CardieX is in a trading halt, pending an announcement to the finalisation of a ‘material contract in relation to its clinical trial revenue’.  

The most recent quarterly report indicated there was a pipeline for clinical trials over US$8m. In what will be a much-needed injection of funds, this will likely be a portion (hopefully a majority) of this pipeline.

With FDA approval and a US listing hopefully just around the corner, we are entering what is likely to be a really exciting period for the company.

My play at the speculative end of the market – I haven’t provided an update for a while here so the recent Q3 report is probably as good as time as ever. For those that need a recap, I posted my investment thesis 10 months ago. CDX isn’t a standard growth play for me – they are trying to shift into an industry that is increasingly congested by inadequate technology (think Fitbit, Apple etc). These providers will do an adequate job for the general user looking to track steps, but currently do a poor job of tracking and analysing heart health through their watches. Here is a recent Deloitte survey that articulates why people use smartwatches: 

Heath health (37%) and chronic health conditions (8%) are both areas CardieX are looking to disrupt. CardieX consists of the ATCOR business which has tried and tested technology with respect to its FDA-approved SphygmoCor-related systems and technology. This is used clinically for central arterial pressure waveform analysis to better inform blood pressure management. CONNEQT, launched by CDX in May 2021, is trying to take this technology and shift into the home health, wearables, and consumer health apps industry. 

If/when they have the only FDA-approved heart health smart watch on the market – provided their marketing and execution are sound – they are likely to look more attractive to a good portion of the smartwatch market (that are buying for heart health reasons). They may even shape as possible acquisition targets given the leaders are currently struggling at the moment to crack the code with respect to heart health tech (looking at you, Apple). CardieX has previously indicated of external interest in their IP, but instead of selling this they want to go head-to-head with the leaders in the industry. Management are the main owners of the business so I have no issues at all with respect to their alignment. I don't blame for being confident in their own IP and thinking they can effectively disrupt the market as a standalone company.

Q3 highlights

• Google-partnered Mobvoi and CardieX launch TicWatch GTH Pro, the world’s first consumer wearable device to feature CardieX subsidiary, ATCOR’s heart-health technology. I think this is essentially a trial by Mobvoi, if ‘Arty’ is popular in the GTH Pro there is a chance they will start to roll out future watches with the same software embedded. This will have material impacts on future CDX revenue. More on this here.
• New Clinical Trial Services Agreement for the provision of ATCOR XCEL devices and data management services with Andwin Scientific, Syneos Health and sponsored by Philip Morris. This agreement is worth 1.3 million over a 19-month period, most of which will be recognised in FY22.
• Former WHOOP/Puma and Fitbit executives Jack Seitz and Lara Rosenbaum join CONNEQT to drive product launch and marketing strategies.
• US FDA 510(k) clearance submitted for CONNEQT App. This will integrate with the CONNEQT Pulse device, a planned home-based heart health vital signs monitoring system that leverages off the company’s SphygmoCor technology.
• CardieX appoints US-based Lesa Musatto to its Board of Directors. More on this here.
• Total cash reserves of $3.85 million as at 31 March 2022.

I am in for the long haul with this one; patience is definitely required. But I have seen enough over the last year to be happy with where they are and how they have progressed over that time. It has been an incredibly volatile ride and this isn't likely to subside any time soon. In addition they will likely require additional cash from shareholders and cause dilution along the way, but if they gain traction in the wearables and consumer market – which I suspect they have a good chance at doing – today’s share price will be irrelevant. It is only a small holding for me, but one I am comfortable holding and putting in the bottom drawer for a few years.   

Highlights:

·         Strong sales growth in FY21 with annual sales up 32% on a constant currency basis (excluding royalties) on the comparative period in FY20;

·         New patent granted for blood pressure measurement by the US Patent & Trademark Office;

·         Major corporate restructure and launch of new consumer health brand – CONNEQT;

·         Strategic collaboration signed with LifeQ for CONNEQT wearable and distribution;

·         ATCOR completes world-first PPG sensor integration of its core health wearable biometrics platform;

·         ATCOR technology chosen for Yale University clinical trial;

·         Total cash reserves of $3.67 million at 30 June 2021 – to be bolstered by up to $8.16m from the November listed and unlisted option expiry (if fully exercised) – providing financial support & capability to implement identified strategic initiatives.

My take on the report

Another solid quarter for CardieX. The market agrees, with the company up 5% (at the time of writing) following the announcement.

For ATCOR, the quarterly period again reflects solid sales growth for the division. It’s also encouraging to see that ATCOR were selected for a Yale University clinic trial. This shows continued endorsement of its patented SphygmoCor technology – which is fundamental to my thesis.

The company report that they expect ATCOR will return to profitability by 2022 calendar year-end.

Relating to CONNEQT, the division is on track to launch multiple new devices and digital products to the market over the next twelve months. The company anticipate that the key differentiating feature (to what is already available in the market) is the ability to provide medically reliable data and information by obtaining 510K clearance from the US’s FDA.

The division unfortunately delayed one of its products (being developed in partnership with Mobvoi); appears this was due to PR/marketing reasons. Early Q2FY22 is the new release target.

CONNEQT is very much in its infancy – with this being the long-term aspect of the thesis – but their collaboration/partnership with a number of impressive companies is encouraging.

Relating to the cash situation, CardieX burnt through just over a million in cash in the quarter – from $4.8 to $3.6 million. The bulk of this was spent on R&D and staff costs.

To summarise, happy with the report and how the company is tracking - noting that I will be keeping a close eye on further project delays and the company's cashburn rate. 

DISC: HELD

*I posted a straw a few weeks ago which consists of an overview of CardieX and my thesis. This primarily relates to:
1) ATCOR continuing to grow revenues gradually, with continued adoption of its SphygmoCor technology and ongoing investment in R&D, and
2) CONNEQT achieving gradual disruption of the health wearables market. CardieX hopes this division will eventually compete with the likes of Fitbit, Apple, Google Health etc.

CardieX is a global health technology company that focuses on hypertension, cardiovascular disease, and other vascular health disorders. The company recently undertook corporate restructuring of ATCOR Medical, separating it into two subsidiaries: ATCOR (medical) and CONNEQT (consumer/wearables).

ATCOR: develops and markets medical technologies that measure patient risk for hypertension, cardiovascular disease, and other related vascular disorders. ATCOR focuses on vital signs monitors and SaaS solutions for hospital, research and pharma and specialised clinical markets.

It uses ‘SphygmoCor’ – FDA-cleared company-patented technology used clinically for central arterial pressure waveform analysis to better inform blood pressure management. More than 4000 SphygmoCor-related systems are currently in use worldwide at major medical institutions, research institutions, and in various clinical trials with leading pharmaceutical companies.

SphygmoCor is the only existing FDA-cleared technology that can produce a full feature central arterial waveform in adults that identifies advanced cardiovascular diagnostics for heart and other vascular disorders. Over the last 2 years CardieX has been working on refining its SphygmoCor technology into a set of consumer parameters that can be incorporated into a consumer-priced device targeted at home users as well as primary care physicians.

This is a good ‘segway’ into CardieX’s new second subsidiary.

CONNEQT: launched by CardieX in May 2021, CONNEQT is a new consumer health brand which will focus on home health, wearables, and consumer health apps. Under the CONNEQT brand, CardieX is on track to launch multiple new devices and digital products over the next twelve months. The most notable ones are included below:

1) ‘Mobvoi Project’ – a smartwatch collaboration with Mobvoi (a privately owned Chinese startup valued at more than $1billion, partnered with Google). The smartwatch will be developed in collaboration with Mobvoi to supply hardware and firmware with CardieX to then integrate its algorithms and proprietary Arty health analytics. The product will be the first in the world to feature CardieX’s Heart Stress, Arterial Age, Exercise Capacity and Arty Score with active community and AI-powered health coaching services. Initial market launch will be in the US, Australia and New Zealand.

2) ‘Pulse’ – a professional-grade blood pressure monitor for at-home use, which will be followed about six months later by the Pulse MD for clinical use. This product incorporates patented central blood pressure technology and multiple new, patent-pending, heart-health parameters. It is expected to be the world’s first ‘dual blood pressure’ monitor available to consumers. Trial production will begin in Q1/FY22, and mass production (up to 50,000 units) will take place in Q2/FY22.

3) ‘Arty Band’ – a wearable device that provides advanced health diagnostics to consumers/physicians. Target market is the 1.3 billion global hypertensives, but also patients with Alzheimer’s risk and cognitive decline. Unlike the Apple Watch and other wearables, CardieX is targeting FDA clearance to contribute to its market positioning and value – and be a key sales proposition for clinical/physician markets looking to recommend a remote wearable solution to clients.

All of CONNEQT’s devices will use the SphygmoCor technology. This is patented by the company in addition to the companies other existing patents (more than 10) – relating to blood pressure and wearable sensor technology. This represents somewhat of a moat for the company, with current real-world application and demand (more on this below).

The management team

CEO Craig Cooper has an impressive background (co-founder of Boost Mobile, involvement with 2xu and ‘Movember’). His compensation (AUD900K) is quite high for a company that is not profitable. Under Craig there is (what appears to be) an impressive team, including Lawrence Chan (ex-Cochlear – responsible for product development) and the newly appointed Steven Kesten MD (strong medical background, CMO).

The recent addition of Michael Schulz (sales) is also impressive. Michael was previously with Mortara and Welch Allyn (one of the world’s largest vital signs monitoring companies). While at Mortara, Michael was responsible for the growth of the pharmaceutical and cardiology device sales division from $100K to US$65M – under his leadership.

Insider trading and ownership

In the last twelve months CardieX insiders bought shares, with no one selling – although they paid around AU$0.031 on average, significantly lower than the current share price. Still, the recent transactions are promising. According to Simply Wall St insiders own 23% of the company, which is another tick in my books.

How has ATCOR performed prior to the establishment of CONNEQT?

ATCOR has achieved continuous strong growth in recent years. Revenue increased by 16% between 2019 and 2020, while the company achieved 5-year record high revenue growth for the first half of FY2021.

The recent quarterly update was equally impressive, leading the company to revise target sales growth for FY21 up to 40%.

As of 31 March 2021, CardieX had a cash balance of $4.8m. They appear well funded to pursue growth initiatives within both ATCOR and CONNEQT. CardieX expects to become profitable by the end of 2022.

Thesis/conclusion

I think the move into the consumer market is a no-brainer for the company, armed with its experience in the sector and patented technology. But can it compete/disrupt those already in the consumer health product sector? That is the million-dollar question. CONNEQT is banking on its wearables being FDA approved, and this attracting clinicians (and their patients) and more health-conscience consumers. From a management perspective, COOPER’s previous endeavors demonstrate experience with disruptive, big-branded companies – specifically with Boost Mobile, who we are all familiar with. I think his leadership is a bonus for the company and provides a nice combination of health and medical, and marketing experience.

The risk/reward pays off for me here. I like the idea of exposure to essentially what is a two-pronged approach: a solid company with a proven track record in the health sector (1), that is also looking to take its impressive tech/patents and disrupt the consumer market (2). The company has built a solid platform in recent years – recent positive results, continued upwards growth, impressive partnerships, and its growing reputation in the health sector support this. I think they are uniquely positioned to disrupt the health wearables market (worth upwards of US100 billion).

For the thesis to remain intact, I want to see gradual growth by ATCOR and continued adoption of its SphygmoCor technology – this will also provide valuable insight into demand/application. Ideally, their R&D will remain well-funded and drive innovation within their wearables. Regarding CONNEQT, I am looking for the company to achieve gradual disruption (over a couple of years). Market sales will be key here and a good indicator of their success over time.

This is not a high conviction pick for me, but one I want exposure to. In my view they are an exciting company with promising growth potential. As with any small-cap stock, be prepared for volatility.

A big thanks to @Quiltman for bringing the company to my attention. Thanks for reading!

Highlights

• Unaudited sales for the 6 months YTD FY21 were up 30% over the previous comparative period (using constant currency and excluding royalties)

• Strong sales performance growth during the quarter with Q2 FY21 up 29% on a constant currency basis

• When including the impact of the strengthening AUD against the USD, sales excluding royalty for H1 were up 24% on last year

• New product launch update

• Regulatory approvals update and schedule - FDA clearance, CE approval in Europe, and NMPA approval in China

• Expansion of senior executive team with two key new hires

• Launch of new “ATCOR Health” division

• Successfully completed Share Purchase Plan raising over $3.2 million closed 31 December 2020

• Group Cash balances of $3.32 million at quarter end which, following the January receipt of the oversubscribed SPP of $3.2m+, provides total adjusted cash reserves of ~$6.55m