It’s been a bumpy road of development for Respiri Ltd [ASX:RSH].
As we’ve covered previously, their wheezo product has become quite the hot topic. Landing deals and sweeping studies in recent months.
By all accounts, it seems like a genuinely innovative product. One that could help millions of people breathe a little easier — literally.
That is why the stock had such a standout performance for much of September and October.
But, launching a new product doesn’t come cheap. Which is why Respiri sought $12.5 million in a fresh share placement in mid-October. A move that saw shares endure a meaningful dip for the first time in weeks.
Today though, with an early gain of 12.9%, The RSH share price seems to be heading back in the right direction.
So, what was behind the turnaround?
Costs down, margins up
First of all, let me provide a little context surrounding Respiri.
See, from 13 October to 2 November, Respiri’s share price fell from 23 cents per share, down to 15 cents. A 34% fall in just under three weeks.
That may come as a shock to some investors, especially as Respiri officially launched wheezo during this time. Commencing sales and marketing themselves, as well as with their key partner Cipla.
It should have been a promising time for this small-cap, but instead the stock crumpled. Likely due to both internal uncertainties and external ones.
Until early sales start to trickle in, no one really knows whether wheezo will be successful or not.
However, today at least, Respiri has made a positive outcome a bit more favourable. Not via any update on sales figures, but simply on reduced costs and better gross margin figures. As they note:
‘Further to the Entech global manufacturing agreement announced on 22 September 2020, the Respiri commercial team has worked closely with Entech to generate further efficiencies in manufacturing to lower overall input costs for wheezo manufacture at higher scale.
‘As a result, product gross margins through the pharmacy channel will improve from an estimated 40% currently to approximately 55% which is in line with other major medical device manufacturers.’
That is a huge win for a company that has only just launched its latest flagship product. Ensuring that no matter how many sales they get, Respiri shareholders will be getting more value for each of them.
Plus, the company has also flagged opportunities for more in-house development too. With plans to move certain intellectual property and critical competencies away from external providers. A move that they believe will deliver a 30% cut in costs for wheezo 3.0 production next year.
So, not only will they collect more cash from each sale, but they’re reducing future overheads as well. A strong sign for shareholders that this company is working hard to extract value wherever they can.
What’s next for the Respiri share price?
Having said all that, the big question mark still revolves around demand.
As I mentioned before, until we get an idea of how well wheezo is actually selling, Respiri’s share price may remain volatile. A situation that shareholders should be accustomed to by now.
Nevertheless, the future is looking promising for this budding small-cap. And if wheezo really does live up to its lofty expectations, well then shareholders should be handsomely rewarded.
It all depends on a very speculative outcome.
For that reason, Respiri may be a little too risky for your tastes. Which is perfectly reasonable.
Instead, if you’re after small-caps with solid fundamentals, I suggest looking elsewhere. Which is why you should read our latest report on ‘high-value small-caps’. A detailed look at several stocks with excellent foundations and a great growth outlook.
Check out the full report, for free, right here.
For Money Morning