Coala Life’s focus is the US market for remote patient monitoring (RPM) in the home environment, where we offer Managed RPM, a full-service solution. Our service provides patients and the health care sector with solutions for non-invasive and patient-centered indicative decision support, using algorithms to predict heart and lung disease and thereby contribute to avoiding certain conditions developing. Our strategic goal is to dramatically improve quality of life and clinical outcomes for the millions of patients affected by chronic or acute cardiovascular and other diseases.
We operate in a market undergoing rapid growth. According to Medi-Tech Insight, the global healthcare consultancy, the total RPM market in the US will reach over USD 18 billion by 2026, with an annual rate of growth of 25%. Coala Life is well positioned to take part in this growth, and we have high expectations for our future progress.
Our sales growth has been good, in particular since our operations in the US started up in earnest in the spring of 2022. Sales in the third quarter was SEK 14.1 M, compared with SEK 5.0 M in the year-earlier period. Sales from January to September totaled SEK 39.8 M (SEK 7.5 M in the year-earlier period). The gross margin remained high, totaling 85% (83) for the period.
Our expanded venture in the US market has required a professional organization that is capable both as regards attracting new clinics as part of sales initiatives and delivering on the follow-up, reporting and assistance that patient monitoring requires. This has involved a substantial increase in the organization, and the average number of full-time employees and consultants in the period was 89 (39) and has lead us to not yet achieve improvements in operating income, which for the third quarter totaled SEK -32.3 M (-28.2). The company therefore initiated a cost-saving program in September to lower its total costs by 30%. The effect of the measures we have taken to date will be a gradual reduction of costs, and the program is expected to be fully implemented in January of 2024. Further efficiency improvements have now been identified, with savings of just over SEK 5 M on an annual basis, and these will also yield a full effect in Q1 2024.
Since October 2022, we have reported our figures regarding the number of connected patients and the preliminary revenue – measured as annual revenue – on a monthly basis. In Q2, we reported 4,000 connected patients and an annual sales rate of USD 5.6 M. In Q3, the number of patients increased to 4,400 while the annual sales rate fell to USD 5.1 M.
Revenue is greatly dependent on patients monitoring their measurements so that they can be approved and invoiced in the insurance system.
The figures for October are 4,400 and USD 4.6 M, since a medium-sized clinic with a large proportion of non-invoiceable patients was terminated. A tightening of procedures that will entail more stringent requirements for compliance has now been introduced.
In the third quarter, a number of measures were taken to improve the company’s liquidity, which has been severely burdened owing to the lag in revenue that the lengthy payment periods entail. In conjunction with this, we carried out an additional review of compliance with the agreements with our connected clinics. As part of this effort, we identified a few clinics that have not complied with the regulatory conditions, with the result that remuneration from the insurance systems will not be paid out. We have addressed this and are canceling the agreements with 6 clinics. One key condition for Coala Life’s continued success is ensuring that our patient documentation is properly in compliance with physicians’ recommendations. If this is deficient, we cannot ensure full remuneration from the payment systems. A more stringent procedure for selecting clinics and patients is expected to lead to improved efficiency in sales initiatives.
In Q3, the compensation system Medicare decided to increase the remuneration for remote monitoring through the possibility of charging one remuneration code three times (against twice, previously) if the activity justifies it. This will have a positive effect toward the end of 2023.
The US market is Coala Life’s absolute focus, but our conditions in Sweden – as well as in other countries – continue to improve. In the US market, we offer a number of different monitors in our RPM range. Coala Heart Monitor is an important part of this mix, although outside of the US we work exclusively with the Coala Heart Monitor. In Sweden, the interest in – and sales of – Coala Heart Monitor have begun to gain momentum. In addition to Region Stockholm’s investment in digital remote patient monitoring, with Coala Life as one of the three selected partners in the pilot project, one of Sweden’s largest primary care providers has decided to initiate three pilot projects with Coala Heart Monitor.
I would also like to mention that, during the late summer, we achieved two key regulatory goals that are important for our continued growth. On the one hand, we obtained ISO approval under the new ISO 27001:2022 standard, which shows that our procedures for information security fulfill the requirements in this highly recognized standard; on the other hand, Coala Heart Monitor was certified as a Class IIa medical device under (EU) 2017/745, the new European Medical Device Regulation (MDR). In an industry with increasingly stringent regulatory requirements and a large increase in data crimes, this is essential for the future.
The sales growth in Coala Life means that our working capital, owing to the lengthy terms of payment, is increasingly bound up in trade receivables. With a payment period that is close to three months, the company is experiencing serious stresses in its liquidity. Our factoring agreement with Aros Kapital has decreased this pressure on our strained liquidity somewhat, but not to a sufficient degree. To further reduce the burden on our liquidity, in July we carried out a private placement of new shares that raised SEK 17 M before transaction costs for the company. In September, we took out a bridge loan of SEK 5 M to secure short-term liquidity needs. In light of Coala Life’s expected continued growth and the long turnaround times for payments that still remain, further strengthening of the company’s liquidity is required. That is why the Board of Directors decided, given the approval of an Extraordinary General Meeting on December 22, 2023 to carry out a preferential rights issue totaling SEK 75,4 M that is guaranteed to 75% and is believed will raise SEK 66,7 M, net, for the company.
We see good conditions for regaining our previous rate of increase as regards our patient revenue. A more stringent procedure for selecting clinics and patients is expected to lead to improved efficiency in sales initiatives. In the savings program, the fixed sales costs will be halved by a switch to performance-based remuneration, with external parties being involved to a greater extent. The latter has already proven to work well, and will thus be expanded further.
Our service has enjoyed a robust breakthrough in the market, and despite a tough third quarter with short-term deviations, overall we still take a positive view of being able to deliver continued good growth and returning to positive operating income in the second half of 2024 with a retained gross margin of over 80%. Revised and long-term goals will be presented in the second half of 2024.
Now we are focused to achieve profitability and cash flow positivity and continuing our penetration of the managed RPM market in the US and selecting clinics and patients with even greater care.
I look forward to keeping you informed about our continued journey.
Dan Pitulia, President and CEO, Coala Life AB
Comments from the CEO can be found in the most recent Interim report from Coala Life AB. For more information about the company operations and figures from the recent quarter see the full Interim report.