INGN

Credibility In The Balance: Six Key Questions For INGN Management – Muddy Waters

On February 8th, Muddy Waters released a report in which we stated that INGN has created an egregiously false narrative about its growth prospects, particularly with respect to the size of the U.S. total addressable market (“TAM”) for oxygen therapy. INGN was in the quiet period, and thus did not respond.

Q4 hedge fund letters, conference, scoops etc

INGN

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We present six key questions that management needs to address on its upcoming call, rather than hiding behind the reliably pliable sell side. We again note that management has sold over $145 million of stock since going public, and therefore their credibility hinges on whether they will answer these questions clearly and honestly.

  1. You have claimed that the U.S. oxygen therapy market is $3 billion to $4 billion;1 however, total Medicare spending on oxygen was $740 million in 2017.2 Per your own disclosures, Medicare forms 60% of the patient population.3 These two data sources yield a market of only $1.2 billion.

How do you bridge the missing $1.8 billion to $2.8 billion?

  1. Using your suggested methodology (including data from the Kaiser Family Foundation on Medicare Advantage patients), we calculated that the number patients on oxygen therapy has been declining at a CAGR of -2.6% per annum since 2010.4 You have claimed the market is growing.

How do you calculate market growth, and over what period of time?

  1. Our calculation of the 1.3 million user U.S. TAM is based on dividing CMS’s number of “allowed services” by 12 to find the average number of Medicare users on oxygen therapy at any one time (642,852). We do this because we understand that starting from 1.23 million Medicare beneficiaries receiving oxygen therapy overstates the number of users at any one time because it includes users who ceased therapy during the year, as well as new users.

Is the average number of services per month during the year a valid base from which to gross up for capped out, Advantage, and non-Medicare users? If not, then why?

  1. We listed five academic papers we cited on page 6 of our report that estimate the U.S. oxygen therapy market is significantly smaller than three million

What are the differences between their estimates and yours?

  1. You suddenly removed references to WinterGreen Research from all presentations in January 2019. You also recently deleted the 7% – 10% market growth claim from your presentations.

Why did you delete these items?

  1. Based on the much smaller U.S. oxygen therapy TAM we calculated of 1.3 million users, we modeled INGN peak sales this year or next. This is partly due to the six-year estimated useful life of machines purchased by homecare providers, which impacts their purchasing schedules. As we pointed out, even as the installed base and penetration continue to grow, sales will not. Our methodology is

If one assumes U.S. market is only about 1.3 million users, do you agree that you would hit peak sales this year or next? If not, why do you feel our conclusion is not accurate?

Article by Muddy Waters


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