Repro Med Systems, Inc. (NASDAQ:KRMD)
Key action dates include:
- 6/2/2014 – Initial selection for Long Model Portfolio disclosed at $0.24
- 8/7/2018 – Added to Favorite Model Portfolio at $1.37
- 1/2/2019 – Added to Fave 5 Model Portfolio at $1.65
In October of 2014 we published our first research note on Repro Med Systems, Inc. (NASDAQ:KRMD), a company that manufactures and commercializes innovative and easy-to-use specialty infusion solutions that improve quality of life for patients around the world.
Their main product, the FREEDOM60 Syringe Infusion Pump, is designed for ambulatory medication infusions and home health care patients. The infusion pump delivers medications to Primary Immune Deficiency patients by injecting immune globulin (IgG) under the skin as a subcutaneous administration. It also does not require electric power.
Insurance Reimbursement Advantage
With insurance reimbursement on a severe decline, there is a need for a low-cost, effective alternative to electronic and expensive disposable IV administration devices for home care.
The FREEDOM60® provides a high-quality delivery to the patient at costs comparable to gravity-driven infusions. In addition, it is targeted for the home health care industry, patient emergency transportation, and for times when low-cost infusions are required. In 2007, KRMD’s competitive advantage was enhanced when the FREEDOM60 was:
“Centers for Medicare and Medicaid on May 21, 2007 for use under code E0779 which increases the reimbursement for the Freedom60 for all billable syringe pump applications approved by Medicare.” – Page 5 FY 2007 10K
When we found the company, even though it was generating a small amount of revenue, we noticed that much of it was recurring, and the company was slowly increasing quarterly sales, both year over year and sequentially. The recurring revenue is generated from disposable needle sets that patients have to buy to use with the pump that they have purchased . We presumed that that rate of growth would accelerate due to the new Centers for Medicare and Medicaid services change referenced above.
Even at that small revenue level, KRMD was not burning too much cash or losing a lot of money and was selling at a reasonable price/sales multiple of 4x. We presumed that eventually, if the company could start aggressively growing revenue, and maybe reach even profitability, that the valuation multiples would expand dramatically.
We became more bullish when an activist investor got involved in the company and joined the board around May 2016..
This was a key development because the company was in the midst of addressing a warning letter issued by the FDA. He helped put together a team to resolve the FDA’s concerns. Furthermore, this activist investor was aggressively buying stock in the 30 to 40 cent range, but kept buying stock even as the price continued to rise.
Eventually, the FDA warning letter was lifted, and KRMD made a bullish run to over $1 per share.
The activist investor kept aggressively buying shares. Then the company got listed on the NASDAQ. In the end, the company made a huge run to hit a high of $12.70 in April 2020.
However, at that price, the company was selling at a crazy high price to sales ratio of ~23, and we eventually relayed a message to our premium members that we were going to lighten up on the position. We eventually closed out the position from one of our model portfolios.
Now, after experiencing some growth pains, the stock is sitting at around $2.20 with a new management team. We recently noticed that the activist is buying shares again. So, we want to watch closely to see if this new team is addressing some issues which contributed to the stock’s decline to current levels.
Specifically, the new management team is trying to modernize the equipment that the company uses to help improve its effectiveness, expand its use cases, and improve gross margins. In May 2021 the company hired a CEO from Becton, Dickinson, Linda Tharby to get these things done.
And so far, she has done a great job meeting or exceeding restructuring initiative targets.
In the end, the company has revenues of ~$25 million and it’s chasing a total addressable market that’s valued at $1.3 billion. So, it’s possible with a over 60% market share position and a first mover advantage that the company has a good chance of turning around. However, we have to be mindful that there are competitors out there right now trying to compete with the company.
However, according to a company, their solutions cannot be used in therapies that require large volumes of infusion.
A big factor to consider right now is that the new environment that we are in is preventing companies from making money or from attaining premium valuations that were possible over the past 10 years.
So, we think it’s imperative that the company starts generating profitability sooner than later.
On one final note, we do think that the company is a good takeover candidate because of its recurring revenue and leading market share position, and more so now that it’s valued at a price of sale of ~4x.