Many Investors with the time and temperament to manage their own portfolios of individual stocks gravitate towards high growth opportunities. After all, given the effort required to research individual stocks, why not look for outstanding rewards? For the risk averse with little inclination for individual stock research there are mutual and exchange traded funds.
Business sectors with the proverbial “tailwinds” at their backs and newcomers with business models set to disrupt traditional ways of doing business are prime targets.
Right now, healthcare and technology are two of the hottest sectors on the ASX, and likely to remain so. Both sectors were up 26% for calendar year 2017.
Quality digital health stocks offer the opportunity to benefit from both the technology and healthcare sectors as well as the potential for disrupting the status quo in healthcare.
Digital health is a term encompassing a range of health care offerings, all made possible because of the digital transformation of our society.
At their core, all are based on software applications ranging from diagnostic and analytic systems to mobile health monitoring and measurement systems.
Telehealthcare today enables consumers to make appointments and payments as well as view test results all from their computer and in some cases from a mobile phone.
The term “digital health systems” has become somewhat of a buzzword, often limited to the increasing number of wearable health monitoring devices and smartphone apps. However, a more precise description includes digital diagnostic tools and medical record systems. The term mHealth is a subset encompassing all digital health offerings available on mobile devices. The following chart from market research and strategy consulting firm Global Market Insights forecasts growth in the digital health market by technology through 2024. According to GMI the total “digital health market in the US in 2016 was valued at US$60 million dollars, with more than 26% CAGR (compound annual growth rate) expected from 2017 to 2024.”
U.S. Digital Health Market, By Technology, 2013 – 2024 (USD Billion)
No matter how hot the sector or the disruptive potential of a new technology, start-up digital health stocks suffer from the obstacle confronting all early stage companies – the race against time. Essentially, these companies engage in a struggle to turn profitable before their cash runs out. Repeated capital raises and borrowings may generate cash needed to continue the struggle but erode investor confidence and can lead to deterioration of the stock price.
A prime example is an early ASX mover in wearable fitness monitoring technology – Catapult Group International (CAT). The company came on the ASX in late December of 2014, full of promise and high-profile backers like the billionaire owner of the US Dallas Mavericks basketball team, Mark Cuban.
Initially investors were thrilled to see the growing client list of well-known sports teams around the world. In less than two years the stock price shot up 600% before the roof caved in.
The company’s share price hit its all time high following the first major capital raise to fund two acquisitions, with both later failing to propel revenues as expected. In its headlong pursuit of growth, the company management kept draining cash as though tomorrow would never come, only it did as investors grew weary of capital raise after capital raise. The company remains a market leader and some analysts see potential, but Catapult’s FY 2017 Financial Results highlight the problem.
Despite a massive 249% increase in revenue, the company failed to report a profit, increasing its loss 57% from the FY 2016 loss of $5.9 million to a loss of $13.9 million. Analysts, however, remain enthusiastic about the stock with a consensus rating of OUTPERFORM and not a single SELL recommendation. The stock price is down 33% year over year.
Another early mover on the ASX provides another object lesson for investors. ResApp Health Limited (RAP) was founded in 2014 and came on the ASX in July of 2015 following a reverse merger. The company’s goal was to commercialise a diagnostic technology for respiratory diseases developed at the University of Queensland. A mobile app uses coughing and breathing sounds from consumers using their smartphones to diagnose a variety of respiratory ailments.
ResApp was named “Australian Emerging Company of the Year” at the Johnson & Johnson Innovation 2016 Industry Excellence Awards, with the stock price reaching its all-time high in September of 2016 before the slow and agonizing slide downward.
The company’s hopes for US FDA (Food and Drug Administration) approval of the ResApp diagnostic tool in the US were dealt a blow in August of 2017 following the release of massively disappointing results of its SMARTCOUGH-C clinical study.
Basically, the study met none of its objectives, but to the surprise of investors who took the time to thoroughly investigate the results, it seems the study design left more than a little to be desired. Subjects coughed into their devices after they became sick, not before as would seem obvious; and clinical research staff failed to control background noise, according to the company.
The 80% drop in stock price may have been an overly harsh reaction as the company’s lone analyst covering the stock maintained a HOLD recommendation on the stock, upgrading to OUTPERFORM this month.
ResApp is not giving up, with plans to launch its SMARTCOUGH-C-2 study in the US, with positive results reported from an Australian study. In addition, the company recently received a favorable patent ruling in the US, with the original patent held by The University of Queensland, with ResApp having an exclusive license for commercialisation for the life of the patent.
There are newcomers on the ASX in the digital health space, all of which should be approached with caution. ResApp serves as a reminder that no matter now great the story, until revenue and profits arrive the stock price will remain wildly volatile. The Catapult story points to the need for someone at a company to be watching the cash register very closely.
The following table lists seven high-risk digital health prospects, presented alphabetically.
Alcidion Group (ALC) began trading on the ASX in February of 2016 following a reverse merger, but the company has a long history of developing information technology solutions for the healthcare sector dating back to 2000.
The company offers a full suite of “informatics” that dramatically augments traditional EMR (Electronic Medical Records) systems that simply move contents of paper files to computer systems. Alcidion’s multiple level MIYA system includes diagnostic tools, a revenue and reimbursement system, a patient monitoring system, and a clinical messaging system.
The company has made key acquisitions to enhance its MIYA platform, currently in use throughout Australia. The stock price has been declining since the end of 2016 but reversed direction following the 23 April announcement of the $16 million-dollar acquisitions of two complementary medical software companies, giving Alcidion access to the UK market. Investors applauded the move.
Dorsavi Limited (DVL) listed on the ASX in 2013, featuring wearable sensors for tracking and monitoring human movement and muscle activity. Once hailed as the next Catapult, the company’s stock price suffered s similar fate.
The company is generating revenue from its three monitoring systems but has yet to turn a profit. However, the product line encompasses multiple markets. ViSafe targets the business market with a system that monitors movements in actual work settings, giving companies the ability to identify problematic motions and develop solutions.
ViMove is in use by medical practitioners to assess lower back movements and muscle activity for treatment options.
ViPerform focuses on the sports market, tracking and measuring the movements of athletes to calculate injury risk and identify improvements.
The company has seen revenue increases in each of the last three fiscal years along with reducing losses. Half Year 2018 Results continued the trend, with overall revenue increasing 15% and US customer revenue rising 34%.
Global Health Limited (GLH) has been developing software for healthcare industry users, from providers to patients, for more than thirty years. The company generates both revenue and profit. The company now offers five products, delivering EMR clinical records and billing; practitioner software; practitioner record share and referral systems; patient health management systems; and a website development system for medical practitioners.
Although the share price has declined since reaching its high-water mark in 2014, over five years the price has risen 500%.
G Medical Holdings (GMV) listed on the ASX in May of 2017 and in six months the share price was up 300%. While it has cooled off, investors who jumped in at the beginning are still up 100%. The company has two products. The G Medical Smartphone Case turns any smartphone into a measurement and monitoring system for a variety of health functions, from heart rate to stress level, respiration, and body temperature. The system, called Prizma, allows data to be stored digitally and accessed by a user’s medical practitioner.
The G Medical Patch performs the same monitoring functions from devices attached to the chest, wrist, arm, or ear, for patient situations where smartphones would be impractical, such as assisted living and hospitalisation situations.
The company has a US subsidiary that sells cardiac monitoring systems for patient and use with physician prescriptions. G Medical is also pursuing approvals from the Chinese Food and Drug Administration (CFDA) for product sales in China.
Lifespot Health (LSH) listed in January of 2017 at $0.40 per share and the share price has been declining since, now down to $0.12. The company makes two products, both smartphone based.
My-Lifespot allows for diagnosis of skin conditions by uploading a smartphone image to a cloud-bases server.
The BodyTel monitoring system serves a dual function, with monitoring of vital signs characteristic of chronic disease, and condition diagnosis with recommended treatments. The company recently launched a Body-Tel system for patient self-management of diabetes and metabolic syndrome, a potential cardiac condition.
The company appears in very early stages of development with no physician involvement in the diagnostic and treatment outcomes.
Painchek Limited (PCK) offers a unique pain assessment tool designed for use with those who are unable to report their own pain – young children and older sufferers of dementia. The company has developed a smartphone based facial recognition software app. The app records a video of the patients’ face and muscle movements as well as caregiver observations, translated into a pain score by the acritical intelligence based in the PainChek™ operating system. Once treatment is initiated, PainChek™ can be used to monitor results.
A recent study published in the Journal of Pain Research on PainChek™ confirms its accuracy and usefulness. PainChek™ has been granted regulatory approval in Australia and Europe, where the company is proceeding with plans for commercialisation in those markets throughout the remainder of 2018 and into 2019.
In addition, the company has been notified by the US FDA that there is no equivalent product in that country, paving the way for the company to apply for a novel device (De Novo) classification. The application will include results of existing clinical trials, but company management warns the US FDA may require new trials to be included in the submission.
New Zealand based Volpara Health Technologies (VHT) began in 2009 using artificial intelligence to design a multi-level diagnostic system for breast cancer detection and treatment. Despite the size of that potential market, the share price got off to a slow start following its 2016 entry on the ASX but has bounced around since and turned positive.
Volpara modified its business model from contract sales to Software as a Service (SaaS) which has improved revenue generation, increasing 52% in the latest Financial Filings. The company is still losing money, but the losses have declined. The company has an OUTPERFORM rating from one analyst.
The company recently completed a successful capital raise, with more than half the funds raised going towards adding marketing and sales personnel to increase Volpara’s penetration in the US market.