With us, we have the CEO, Jim Cunniff, and the CFO, Brad Nagel. As normal, there'll be 30 minutes for the presentation. The last few minutes of that should be available for Q&A. So if you do have a question, you can type it into the Q&A box at the bottom of your screen. With that out of the way, it's all yours, Jim.
Okay. Thanks so much, Jim, and welcome, everybody. Thanks for investing the time in Electromed and the presentation. First, we're going to run through the presentation in short order, and certainly have enough time at the end for questions. We wanna hear what questions you may have, and hopefully we'll have a chance to answer those. But as this slide depicts, we are a one-product company. You can see that in this picture, and I'll go into more detail on that in a minute. But really, our stock-in- trade is in airway clearance, so that is what we focus on as a company. This is the standard disclosure, which I'm not going to read through. Some key stats about Electromed that you may be interested in. We are based outside of the Twin Cities in Minnesota.
All of our products are domestically manufactured in New Prague, Minnesota. Our company is about 32 years old. We're a micro cap in that we generate about $53 million in revenue annually. Our market cap is around $139 million, and as I mentioned before, our primary focus is on airway clearance. The technology that we really produce, manufacture, and market is HFCWO, and that stands for high-frequency chest wall oscillation. A little bit about us from a financial standpoint. I think one of the things that makes us quite unique in this market segment is, we're growing, we're profitable. We're also in a really interesting market space in the airway clearance market.
There's a lot of demand for our technology as patients are getting older and they're having issues with breathing, and our product actually helps the patients to breathe and helps them have a better quality of life. The technology that really we promote is called SmartVest, and it is high-frequency chest wall oscillation. That technology is also supported by clinical outcomes data, so we have not only a great technology, but the technology works in support of our patients. We have a attractive direct-to-patient and provider model in the home care space, and I'll go into more detail on that in some subsequent slide. We've got a very attractive financial profile. We're growing, we're profitable, we're generating cash, and we have no debt.
So let me take a step back and before we go into the technology, let me talk to you about the disease state that we serve. Predominantly, it's bronchiectasis. So this is a disease state that is misdiagnosed many times, it's underdiagnosed, and as a consequence, our technology is underprescribed. But bronchiectasis itself, it's a irreversible chronic lung condition, and essentially what happens is, patients get infections, they get typically treated by antibiotics. They get scarring, which occurs within their bronchial airways, and they get into a vicious cycle where they get infections, they get their airways cleared out, but their airways continue to be inflamed. And so a consequence of that is that mucus builds up in the airways.
When that occurs, the patients have a very difficult time breathing, and what our technology does is it helps shear and remove that mucus from the bronchial airways, so that the patient can breathe easier and live a more active life. The market that we serve is growing. It's also large, and because this is an undiagnosed, underdiagnosed disease state, and the technology adoption is actually pretty low. So there's a lot to unpack on this slide, but we like to call this the iceberg, and there's about 824,000 patients in the United States today who've been diagnosed with bronchiectasis. Of that, only about 127,000 of those patients have actually been treated with high-frequency chest wall oscillation.
When you remove that from the 824,000 diagnosed patients, there's about 700,000 remaining patients that still could use our technology. Of that 700,000, there's about 230,000 who are being treated by a pulmonologist, and that's really the primary care point that we focus on. Why? Because really the most severe patients typically are being treated by a pulmonologist. When you take a look at, you know, 230,000 patients who aren't on HFCWO, they do have bronchiectasis, and you multiply that times our average sale price of about $10,000 per unit, we believe that the upside revenue opportunity for this technology and for Electromed is about $2.3 billion. We're really excited about the growth of the market segment.
You know, the diagnosis rate is typically 12% per annum increase. We feel like the market's growing at about 8%, but if we can unlock this tip of the iceberg, we feel like that the growth rate for this market segment can expand. So how is bronchiectasis treated? Well, it's treated by drugs for an infection, but to clear the airway, you need HFCWO. And so how does that work? This is kind of a cartoon depiction of it, but our device is a generator, which is on the left-hand side of this slide and that generator is attached to a hose. That hose is attached to a vest that the patient wears, and then we administer that technology through air pulses, and it's oscillating technology.
The patient receives 360 degrees of therapy and basically hits all of their lobes in their lungs. When that occurs, that oscillation, that gentle oscillation, really frees up the mucus that's in the airways and then forces that into the major airways that the patient can then cough up, or they can swallow, and then again, they can breathe. That's really what we're trying to do, is help patients breathe easier and improve their quality of life. Since this is a chronic illness, the patient really needs to use this technology twice a day, for the rest of their lives, and the treatment duration is typically 30 minutes per session. This is something which can be done as they're watching TV, reading a book, et cetera.
But again, what we have found is patients that are on this technology, they really start to see dramatic results. This is probably a better, more realistic vision of what it looks like. The product is used in the home. We have the newest HFCWO device on the market today, and as you can see from this picture, we feel really proud of the product that we've invented. It's smaller, lighter, it's more intuitive to use than other products that are in the marketplace today. Most of our patients are over 65 years of age, and so there's no on/off button. It's just a touch screen. The user interface is really straightforward for the patient to use. And what's nice about it is, it's not only portable, but it's also has really nice industrial design.
This is a product that'll be used in the living room, in a patient's bedroom. The other thing that's unique about our technology is that, you know, we're the only HFCWO player in the market that has a single hose. And that's important because, as you can imagine, you know, to drive patient compliance, you want a vest that's comfortable, but you also want a vest that's not cumbersome. Having one hose makes the product a lot easier to put on, take off versus the two-hose designs that some of our other competitors have today. The other thing that I'll mention is the fact that this product is reimbursed by CMS, and it's also reimbursed by most private insurance companies.
One of the things that we do, which I think is unique to Electromed, is we help support the patient through their prescription journey. So we work with pulmonologists. Pulmonologists identify the patient that they believe would be right for this technology, and then we help actually hold the patient's hand through their reimbursement journey. We make sure that the insurance that they're working with covers the technology so that they don't have a large out-of-pocket expense. We then will deliver the product to the patient's home, and it's done by a respiratory therapist. And then what we'll do is we'll do a baseline assessment of how the patient is doing, and that's what this Smart Vest is showing at the time of delivery.
We'll then follow up six days later, after they've had the product and have been using it, and then we'll follow up on an additional 30 days with the patient to make sure that they're getting the outcomes we're hoping that they're gonna get from the technology. We then take this information, and we provide it back to the clinic, where the patient received their original prescription. We think that's really important because we wanna make sure we're adding value not only to the patient but also to the provider, and making sure that the technology that they have prescribed is actually helping the patient improve their quality of life.
Our product has clinical evidence, and so when somebody goes on this technology, one of the things that we have found is that they typically will have 59% fewer hospitalizations, and that is studied research, as well as 75% reduction in emergency room visits. And today, never events are having a patient get admitted to a hospital, get discharged, and then getting readmitted into the hospital, and if we can prevent that, that's a benefit not only to the patient, but also to the provider as well as the payer community. So we feel like this is a great deal of value that we're providing. When we take a look at where our revenue is coming from, there's really three major tranches. Most of our revenue comes from the home care market. I'll talk more about that in a minute.
About 95% of our revenue. Hospitals represents about 4% of our total revenue, and that's typically a capital sale, which is followed by some trailing consumables. The hospitals typically buy our equipment, and then the vest and the hose are single-patient use items, and so we do get a recurring revenue stream from that. And then about 1% or a nascent piece of our revenue stream is coming from international. We go through distributors in those markets, and again, much like the United States, those markets aren't overly developed.
And so we really think that, in the near term, our best opportunity to continue to grow profitably is to do it here in the United States and, to continue to have people get awareness of bronchiectasis, the use of HFCWO, and the benefits it can provide. I mentioned before that we have a direct-to-patient model, and I think this is one of the things that's really unique as a medical device manufacturer in the home space versus some of our competitors. Typically, in this space, a manufacturer will have technology which is appropriate for the patient at the home. They will then sell that to a durable medical equipment distributor. DME will actually create demand with a provider, and then once that demand is created, they will buy the technology from the manufacturer and then distribute it to the patient.
When you do that, obviously, the manufacturer is giving up some of the margin in that transaction set. With Electromed, one of the things that's really unique about us is not only are we a manufacturer, but instead of going through a DME, and we do that on a very small-scale basis, most of our volume is going direct to the patient. So we cut that middle, middleman or the DME out of the equation. So we get the prescription. As I mentioned before, we help the patient through that reimbursement journey, and then we deliver the product directly to the patient, and we bill the payer. This is our net revenue breakdown. I've mentioned the setting. You know, home care, hospitals, and international.
When you take a look at our payer type, about 50% of our revenue comes from Medicare, and typically, the commercial payers follow the Medicare reimbursement rate. And as I mentioned before, on average, the ASP for this device is about $10,000 per unit. When you take a look at the disease states, which predominantly, HFCWO is prescribed for, the majority of that is bronchiectasis, and then followed by neuromuscular, and then, a smaller degree by some other disease states. So what is our growth strategy? How do we expect to increase market share? Continued sales force expansion has been a terrific recipe for success for us.
One of the things as you take a look at our financials, which we'll review here in a minute, that makes us really compelling, and one of the things that I'm really excited about within our internal team, is the fact that in the past, when we'd add a sales rep, we typically had to add a one-to-one complementary reimbursement asset to support that rep. And we've gotten much better leverage with our internal team on the reimbursement side, so we're able to not have to add a reimbursement team at the same rate we've been adding sales force as we have in the past. We also have a really robust direct-to-consumer and physician marketing team.
These are manned by respiratory therapists that work directly with patients who are interested in learning more about their disease state and where they can find answers to increase their airway clearance opportunities. We also do that direct-to-physician marketing, where we help to educate them on some of the tools that we provide to help in support of their patients. We've got a phenomenal reimbursement team and clinical support team that, again, does the training and education for our patients. We are investing in clinical studies to again highlight the benefits of HFCWO in airway clearance and supporting bronchiectasis patients in particular. We've got the newest technology in the marketplace that we believe gets us an audience with the providers that we're working with and differentiates us from the competition.
So there's a lot of tailwinds as to why to invest in Electromed. Aging population, certainly. The incidence of this, of bronchiectasis in particular, is growing 12% per annum. We're starting to see podium presentations more and more on physicians and pulmonologists in particular, talking about bronchiectasis and bronchiectasis patient care, which is fabulous 'cause that unlocks part of that iceberg, which I showed before. And one of the things that we're seeing, too, is there's a large migration from the patients going to the home versus spending time in the hospital, and we certainly support that mission here in the United States. We also think this is a unique investment opportunity. As I mentioned before, there's a large expanding bronchiectasis market.
We have clinically proven technology, well-established reimbursement code with really broad payer coverage, so we're across all 50 states, marketing our product, and we've got coverage in all 50 states. One of the things that we've been really consistent in doing is growing double digits on an annual basis. One of the things of late that I think has made us really unique is the fact that not only are we growing the top line, but we're also doing that profitably. We have no debt, and we're generating cash. The other thing I wanted to share with all of you folks is, you know, I've been with the company now for about a year, and just to make sure that we were aligned with our investors, most of my incentive compensation is based on total shareholder returns.
So as we do better as a company and our share price increases, I benefit from that, but so do our shareholders. In addition to that, we've changed our management's incentive compensation plan so that all of their incentive compensation is based solely on delivering revenue and earnings before tax growth, and we feel like those two things are really aligned with our investors' objectives as well. So with that, I'd say that we're an attractive investment, especially as you take a look at us versus our peers in the Russell Medical Index. And we feel like we're really poised for growth, and we're poised for continued operating leverage. And so, Jim, with that, I will open it up for any questions which folks might have.
Great. Great, so, I mean, if you look at the recent growth, would you attribute it more to new prescribers or your existing base of subscribers prescribing to more patients?
... We're seeing it in both, Jim. I mean, I think we're going deeper with existing prescribers that we have today. But also, you know, as the evidence starts to become more promulgated in the pulmonology community, as there's more awareness of patients that don't just have COPD, but have bronchiectasis, we're finding that, there's more pulmonologists that are starting to prescribe this technology.
You know, what percentage, I think you said it in the presentation, but just to highlight, what percentage of patients that could use the technology are actually using it?
It's a very small percentage. So the penetration rate right now is 15%, and so we feel like... You know, and we get asked this question a lot, Jim. You know, do you feel like you've kind of exhausted the market opportunity? And the short answer is no, because really, for us, and I can turn back to this slide, which I think helps depict it, is when you take a look at this, there's 824,000 patients that have been diagnosed with bronchiectasis, but only 127,000 have adopted HFCWO. So our opportunity is to get more of those 828, really, 700,000 remaining patients on the technology.
And how do you do that? I mean, do you educate the prescribers? Do you educate the consumers, or a combination of both, you know?
It's really a combination of both. You know, our direct consumer efforts are really, You know, as patients go online, and they're looking for alternatives to what they might have heard at their pulmonologist or at their primary care physician, you know, they can see some of the tools that we have. We just recently launched, this last quarter, a clinical page to our website, because one of the things that some of these prescribing physicians are looking for is more education on bronchiectasis and treatment. And so we're providing them with clinical studies, and not only that, but we're also providing them with some of the tools that they need in-clinic, that help them navigate the reimbursement journey with their patients. And that's, you know, one of the services which we provide.
Is reimbursement in place for assisted living facilities, or is it primarily, you know, is it primarily used in the home?
You know, it's predominantly used in the home.
All right. Is there an opportunity in-
I'm sorry, Jim. Go ahead.
Yeah, is there an opportunity to expand into assisted living? And, you know, what, what would you need to do for that?
Yeah, there is. That's typically, in assisted living, it's probably a capital purchase, which they would be doing, so it'd be no different than a hospital sale that we do. Really our sweet spot, and, you know, as you can imagine, sometimes when you're selling to a hospital or assisted living or skilled nursing facilities, the sales cycle is a lot longer. You know, they have capital budgets. You know, they do evaluations on the product. They might send out a bid to us and some of our competitors, and then you may get, you know, an order 12 months after you started the process.
One of the things that we love about the model that we have is that we work directly with the provider to help them identify patients who would be candidates for this technology, and then when they write the prescription, we typically will ship the product within two days after receiving that prescription.
All right. And, the newer version system that was introduced, I think about a year ago, can you talk about that, what the advantages are and, you know, how... If it's gaining traction?
Yeah. It's opened up a lot of doors for us. So as you can see on the slide, and I mentioned this in the presentation, you know, we do have the newest HFCWO device in the marketplace today. As you can imagine, you know, most of the patients that require this technology, they're over 65 years of age. Many of them, Jim, believe it or not, are really frail and have osteoporosis. And so what you wanna do is you want to have a product which is comfortable. We have the lightest weight vest on the marketplace, so it's very... And the fabric is very comfortable. We have a 1-hose design. All of our competitors have a 2-hose design.
One of the things that we did as part of our market research is we found out that, you know, some of the patients had challenges with some of our competitor vests because they have buckles versus Velcro. And in addition to that, you know, the user interface is really straightforward, so there's no on/off buttons. It's a touchscreen. And, you know, when we go in initially to train the patient on how to use the technology, we typically will set up all the settings for them. So it's really a touchscreen, press start, and their therapy can then be initiated.
How about margins on the new version versus previous versions?
Very comparable, because one of the things that you find in this is that Medicare really determines the rate for the reimbursement for HFCWO as a category. And then, as I mentioned before, most of the commercial payers kind of follow Medicare's lead. So, the actual reimbursement for the product typically doesn't change much outside of the fact that every year Medicare does look at the urban CPI. We've been beneficiaries of that because the CPI has increased usually year- over- year, and so Medicare will give a reimbursement increase. And then, you know, the private payers will typically follow from that. But the area where we feel like there might be some additional margin improvement is through, you know, just becoming more efficient, getting economies of scale in manufacturing, and working with our suppliers to lower our cost.
but it's, you know, the beauty of this product, Jim, is it's a mid-seventies gross profit margin product. So the more we sell, you know, as long as Brad and I can continue to, you know, manage our operating expenses, we expect that we'll continue to have great operating leverage. Brad, is there anything you'd add on that?
Nope, well said.
In terms of capacity, I mean, are you set right now, or do you need to add to meet expected increases in demand?
Great question. No, we're in really good shape, and it's not because we don't have the demand, Jim, it's that, you know, currently today, we have a day shift, and that's it. So if we wanted to expand, we could either add talent to our manufacturing footprint during the day, or we could expand into multiple shifts.
Great. Can you talk about the competitive environment? Do you have patent protection? I mean, would you welcome another competitor to open up the market or, you know, what do you think of it?
We feel like four of us in the market is plenty, truth be told. So it's us, and we have three competitors. But I would say, yes, we do have patents on our product. I would say that, you know, the key for the four of us that are in this market are all the things that I mentioned before. I think if we can collectively continue to educate the prescribing community on identifying bronchiectasis patients upfront, and number two, getting them on this technology, which really can improve their quality of life sooner rather than later, then I think all boats in this HFCWO market will rise. There's just a big underserved patient population that we collectively need to unlock.
Are there other conditions that could benefit from this? We have a question from the audience asking about chronic asthmatics. Are they eligible for this, or are there other disease-
Yeah, I think there's several different areas, and I've got a slide in here that shows predominantly where this is. If you take a look at this slide, these are the predominant disease states that are being prescribed the technology. I think the key is not so much that they, like the chronic, chronic asthmatics that you mentioned before, Jim, you know, couldn't benefit. I think the challenge is not only would they benefit, but would they get the reimbursement? And that's really the key, is I think there's a lot of patients who would love to use this technology. It's a high-value technology, and so, you know, making sure that the payer is willing to reimburse for it, I think is critical, so the patient doesn't have, you know, a huge out-of-pocket expense.
How long does the patient wear the vest every day, generally?
Typically, you know, it's prescribed by the physician, but it's typically twice a day, in 30-minute intervals.
Okay, and I assume your software monitors that to make sure that the patients are compliant?
Yeah, it does.
Okay. All right. You're a little bit unusual in the device world in that you've been able to grow the top line pretty consistently without having to go out and raise capital. Do you think that trend continues, or?
Brad, you wanna take that?
Sure. Jim mentioned a couple of times throughout the presentation that we are growing profitable and adding cash, and we expect that to continue to be the case. We do wanna continue to self-fund and believe that we're generating enough cash to be able to do that, and to continue to reinvest into the business and look for all opportunities to use our cash to drive shareholder value.
Okay. So Jim, you know, you're coming up on your first year there. You know, any big surprises, good or bad?
As far as what I've seen in the company, Jim, or just?
Right. Yes, yes.
You know, I would say, look, first off, I appreciate the table that's been set for me, coming into this business. You know, one of the things I was looking for, when I came here was the opportunity to participate in a business that had a strong foundation and help take it to the next level, and I feel like we're on that journey right now, Jim. I've got a great team around me. A relatively new team, quite candidly, but a team with a lot of experience, very engaged with each other, so we have great collaboration and great ideas. So people are coming to the business with, you know, different perspectives than what we might have had before, and, you know, I wanna continue to leverage that.
So, you know, when I take a look around, you know, our business and how we're operating, you know, we're just going from strength to strength. You know, Brad and his team have done a fantastic job in introducing new technology and systems and process to finance and accounting, which we didn't have before. Mentioned our reimbursement team, they've done a terrific job in getting leverage from the team that they have in support of our sales team. I feel great about the caliber of the sales team, who are representing our product and creating demand. Our marketing team has provided fabulous tools and equipment for our reps to tell our story and support some of the objections that they may be getting in the field.
Then our operations team, you know, when you take a look at our business a few years ago, you know us, like many other medical device companies, were getting impacted by supply chain issues, and we aren't. The beauty of who we are and what we do is we are a domestic manufacturer. Most of our technology is sourced in the United States. But we have zero back orders right now, and our quality is fantastic, so we have 100% first pass yield. So I feel like we can take this foundation that we've built, that continues to get better every day, Jim, and really what I'm looking at is, A, how do we unlock the market potential that exists for HFCWO?
Two, we're calling on pulmonologists, and is there other technology that we should be looking at, to help support our pulmonologists, their patients, and also to add to our sales reps' bag? So those are some of the things that we see on the horizon.
Got it. Got it. All right, well, we are out of time, but, thank you again, Jim and Brad, for doing the presentation. Thank you for the meetings today, and, hopefully we'll hear from you soon at another conference, get an update.
Super. Thanks, Jim, for the time, and thanks everybody for your interest. We appreciate it.
Bye-bye.
Thanks, all.
Bye.