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TRANSCRIPT
Analyst and Media Conference
July 28, 2009 Zurich
Second Quarter 2009 Results
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This presentation contains forward looking statements which involve
risks and uncertainties. The actual performance, results and timing of the
business of LifeWatch AG, could differ materially from the performance,
results and timing in this presentation. This presentation does not
constitute an offer to sell or a solicitation to an offer to purchase any
securities of LifeWatch AG, any such decision must not be made on the
basis of the information provided in this presentation. This presentation
must not be distributed in or into the United States of America.
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LifeWatch – Presentation Team
Dr. Yacov GevaChairman & CEO
LifeWatch AG
Kobi Ben EfraimChief Financial Officer
LifeWatch AG
Craig FoleyVP of Core Services
LifeWatch
Brent AtwoodChief Operating Officer
LifeWatch
Agenda
o Business Highlights Q2/09 – Dr. Yacov Geva
o Financials Review Q2/09 – Kobi Ben Efraim
o Reimbursement Environment – Craig Foley
o Growth Strategy – Brent Atwood
o LifeWatch 2009 Outlook – Dr. Yacov Geva
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Dr. Yacov Geva, Chairman & CEO, LifeWatch AG
Business Highlights Q2/09
• Main subsidiary LifeWatch headquartered in Rosemont, ILHeadquartered in Switzerland, listed on SIX Exchange
• The leading 24/7/365 cardiac event monitoring company in U.S.
• Employs ~760
Profitable wireless healthcare monitoring company
• Wireless Ambulatory Cardiac Telemetry – LifeStar ACT
• Comprehensive platform for multiple markets – eHealth, Home Health, Disease Management and Wellness
Delivers Next-Generation health monitoring platform
• Covers >296 million lives at a higher reimbursement rates for ACT
• Over 1.5 million patients monitored by LifeWatchIncreasing market acceptance
• USD 61.96 m H1/09 revenues reflecting 70% growth over H1/08
• 25.5% EBITDA marginStrong financial performance
LifeWatch Overview
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LifeWatch Continued Success
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in USD
Million
Fiscal Highlights HY1/09 versus HY1/08
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in USD Million
3.2
12.8
HY1/08 HY1/09
EBIT
LifeStar ACT Growth
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6,132 enrollments in 2007 31,931 enrollments in 2008
Exceed
75,0
00 e
nro
lmen
ts
in 2
009
34,124 enrollments in 1HY09
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Converging Technologies
Holter Monitor
Act Ex Technology
Cardiac Event Monitor Wireless Monitor
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o Customer base: Over 7,000 U.S. customers including 3,900
private cardiology groups (serving 23,000 cardiologists)
o Strong nationwide sales coverage
o Sales reps expansion of ~70% in 2009
LifeWatch Clients / Sales Force Expansion
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Multiple Growth Opportunities
o Demographic changes drive demand
o Aging population
o Obesity
o Continued outsourcing of cardiac monitoring
o Consolidation of IDTFs
o Product innovation
o Expansion into additional disease states
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Demographic Changes Driving Demand for Cardiac Monitoring
As people get older the risk of
cardiac arrhythmias increase
Obesity is a major risk factor for heart attack,
according to the American Heart Association.
Graying of America:
Percent of U.S. Population Over 65Obesity:
Prevalence of Overweight and Obese in U.S.
Source: Centers of Disease Control; National Health and
Nutrition Examination Survey (NHANES); 2002
Source: Population Division, U.S. Census Bureau;
August 14, 2008
Aging and obesity trends are driving demand for cardiac monitoring
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U.S. Cardiac Arrhythmia Monitoring Market = USD 2 billion
U.S. Cardiac Monitoring Market Wireless Monitoring Penetration
Higher diagnostic yield
will drive adoption of
wireless systems
Independant diagnostic
testing facilties (IDTFs)
gain share as hospitals
and physician offices
continue to outsource
Source: Frost and Sullivan; Cardiac Monitoring Outlook, 2008
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U.S. Cardiac Arrhythmia Monitoring Market = USD 2 billion
U.S. Cardiac Monitoring Market Highly Fragmented Market
Dominated by a Few Providers
Market leaders will benefit from consolidation
Source: Frost and Sullivan; Cardiac Monitoring Outlook, 2008
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o Embedded software and hardware in one microchip for: o Cardiology
o Diabetes
o Hypertension
o Wellness applications
o Congestive heart failure (CHF)
o Chronic obstructive pulmonary disease (COPD)
o Indispensable technology for implementing highly functional, compact integrated circuits used in today’s electronic products
o Faster time to market through shorter design and development cycles
ASIC Core Technology
Strong Technology Platform Leveraged Into New Markets
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Comprehensive Wireless Health Care Platform
for Multiple Markets
o Increasing Disease
Prevalence by population
o Cardiovascular Disease
o Diabetes
o COPD/Asthma
o Obesity
o Sleep Apnea
o Chronic diseases
o Aging population
o Nursing shortage
o Exploding healthcare costs
Kobi Ben Efraim, Chief Financial Officer, LifeWatch AG
Group Financial Review Q2/09
o Q2/09 of USD 33.9 million increased 67% over Q2/08
o LifeWatch subsidiary contributed 93.8% of total revenues
Strong Revenue Growth
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0
5
10
15
20
25
30
35
40
Q1/07 Q2/07 Q3/07 Q4/07 Q1/08 Q2/08 Q3/08 Q4/08 Q1/09 Q2/09
LifeStar™ ACT Cardiac Event and Other Holter Pacemaker Technologies
Primarily Driven by LifeStar ACT
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13.6 13.6 12.914.8
16.0
20.3
23.124.8
in USD Million
28.0
14.0
10.3
17.9
8.1
3.4
33.9
24.3
ACT revenue of USD 24.3 million increased 201% in Q2/09 compared to Q2/08
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Improving Profitability
o Gross profit: USD 20.2 million in Q2/09, increased 69.8% YOY
o Gross margin: 59.6% in Q2/09 compared to 58.5% in Q2/08
o EBITDA: USD 8.9 million in Q2/09 compared to USD 4.4 million in Q2/08
o EBITDA margin: 26.1% in Q2/09 compared to 21.7% in Q2/08
o Net income: USD 5.0 million in Q2/09 compared to USD 1.0 million in Q2/08
o Net income margin: 15% in Q2/09 compared to 5.1% in Q2/08
o EBIT: USD 7.2 million in Q2/09 compared to USD 3.3 million in Q2/08
o EBIT margin: 21.3% in Q2/09 compared to 16.1% in Q2/08
EBIT and Net Income Performance
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*
* USD 5.33 million does not include the
one time tax benefit of USD 5.69 million
Net Income
1.01.6
2.8
5.05.3
0
1
2
3
4
5
6
7
8
Q2/08 Q3/08 Q4/08 Q1/09 Q2/09
o Cash flow provided by operations of USD 8.2 million, versus
USD 3.1 million in Q2/08
o Days sales outstanding in Q2/09 of 46 days compared to 54
days in Q2/08
Improving Cash Flow From Operations
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o Q2/09 cash, cash equivalents, marketable securities and structures in an amount of USD 30.2 million
o Total debt of USD 1.1 million or 3.1% of revenues in Q2/09
Stable Financial Position
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Craig Foley, VP of Core Services, LifeWatch
Reimbursement Environment
US Healthcare Insurance
o No universal healthcare coverage
o Individuals under the age of 65 have:o Commercial insurance (PPOs*/HMOs**)
o Self-coverage
o Individuals over the age of 65 have:o Medicare: federally funded
o Pricingo Medicare reimbursement rates for telemetry are set
by Highmark Medicare Services
o Commercial reimbursement rates are negotiated directly with each payor
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* PPO – Preferred Provider Organization
** HMO – Health Maintenance Organizations
National Reimbursement Code Covers
ACT Services in U.S.
o Established by Centers for Medicare and Medicaid Services (CMS) largest healthcare payor in the U.S. and funded by the federal government
o Reimbursement rates apply to standardized billing CPT (Current Procedural Terminology) codes published by American Medical Association ("AMA“)
o This national CPT code simplified the claim process for LifeStar ACT services
o CPT code 93229 is recognized nationally and Highmark Medicare Services (administrator for CMS payments in Pennsylvania) retains responsibility for determining reimbursement rates
o LifeWatch is reimbursed by Highmark Medicare Services for CPT code 93229
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LifeWatch Reimbursement Profile
o Highmark Medicare Services currently reimburses USD 1,123 per
patient and has communicated a rate of USD 754 beginning 9/1/09
o Commercial payors reimburse at contracted rates, typically higher
than the current Highmark rate
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Medicare Reimbursement Environment
o January 1, 2009, Category 1 code 93229 took effect for wireless cardiac monitoringo At the time CMS did not price the code nationally and
allowed regional Medicare administrators to set rates
o Highmark of Pennsylvania set the reimbursement rate at USD 1,123
o July 1, 2009, CMS declined to establish a national reimbursement rate
o July 10, 2009, Highmark communicated an intent to reduce the reimbursement rate from USD 1,123 to USD 754 beginning September 1, 2009o LifeWatch is currently challenging this decision
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Commercial Reimbursement Environment
o LifeWatch has contracts with 464 independent
commercial payors covering 296 million lives
o Q2/09 added 6 managed care contracts covering
5 million lives
o Majority of commercial contract automatically
renew at the same rate every year
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Brent Atwood, Chief Operating Officer, LifeWatch Corp.
NiteWatch Introduction
LifeWatch Enters Home Sleep Apnea Testing
o LifeWatch is announcing its intent to launch a home sleep test (HST) for the diagnosis of obstructive sleep apnea (OSA)
o OSA is a widely undiagnosed medical condition that is highly correlated with other chronic diseases
o LifeWatch will leverage its medical monitoring expertise into a competitive advantage in the OSA market
o HST is a first step in diversifying LifeWatch’s service offering
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Sleep Apnea
o “Apnea” is a blockage of airway during sleep - relaxed
throat muscles allow soft tissue to collapse causing
temporary suspension of breathing for 10+ seconds
o Airflow interruption occurs as often as 100 times/night
o Organs deprived of oxygen so heart overworks to compensate
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Sleep Apnea is a Major Medical Concern
o Prevalence of OSA in America = 18 million, equivalent to diabetes
o 1 out of 2 adults over the age of 65 are at risk for OSA
o Healthcare utilization costs double
o Five times the risk of fatal cardiovascular events
o Six times the risk of serious vehicular accidents
o Two times the risk of stroke
o 85% of OSA patients are undiagnosed
o Undiagnosed OSA increases costs and risks
o Major unmet need impacts patients in every practice
o Diminished productivity at work and reduced quality of life
Sleep Apnea Diagnosis is a Large Market Opportunity
o 38 million patients affected with OSA
o 18 million afflicted with moderate to severe OSA
• 15 million undiagnosed (85%)
o 3 billion (USD) Market Internationally (2008)
o U.S. Market approximately 1.5 billion
o Estimated 2 million tests in 2006 (1 million U.S. Tests)
o Equipment, Diagnostic Testing, Therapy Products/Services
o 20-30% annual growth over next 5 years
o Diagnostic location: 80% sleep lab / 20% home testing
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June 2007 - CANACCORD ADAMS
Limitations of Current Sleep Lab
Diagnostic Testing for OSA
o Expensive:
o USD 2,000 - 3,000 per test
o Unstandardized results:
o Data unnecessary for
diagnosis collected
o Inconvenient for patients:
o Multiple nights in sleep labs
o Cumbersome equipment
o High non-compliance and
low-completion rates:
o Many walk-outs and “1st
night” effect (false negatives)
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Home Sleep Testing captures
only what is necessary for
OSA Diagnosis
NiteWatch: A Better OSA Diagnostic Solution
o Inexpensive:
o A fraction of the cost of a
sleep lab
o Standardized results:
o NiteWatch collects only data
critical to OSA diagnosis
o Patient convenience:
o At-home diagnosis
o Minimally intrusive
equipment
o Expect higher
compliance and
completion rates
Home Sleep Testing Competitive Environment
o Home sleep testing is gaining market acceptance and gaining share
from sleep labs for diagnosing OSA
o HST is a less expensive alternative for OSA diagnosis
o HST market is highly fragmented, with only a few meaningful
providers
NiteWatch Key Success Factors:
o Existing commercial payor relationships
o IDTF model offers economies of scale
o Experienced sales force in place with physician network
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NiteWatch Market Entry
o CMS issued a coverage decision on home sleep
testing in March 2008, updated in March 2009
o Validates the use of home sleep testing to diagnose OSA
o NiteWatch monitoring service rollout:
o Q3/09 beta testing
o Q4/09 selective launch
o Q1/10 general availability
o Managed care objective:
o 60%-70% commercial coverage by January 2010
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Dr. Yacov Geva, Chairman & CEO, LifeWatch AG
LifeWatch Summary
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o Large and growing outpatient cardiac
monitoring market
o Expanding penetration of wireless technology
o Leading provider in a highly fragmented market
o Multiple growth opportunities
o Blue-chip customer base
o Entering an attractive sleep apnea market
Investment Highlights
o Operational objectives
o Focus resources on wireless monitoring penetration and market
share growth
o Exceed 75,000 ACT enrollments in 2009
o Continuous development of next generation ACT platform
o Expansion into new service offering - Sleep Apnea
o Financial objectives for 2009
Corporate Outlook
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Revenue Growth USD 127 – 130 million (>50% )
EBITDA Margin >20%
EBIT Margin >16%