't got anywhere to put people.
Any idea what sort of how many people a site like that would house, or how many.
Buildings even it'd be twelve buildings this size ultimately, so we will start with a full site plan and then we just have to work out how to execute on that full site plan in the most sensible way. So it would be twelve buildings. This is five if you think this is let's say this fall would be seven thousand people two and a half times out.
Lewis as a listed company, and I suppose you could say the tech sector to something, there can be lots of distractions. It can be very short term because you're listed. Investors want returns, et cetera, et cetera. You've got the likes of the US markets within video and the light going gangbusters. But I mean a company like yours always has to think about the longer term and the R and D that's implicated there. But how do you not get distracted when there's all this noise around you?
Really good question, because you're right, you know it's called a daily news cycle and you and your reports and all that kind of thing. And we've talked about the nature for our business. You can have five to ten year R and D programs. You can have five to ten year clinical programs. You can be training clinical sales teams, and then you're calling on hospitals around the world. It's quite a long cycle, so you have to think ahead.
We do think and plan long term. We do have a long term plan that runs out thirty years, and part of our discipline is to stick to that long term plan. We've got all the opportunity, we know how to execute on them, and part of the discipline is not being distracted by all those things. Also, sometimes, as you pointed out from the financial market, and you know, we've talked about our gross margin is not where we want it to be. We could divert all sorts of
resources and improve that. We could have all of our salespeople working on pricing to get our gross margin where we want it to be and one year's time or two years time, but we're not sticking to the long term plan. We're not diverting resources into that, and we're just going to revert to our normal behavior and gross margins should do what it's normally done, which is steadily improve very yet rather than I think the whole point of that is not diverting resources, but staying on the
long term plan and it does take discipline. We do cop flat for it from time to time, but we think in the long run it's better to stick to you know where the opportunities are.
Is we anything that keeps you awake at night?
Well?
I never know how to answer that one either, because on the one hand, I do worry about everything, absolutely everything. On the other hand, I sleep well. You have to or you can't come to work the next day if you're not sleeping.
So Lewis, thanks for today.
It's been great to actually come on to the East Tummocky site and see some of the team, understand a bit more about the product suite and the like, and it does all sound very exciting.
So thanks for having us today.
Thank you for making the effort. I do appreciate it.