Lens through Business Update by Healthcare Player PainChek

Healthcare player headquartered in Sydney, PainChek Limited (ASX: PCK) released its business performance update to the market on 23 December 2019. The company reported exponential growth in both financial and business measures for the 12-month period from December 2018 to December 2019.

PainChek engages in the manufacturing and marketing of mobile medical device applications across Australia and Europe. The company’s pain assessment tool - PainChek^®, through artificial intelligence (AI) and facial recognition technology, helps caregivers identify the presence of pain, quantifying its severity level and observe the treatment’s impact for overall care optimization.

A smartphone-based application, PainChek® utilizes AI-based computer vision algorithms to identify facial expression features and characteristics that are consistent with pain, both acute and chronic.

Key highlights of the December 2019 update include:

· Significant rise in contracted aged care beds from 1,789 to 31,523

· Strong growth in contracted aged facilities from 26 to 366

· Annualized contracted revenue increased to ~$1.53 million from ~$0.14 million

· PainChek assessments reached 72,000, substantially higher than 11,280 in December 2018

The company highlighted that Australia, with 30,169 contracted aged care beds, was the most significant contributor and accounted for ~14% of the total Australian market.

The company added three key clients from September 2019 onwards including Aegis Aged Care Group Pty Ltd, Juniper (Uniting WA) and Ozcare.

Dementia and Aged Care Services (DACS) grant funding contract

On 4 December 2019, PainChek announced that the Dementia and Aged Care Services (DACS) grant funding contract for national trial of PainChek®, worth $5 million, was signed between the Commonwealth represented by Department of Health and PainChek. The grant aims to:

1. Make PainChek^® accessible to people living with dementia in residential aged care facilities

2. Capture relevant data on the use of the pain assessment tool in practice

3. Assess the tool’s efficiency by measuring the observed improvement in diagnosis and management of pain, quality of life and health outcomes

The $5 million grant includes $500,000 for the agreement execution, $4.4 million for 100,000 PainChek® licenses and $100,000 for an evaluation report at the end of the deal. The term of the deal is till 31 December 2020.

PainChek has already received $500,000 in funding as of December 2019.

Partnerships with Ward Medication Management to work with the National team of pharmacists are also supporting the project. A communication campaign to raise awareness about the trial is also supported by Aged Care Industry Peak body partners and Care Management System Providers.

Hospital Market Opportunity

PainChek evaluated the hospital market opportunity in 2019. The company noted that people living with dementia, in general, stayed in the hospital for 18 more days as compared to non-dementia patients.

PainChek also highlighted that there was 3.26 times greater risk of on an in-hospital delirium and that ~54% of the patients were receiving antipsychotics.

The company believes that with its experience in aged care, it has proven that better methods of evaluating and assessing pain can help lower the use of antipsychotics leading to a reduction in in-hospital delirium risk and duration of stay in the hospital.

PainChek was a member of Philips’ global collaboration program with startups for ~3 months which concluded on 11 December 2019. The HealthWorks program aimed to find best-in-class health care technologies that align with the strategies of Philips. The company is assessing the next steps for its collaboration with Philips.

Collaboration with MCRI

PainChek announced its continued partnership with Murdoch Children’s Research Institute (MCRI) to evaluate PainChek® app for infants. The PainChek® Infant PainFaces study aims to corroborate the PainChek® app for infants between the age of 0-12 months. The study is anticipated to finish by Q2 2020.

The company stated that specific issues were discovered and managed. The issues included inconsistency in facial morphology, age-dependent changes in facial expressions and disproportionate head movements which can impact pre-processing of facial images. PainChek’s new adaptive video technology can be turned for all applications within the PainChek suite.

Financial Results for the year ended 30 June 2019

PainChek’s revenue for the year ended 30 June 2019 grew to $215,464 as compared to $50,647 in the previous period.

The company reported a loss of $3.262 million for the same period after accounting for income tax benefit (2018: $4.810 million). The operating results were impacted by:

· Increase in R&D expenditure from $1.699 million to $1.1.895 million

· Increase in marketing and business development expenses from $318,907 to $729,247

· Increase in corporate administration expenses from $1.198 million to $1.486 million

· Decrease in share-based payments from $345,172 to $112,911

· No license expenses reported vs a license expense of $1.710 million in 2018

Share Price – Trend Analysis

While the PCK shares posted a huge YTD gain of 351.22%, they saw a decline of 28.85% over the past month.

Given the fall in share price, there might be a sense of concern among the shareholders.

However, some market participants are keeping a close eye on the stock and are more interested in the future growth potential of the company given the fact that it is in an early phase of commercialization.

Share Performance

PCK shares closed at $0.180 on 24 December 2019, down 2.7% with a market capitalisation of $191.57 million and ~ 1.04 billion shares outstanding.

The shares had a 52 weeks high price and low price of $0.370 and $0.027, respectively. Over the past three months and six months, the shares have declined by a substantial 39.34% and 11.90%, respectively.

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