Biocurious: Compumedics uses noodle to become a leader in global brain and sleep diagnosis sectors

A home-grown leader in sleep and neural analysis, Compumedics is tackling the burgeoning US home sleep testing market.

For almost four decades Compumedics has been probing the mysteries of our grey matter. Pic via Getty

• Compumedics founder David Burton says brain imaging can rival the magnetic resonance imaging (MRI) market

• Having recently gained FDA approval, the company is eyeing the emerging US home sleep testing sector

• Compumedics will appoint an independent firm to assess ways to close the valuation gap between the company and its peers

Compumedics (ASX:CMP) founder and executive chairman Dr David Burton believes his company’s flagship brain-imaging tool has the same potential as magnetic resonance imaging (MRI) scanners, which have become a standard of care for full-body analysis.

If the home-grown player in cognitive and sleep analysis achieves this, Compumedics will have completed its four-decade evolution from a sleepy cottage enterprise to a global leader in both disciplines.

Compumedics’ brain equivalent devices are called Orion MEGs (more below).

Burton notes that in the 1980s there were a mere 100 MRIs globally; now there are 34,000.

“There’s no reason why there shouldn’t be as many top-end brain scanners as MRIs,” he says.

While MRIs are more suitable for structural and metabolic analysis, MEG (magnetoencephalography) provides the “temporal resolution” to scan for neurofunctional disorders such as epilepsy, Parkinson’s disease and Alzheimer’s disease.

“These are all the major modern-day disorders and MEG is number one in that space,” Burton says.

The company has sold four MEG units to leading Chinese academic institutions and is girding to launch Orion MEG in the US.

“We have taken a leading position in China, but the big follow up is the US," Burton says.

Meanwhile, the company has launched into the US home sleep testing sector.

The company estimates the combined neurology/sleep diagnosis market is worth more than US$15 billion globally.

A slow-burn story

Compumedics is the antithesis of an overnight success story, having generated $800 million of revenue over almost four decades.

Burton founded the company in 1987, installing Australia’s  first automated sleep monitoring unit at Melbourne’s Epworth Hospital.

Not surprisingly, brain monitoring has moved on from an array of wires and skin sensors redolent of a 1960s space mission.

Compumedics listed on the ASX in 2000, at the tail end of the tech boom.

The company’s cloud-based Somfit monitors for conditions such as sleep apnoea and insomnia.

Compumedics has been selling Somfit in Australia since early 2023, via the Philips-owned Australian Professional Sleep Services.

The company reckons it has secured more than 75% of the local pharmacy-based home sleep market.

Awake to the US potential

In late 2023 the US Food & Drug Administration approved Somfit and last month green-lit a more sophisticated variant, Falcon.

Compumedics started selling in the US last year, having poached a key sales exec from rival Itamar Medical.

Early revenues are encouraging.

“We have gone from zero to $1 million in the first eight months and hope to do the next $1 million in three months,” Compumedics CFO David Lawson says.

Across Somfit and Falcon, the company estimates a US market of four million home sleep tests annually – a potential market of US$100-200 million in new and incremental subscription-based sales.

Sleep testing is synonomous with sleep apnoea (snoring) detection, but insomnia analysis is faster growing.

The condition afflicts about one-third of Americans – or even more when Donald Trump says or does something alarming.

Compumedics also plans a disposable, single-use version of Somfit, with a US launch planned later this year (subject to FDA approval).

While still popular, re-usable units need to be sent to and back from the customer and then cleaned.

Move over Markle, MEG will provide the sparkle

MEG is magnetoencephalography, a non-invasive neuroimaging technique that maps brain activity by recording magnetic fields produced by electrical currents in the brain.

The Orion MEG units incorporate Compumedics' established Curry brain analysis software.

Last month the company sold its fourth MEG into the “intricate” Chinese market, to the leading Hangzhou Normal  University in a $5.7 million deal.

The first taker was Tianjin Normal University, with the four orders accounting for about $20 million of revenue.

Burton attributes the win to one of MEG’s seemingly trivial features: a dual helmet system like a salon hairdryer, the patient’s head is placed under these helmets which house the sensors.

To achieve maximum sensitivity, the units need to be kept at ultra-low temperatures, which requires expensive helium.

The ability to scan two patients at once- including children – makes the process more efficient.

The dual helmets also enable the simultaneous scanning of twins or relatives to assess “heredity versus environmental” factors.

“We are selling to smartest people in brain scanning already familiar with Curry software, so when we introduce them to the hardware it’s not that difficult,” Burton says.

East Coast Research says with around 200 active MEG labs globally and approximately ten new systems sold annually, “even a modest 20% market penetration for Orion MEG could translate to an additional US$6 million in annual revenue.”

The bottom line

Compumedics generated December (first) half revenue of $23.5 million, down 11%, but with sales orders climbing 9% to a record $32.8 million.

The company has guided to full-year sales orders of around  $60 million, $55 million from the sleep side and $5.7 from new MEG sales.

The company guides to a full-year net profit of $5 million, which compares with the first half loss of $1.1 million.

Management even proffers guidance for the 2025-26 year: $70 million of revenue and a $9 million net profit.

“That’s a reasonably conservative number because we expect the $55 million  to grow beyond that next year,” Lawson says.

He acknowledges Compumedics has drifted in and out of profitability in the last few years, but management now wants the black ink to be more consistent.

“There’s still a bit to be done improving average selling prices and gross margins across all parts of the business,” he says.

“There still will be bumps in the road.”

Cyber-attack presents a disclosure balancing act

In 1987 a cyber attack would have referred to a Doctor Who monster, but last month the company was introduced to the modern-day version.

“We are in a solid position and the vast majority of our clients are back up and running,” Burton says.

“We were able to take control of our data and switch off the threat, because of the way we back things up in real time and control the processes."

He adds the company has “very good insurance and it covers this type of incident”.

Burton says the company had to strike a balance between issuing adequate information about the remediation, but without “amplifying the mayhem” of the crooks angling for a ransom.

“We have had to balance between not holding back and not looking like we had something to hide.”

Closing the valuation gap

Burton says the board recognises that the company’s derisory $50 million market does not reflect Compumedics’ leading global position in its key sectors.

To remedy this, the company intends to hire an independent  top-tier advisor to recommend ways of closing the valuation gap between the company and its larger peers.

“The process is underway and we will make more formal announcements … in a month or two,” Burton says.

He says investors are valuing health cloud subscription companies on a revenue multiple of five to 20 times, compared with one time for Compumedics.

This implies the company should be valued at more like $250 million than $50 million.

(Itimar was acquired  by Zoll Medical Corp in 2023 for US$538 million, when its turnover was around US$30 million a year.)

Burton accounts for 51% of the register but says now might be the time for a sell down to a strategic investor.

“It’s been a long time coming,” he says.

At Stockhead, we tell it as it is. While Compumedics is a Stockhead advertiser, the company did not sponsor this article

Originally published as Biocurious: Compumedics uses noodle to become a leader in global brain and sleep diagnosis sectors