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PainChek (ASX:PCK) – Smart Opportunity In Pain Relief

Article written by Pitt Street Research. For the full report click here

Setting global benchmark in pain assessment

PainChek is a Sydney-based pain assessment tool provider. Considering lack of any global benchmark in pain assessment, PainChek is expected to set a new global standard with its innovative product. The artificial intelligence (AI)-based mobile app uses facial expression to map and quantify pain.  Considering millions of patients suffer from dementia globally and cannot explain pain explicitly, this utility app has exponential growth opportunity.

Investment case

PainChek can address large global markets in both dementia patients and in children. The PainChek pain assessment tool is a medical device that has been developed from a concept to a market reality within two years, receiving peer-reviewed publications and regulatory clearances in the process. It has now been commercialised and is experiencing rapid growth in sales and clinical use in Australia, with immediate overseas opportunities including Europe and Asia to be addressed soon.  PainChek’s business model is low cost, characterized as it is by partnerships with 3rd party software suppliers globally. PainChek’s team has proven experience in the medical device space.

Valuation range A$0.08-$0.16 per share

We currently value PainChek at 8 cents per share base case and 16 cents per share optimistic case using a DCF approach with what we think are conservative assumptions on commercial expansion. Our valuation relates to what PainChek has achieved over the last two years in bringing its app into Residential Aged Care in Australia. Should the management be able to expand market outreach aggressively, launch a child version of the app commercially, and gain additional regulatory clearances for US and global launches, there will be considerable upside to our current valuation.

Introducing PainChek

PainChek, a Sydney-based digital healthcare company, develops and commercializes mobile-based medical device applications that enable automated and intelligent pain assessment of individuals who are unable to communicate their pain. The tool empowers carers to accurately assess and manage pain across environments – at home or medical centers. Its unique app-based tool is designed and developed to transform pain management using artificial intelligence (AI) and smart telephony. The initial concept was created by Curtin University employees, Professor Jeff Hughes, Mustafa Atee, and Dr. Kreshnik Hoti, the AI-based automated tool aims to eliminate subjectivity and manual bias while assessing pain. This is useful for dementia patients and preverbal children. PainChek is now a first-in-class pain assessment medical device that has already obtained regulatory clearance in Australia and Europe.

A brief history

PainChek was initially developed by Electronic Pain Assessment Technologies (ePAT) Pty Ltd which was owned by Curtin University. The company MinQuest Limited was engaged in mining activities across Australia. The firm’s earlier activities were limited to mineral exploration for gold and base metals in Western Australia. In early 2016, the board reviewed the continued uncertainty regarding the outlook for the mining and metals sector, and the impending challenges for resource companies. Consequently, MinQuest decided to acquire ePAT Pty Ltd from Curtin University and diversify. In September 2016, under a reverse merger agreement, ePAT completed the takeover of MinQuest, changed its name to ePAT Technologies Ltd and shifted its entire business focus to developing and marketing the pain assessment tool. In the process a new Board of Directors and Management team were appointed with global healthcare and digitial technology backgrounds. In January 2018, the company changed its name to PainChek Ltd for consistency with the PainChek App brand.

How does PainChek work as an electronic pain assessment tool?

PainChek technology uses cameras in smartphones and tablets to record a brief video of the person – this is analyzed in real time via facial recognition software to detect the presence of micro-expressions that indicate the presence of pain. Built upon an AI-based market-leading facial emotional assessment technology from nViso, PainChek deploys a secure and validated medical device in the form of a mobile app. The app automatically recognizes facial muscle movements that indicate pain. This data is then integrated with other non-facial pain indicators, including vocalizations, behaviors, and movements, to generate a pain severity score. A total of 6 domains of assessments are covered to calculate this score. Due to speed, ease of use, reproducibility, and ability to quantify, PainChek as a utility tool is gaining rapid significance in pain management.

Ten reasons to consider PainChek

1) Pain is often poorly assessed, documented, monitored, and managed. Undetected and untreated pain can adversely impact the quality of care. Faulty detection of chronic pain can lead to incorrect prescription of antipsychotics. Hence, a pain assessment tool is a necessity, especially for old-age care and child care centers/medical homes/hospitals, making the PainChek app a vital tool.

2) PainChek is a one-of-its-kind facial recognition tool – it is digital, automated, and based on AI. It is an easy-to-use app that can record and store expressions to deduce the amount of pain. PainChek can work offline as well (for recording the expressions).

3) Globally, there is a lack of quality benchmarks for pain assessment. PainChek is expected to set global standards by quantifying pain for people who cannot communicate effectively, e.g., dementia patients and preverbal children.

4) The company has already obtained regulatory clearance for 2 of the largest marketsin the world – Australia and Europe. Trials of the app have been successful for dementia patients, but its functionality for children is yet to be approved – which offers extra growth potential.

5) Dementia is a major old-age affliction. Millions of patients across the globe suffer from this disease. Consequently, there is a massive untapped market for PainChek. It is imperative to note that dementia patients and preverbal children are those who suffer the most from chronic pain, and thus regularly require efficient pain management systems.

6) PainChek can generate revenue from multiple uses/channels – both on enterprise and individual levels. The app can be used at home and in healthcare centers by medical professionals. Its applicability to multiple segments and use cases can provide a recurring revenue source.

7) Since its commercial launch, PainChek has quickly been accepted by some of Australia’s largest residential care centers, such as Allity Aged Care. Given the breadth of aged care centers across globe, an exponential revenue growth opportunity exists for PainChek. Including 21 Residential Aged care clients with annual licenses and more than 6000 clinical assessments during 2018.

8) PainChek can be seamlessly integrated with existing healthcare management systems to build a combination that can be marketed as a one-stop platform for complete aged care. Making such an integrated platform available to the existing clients of these system operators provides additional market opportunity for PainChek.

9) Co-founders of PainChek are working with the firm, which means that the tool’s development will remain consistent. Professor Jeff Hughes is currently the Chief Scientific Officer, while another co-founder, Dr. Kreshnik Hoti, is a Senior Research Scientist. Since his appointment as MD in 2016, Phillip Daffas has overseen the evolution of ePAT and now PainChek as a utility health tool producer. Backing Daffas is a wellqualified board chaired by a technology veteran, John Murray. PainCheck now has sales, marketing and technical support capability as part of the go-to-market team.

10) We believe PainChek is currently undervalued. We value the company at 8 cents per share base case and 16 cents per share optimistic case using a DCF-based approach with realistic estimates on care centers outreach and global launch of all possible versions.

PainChek’s solid leadership team

We believe PainChek has a leadership team that can create significant shareholder value from Jeff Hughes’ original work. CEO Philip Daffas brings a solid global background in diagnostics and medical devices, including successful stints with Cochlear initially as their European Sales and Marketing Manager based in London and VP Global Marketing based in Sydney. Philip was also the European Marketing Director, based in Germany, for the Boehringer Mannheim (now Roche Diagnostics) Diabetes Care business.

Daffas often cites glucose monitoring solutions like the Accu-Chek system he and his team marketed at Boehringer Mannheim as an example of how a product like PainChek can mainstream and he brings in the experience and capability to globalize the PainChek business. CSO Professor Jeff Hughes, who led the development of the PainChek app at Curtin University, brings technical smarts highly relevant to PainChek as a company with its plans for new applications of PainChek such as the pediatric application. The PainChek board, which includes Daffas, has a range of skills relevant to building a company at PainChek’s stage of development. Chairman John Murray, whose background is private equity and venture capital. Ross Harricks has a background in medical device development while Adam Davey brings public capital market skills.

Valuing PainChek

We value PainChek at at 8 cents per share base case and 16 cents per share optimistic case using a DCF approach.

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Pitt Street Research work is commissioned by the listed companies it covers, and Pitt Street Research has received or will receive payment for the preparation of such work. Please refer to the bottom of the research notes as published on Pitt Street Research’s web site for risks related to the companies being covered, as well our General Advice Warning, disclaimer and full disclosures. Also, please be aware that the investment opinion in this report is current as at the date of publication but that the circumstances of the company may change over time, which may in turn affect our investment opinion.



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