CHAD Therapeutics is crediting its home oxygen machine that allows patients to refill their own canisters for boosting earnings and revenue growth in the past year. The company reported a 13 percent increase in revenues to $24.3 million and an 80 percent increase in net earnings to $1.8 million. The most promising part of CHAD’s year was the 64 percent increase in sales of the Total O2 Delivery System, its oxygen concentrator and refilling system. Concentrators are oxygen machines for homebound patients, CHAD’s model provides patients a way to refill their own canisters. “If we could get five percent of the concentrator market, it would double our annual sales. To get any significant portion of the concentrator market would have a pretty dramatic impact on revenues,” said Earl Yager, president and chief executive officer of CHAD. Sales of the Total O2 took off in the year and a half since the Medicare Modernization Act, which was signed into law by President Bush in December of 2003. The legislation changed reimbursement rates for home health care companies. They were paid less for providing oxygen therapy for homebound patients, which includes the sometimes daily delivery of full oxygen cylinders to patients who use them in portable devices. More of them started to purchase the Total O2 model, because of its refilling capability, even though it is a more expensive model than most. “Home care dealers are realizing that, in the long run, they’re better off buying a more expensive piece of equipment and saving $50 to $75 in operating costs,” said Yager. Kim McGraw, publisher of Los Angeles-based Home Health Care Dealer Provider Magazine, said distributors are starting to be attracted to the Total O2 system because of its refilling capabilities. “If you can cut down on deliveries and you don’t have service costs, then that is something that is a motivator,” said McGraw. Sales of oxygen conservers, which comprise most of the company’s business, were up 5 percent domestically. The growth was a little lower than expected because of the loss of a large customer earlier in the year, but CHAD saw a bright spot in the international sales of its conservers, which jumped 51 percent over last year. “The treatment of patients with home oxygen is anywhere from five to 10 to 15 years behind (the United States) in most of the world,” Yager said. “They’re just now starting to do most of the things that we were doing here five or 10 years ago.” Although international sales make up only a small percentage of CHAD’s business, Yager is hoping that the growing market and his company’s focus on customizing its products for international distributors’ needs will keep international sales growing at a rapid pace. CHAD helped to build the oxygen conserver market in the early 1980s. Conservers are cylinders that release oxygen only when a patient is inhaling, thus extending their usefulness. The company reached its sales peak in the late ’90s when revenues reached about $25 million, but it reached a period of complacency, allowing newer companies with high tech competing devices to devour some of CHAD’s market. As a result, Yager said, the company’s revenues were down to about $10 or $12 million by 2000. After founder Charles Adams resigned, Tom Jones stepped in as CHAD’s new CEO. “Tom Jones basically brought everything to the state of the art,” said Yager. “He broadened the product line, providing a wide array of conservers and giving customers more choices.” The upgrades, along with the pickup in sales for the Total O2 system and improved performance in the international sales market has brought the company back near its peak performance. CHAD was vague in its expectations for next year, however. “A number of significant factors affect the outlook for revenue and earnings for fiscal 2006. These include the wide range of outcomes that could result from the distribution options we are pursuing for our Total O(2) system and our sleep apnea products, the emerging opportunities for our conserver products in international markets and continued uncertainty with respect to the domestic conserver market, and our expectation of a significantly higher tax rate beginning this year. As a result, while we expect CHAD to report higher revenue and pre-tax income in fiscal 2006 than in fiscal 2005, at this time we are unable to quantify more precisely the outlook for fiscal 2006,” Yager said in a statement issued in June. Yager said that CHAD’s sleep apnea products, which are currently in development, have the chance to become the company’s next big growth opportunity. Yager said current treatments require sleep apnea patients to wear an uncomfortable mask that force air into nasal passages. Most patients grow annoyed and stop wearing it within a month or so, Yager said, but CHAD is developing a product that would be much more comfortable. Yager said that with sleep apnea diagnoses growing by 18 to 20 percent every year, CHAD will be entering a lucrative market once its product is ready for shelves.
