Just got off the PainChek webinar. I’ve neglected to report back to Strawman much on PainChek because I wasn’t sure what to make of them given slow (but steady) sales and a delayed FDA clearance. I got a bit wrong footed and exited just before a price run, but got back in in a dip and now have a small 1% holding and a ‘Lesson learned’ stamp in my growing ledger. There have been a couple of price spikes around FDA clearance excitement, but I suspect now is the grind towards operational breakeven (see below).

PainCheck now have FDA De Novo clearance for the adult product to sell into aged care, hospitals and care homes. They have one or two US customers - one pro-active customer had been waiting for several years for the FDA clearance. Key sales exec has moved his family to North America. US sales will not be farmed out, but there are software integration deals along with introductions from key software partners such as PointClickCare who cover 100,000 beds.

Meanwhile, sales in the UK and Australia are slow and steady (16% ARR and 18% contracted ARR growth). They have now tightened their contract integration times and require a 25% upfront payment. Due to growing market acceptance, contractual power and software integration is getting easier and they are I suppose learning as they go. Product retention is still only 85%, this needs to go up, may be a software/process integration issue that favours big players and market acceptance may help, but I have to ask about that if it continues.

Infant app is just now available in Australia and they will beta-test their pricing and marketing, and monitoring of conversion rates. Too early to say. There is talk of partnerships with big-pharma who like the idea of a test-treat combination. Something to watch.

They are going for a 10-1 share consolidation, timed with the AGM because it’s the cheapest way of approving that. They will stay on the ASX, CEO experience at Cochlear tells him this works fine, US investors will be happy to invest here.

Zero debt. Cash on hand - A couple of quarters. Obviously a raise is coming, but who gets involved, they are not saying, and there is that consolidation coming in November which is to appeal the the US investor. Mentioned institutions are now interested.

Operational breakeven in Australia and UK can happen in a year but they will continue to invest. Operational breakeven in the USA would happen when they have 10-15% market share. That would imply $15m US annual revenue if we are talking about aged care ($150m TAM).

US TAM for adults they estimate to be $500m per annum, covering aged care, hospitals and home care. This would take years to play out.

My take: Everything in aged care moves slowly. But…compliance pressures, FDA clearance and software integration are tailwinds. A few big US operators adopting would move the dial and they have the biggest Las Vegas conference coming soon.

Share price on a heater, in anticipation of FDA approval by July.

Meanwhile, contracted licence growth in Australia and the UK has been annemic. They seem to be fighting this battle one aged care home at a time.

They have very little cash left and will presumably wait for the hoped for good FDA news and then raise. Perhaps the cash situation is part of the reason sales and implementation has been so slow.

Infant phone ap is now being tested in the wild in Australia, getting feedback on pricing.

The USA sales will I think be assisted by PointClickCare, major US digital health pending partner.

Aged care rollout seems slow, as I feared. Still at 70,000 licences of 100,000 contracted. It seems like they've been referring to that 100,000 mark for a year now. They are working on improving the onboarding speed, there must be training bottlenecks.

85-90% retention. 50% have now renewed over 3 years.

News flow will be good this year, but there's still a need for more cash than they have:

• FDA clearance expected this half
• Infact app market testing and marketing plans underway, Aust launch by July
• Push into Aust and UK care homes and hospital markets (larger than aged care) but will the same training bottlenecks apply?

Not holding just watching.

I’m having a hard time figuring out if this pain assessment product would/should be sticky, and could ultimately become a part of standard care for non-verbal patients. 

Retention

The promising early uptake I suspect has been somewhat supported by sentiment and government intervention (who can deny the sad plight of non-verbal pain sufferers and the tragedy of our aged care system) and the last quarter showed only 88% percent retention. The CEO explained away the low retention as ‘smaller providers who didn’t have the resources to properly integrate the system and we’ll go back to them’. Which makes sense but long term I imagine you need high 90s retention given that the pool of aged care centres and hospitals is not infinite.

The product

You can’t actually test the ap without an invitation. But I’ve watched a few videos of zoom call presentations by Painchek representatives to aged care staff. My first impressions are that it is simple to the point of simplistic. The facial scan registers micro-expressions of pain, and the ap also has as a formalised checklist of behaviours associated with pain. A checklist is useful to avoid subjective judgements about the patient but a checklist doesn’t require an ap - so the USP appears to ultimately be the facial scan. 

Apparently it is all IP protected, which it better be because one of this year’s high powered AI models could probably eat Painchek’s lunch, as an entree. So, can they role out this product quickly and get it to become a part of standard care?

Is this really a $50 million dollar ap? 

There is the a whole other potential source of revenue in the yet-to-be-released infant ap, but I’d imagine that either it goes viral or it doesn’t. It doesn’t lend itself to retention so it therefore require virality and the approval of family doctors.

Monday meeting

@Strawman , I feel that you have to be somewhat nice to your guests so they keep coming back, but I’d be happy to see Philip properly grilled on Monday. If this is a flash-in-the-pan I would love to know! I listened with alarm to your most recent Baby Giants discussion about ASX scams involving backdoor listings where Claude said ‘it has to be a WA company with a history in both mining and biotech’ and thought, oh crap, that’s what Painchek is! Philip is ex-Cochlear, so I can’t imagine he’d bother taking on a crap product to launch just before his retirement, but I don’t actually know him so that might be wishful thinking on my part.

After presumably getting coat-hangered by COVID, Painchek are back on their feet. Growing revenue, globally expanding, but not yet breakeven and still plenty of risks. They just did a raise.

Product: Their Aust and UK regulator-approved mobile app and system allows carers to scan the faces of non-verbal patients to detect expressions of pain. The app helps to distinguish distress caused by pain from other kinds of distress, to allow for more appropriate care and treatment decisions. They have data from 4 milllion pain assessments conducted on their platform.

Hurdles: Carers require some training in how to appropriately use the app and sales require deals with each aged care provider, and system integration, which I guess is a hurdle but perhaps also a moat-builder if they can become a part of regular workflow.

Strategy:

1. They have a steadily growing presence in aged-care facilities in Australia (30% of market) and the UK (5%) with a focus on larger companies who can roll out the product across thousands of beds.
2. The USA strategy is underway as described below under 'Near-term catalyst'
3. They plan to expand to home-care which is 10x larger market than aged care.
4. They plan to expand into hospitals, where dementia patients take up a meaningful proportion of beds.
5. They have an infant app in the works to market to new parents - that will listen to the cry as well as scan the face.

Revenue: Their Australian and UK aged-care revenue has grown quarter by quarter for 60% ARR increase in a year and they claim 92% retention. They charge $50 'per bed' per annum. They are fast approaching 100,000 beds, which would cover operating costs but not expansion costs.

They just did a raise, dilluting by 10%, but reading between the lines they are attempting to time raises with an eye on milestones. USA has 2 million aged care beds.

I've jumped in early as a gamble, because the marketcap of sub $50 million seems reasonable if they can reach a small part of their addressable market. I'd be glad if someone more confident than me has anything to say about revenue verses market cap, I'm happy for a reality check. Thesis here is that the below catalyst will meaningfully lift the SP before any further raise, which the CEO basically alludes to if I heard him correctly.

Recent CEO presentation here: https://www.youtube.com/watch?v=mXo9DpekINs

Near-term catalyst: A validation trial is underway at two aged-care facilities in the US with the purpose of submitting results to the FDA for approval this year, maybe even this quarter. They already have 3 major partnerships in place with some aged-care providers covering half the market to begin selling once the approval is granted. CEO seems entirely confident that since the product is non-invasive and approved and in-use in Australia, the UK, and maybe EU, it should be approved by the FDA.

The infant app will also be launched this year in Australia. Considering $10 per month.

Leadership: I have little insight but CEO Phillip Daffas seems good on paper, was Global VP of marketing for Cochlear. He appears to be at the end of his career and this must be his swansong.

Ownership: I'm not sure what is a reliable source for insider-ownership data (if someone could please tell me) but Simply Wall St suggests 25%.

Competitors: Googling I could only find an iris-scanner startup which is privately funded, but that seems more invasive and would require more cooperation from the patient.

Discl: Own IRL and Strawman. Comments welcome as this is my first attempt to write an overview.