Jim Joyce
GIVEN THE continuing exodus of companies from the Dublin Stock Exchange, either as a result of being taken out or migrating their prime quotation to London, it is refreshing to see HealthBeacon floating on Dublin’s Euronext Growth Market and raising a reasonable €25m. The arrival of a medtech outfit will generate interest, although the jury is out of the scale of profits it can hope to generate while some of the figures provided ahead of the launch are confusing or simply worrying.
The float has been handled by Goodbodys, which is acting as sole global book runner, broker and nomad – the first big gig since AIB took control. On floating last month, HealthBeacon was capitalised at circa €100m, big enough to attract most small and medium-sized investors. The Irish company is focused on becoming a dominant international player in its niche area and already has a reasonably wide shareholder base, with some interesting players on board like Cantor Fitzgerald (12.2%), Oyster Capital (11.1%), Canaccord Genuity (10.7%), Elkstone (7.3%), Link CTI (3.3%), and Quorndon Capital (4.0%).
The two founders are therefore minority shareholders, with CEO Jim Joyce holding 10.7% and his partner Kieran Daly, chief technical officer, holding a mere 2.2%. Joyce and Daly came to the party with a lot of experience The former was general manager in Ireland for Schering-Plough (now Merck & Co), while Daly previously led the Shimmer Research team and chaired BioBusiness in Ireland.
The basic plan was based on the World Health Organisation’s information that 50% of patients fail to adhere to a prescribed long-term medication regimen such as a home self-injection treatment like insulin for diabetes. The WHO estimates that 25% of all global hospitalisations are due to non-adherence or poor adherence to prescribed medication schedules.
The two boys identified prescribed home self-injected prescriptions as an area which they could target. Their idea was to link a disposal bin into which the injection syringe is dropped to sensors that recognise this event.
This is the first phase, which at least allows an automatic recognition of whether the treatment is being adhered to so as to complete the cycle; Joyce and Daly have developed a platform that alerts or sends a notification to patients and other appropriate parties – like their doctor, consultant, carer or pharmacist – if the schedule is not adhered to.
Apparently, HealthBeacon’s research showing a 19% improvement in therapy and persistence by patients, “which improves clinical outcome and significantly improves efficiency in health systems” has been accepted by something called the National Association of Specialty Pharmacy.
The boys themselves claim their injection disposal bins reminder structure increases “the likelihood of patients taking the drug at home by approximately 24%-38%”. Insofar as this claim is accurate, you would imagine that HealthBeacon would only have one figure for improved adherence rather than such a wide range. This is difficult to understand but it could be that this range applies to different diseases and their specific adherence improvement ratio.
Obviously there were a lot of hurdles to be cleared, even when the product concept became a reality. This included approval from the US Food and Drugs Administration (FDA), which was obtained in 2018 as a result of significant and ongoing investment, with losses in 2018 and 2019 combined coming to €5m. Losses increased in 2020 to top €3.4m and, in the six months to June 2021, another €2.5m.
One of the accounting tactics used by product development businesses like this (as investors saw to their cost in Datalex) is to capitalise a lot of this cost. If you simply expense all R&D work in the year in which it was incurred, then HealthBeacon’s combined loss for 2018 and 2019 rises from €5m to €6m and in 2020 from €3.4m to just on €4m.
CONCERN
Ironically, in the first half of last year to June 2021, stripping out this capitalising impact only increased losses from €2.5m to €2.6m, so the impact here was not so notable but the fact that the losses accelerated in the first half of last year is, nevertheless, a matter of concern.
The base information document associated with the company’s float claims, “As at October 31, 2021, HealthBeacon has delivered c 13,500 connected devices”. In the more detailed breakdown of this roll-out, however, the actual number of units “deployed” as of the end of December 2018 was 5,495, and as of December 2020 the figure was actually 20% lower at 4,585. This unexpected fall-off is not explained.
The document goes on to forecast that by the end of December last year, it would have 10,200 units deployed – more than 3,000 less than the company claims in its overview as having been deployed.
HealthBeacon claims to have a robust revenue model whereby the charges are made directly to patients or, more commonly, through their insurance company and/or healthcare provider. The company claims an average targeted income of €25 per patient per month, so given that HealthBeacon had an average of 5,000 units deployed in 2020, it should have received an income of about €1.5m in 2020. The figure was actually €1.2m, which is not too far off.
Given, however, its forecast to increase its 4,585 deployed units in December 2020 to 10,200 in December 2021, even if it didn’t deploy any extra units in the first six months of last year (highly unlikely) this should have given the firm an income of an absolute minimum of €1.38m for the six months to June 2021. Instead, it only reported an income of €0.54m, a lot less than half the expected minimum and, more likely, much further off the mark than this. Again, this is not explained.
Robert Garber
NOT MUCH GRAVY
If, however you go with the flow, and with Hamilton Beach now on board as a distributor, the Irish company is forecasting a mid-point deployed number of units as of the end of December 2022 of 47,500 units. This would increase its revenue hugely to €14m if HealthBeacon’s “near-term targets” are achieved, which presumably means taking them up to €30m by the start of 2024. In these scenarios, the company is on target to be hugely profitable, although the figures are gross revenue ones before taking into account commissions, particularly for its strategic US partner, Hamilton Beach, and also the direct costs associated with administration and development.
Even if these gross revenues are achieved by 2024, HealthBeacon would have to achieve a 33% trading margin on this forecast to earn circa €10m, which will be necessary to justify the current capitalised value of €100m, so there may not be too much gravy in the pot.
At the IPO share price float of €5.85, HealthBeacon was capitalised at just on €100m. The company is in its eighth year of development and is still making significant losses but is now at the take-off stage. It has the only product of its precise kind on the market and, sensibly enough, has got a number of heavyweights on board, like chairman Rob Carber, an American with 30 years’ experience in the healthcare venture capital business.
The finance function is in the safe hands of Laurence Flavin, who was previously CFO of Finance Ireland, while another board member is the American exec Rebecca Shanahan of the big Blue Sea Capital venture fund. A familiar face among the directors is former tánaiste Mary Harney, who has developed quite the track record in snagging corporate gigs in the private sector.
HealthBeacon could be looking at explosive growth for its HB system, which essentially is a low tech medical device in the form of an injectable needle recycling bin that happens to have internet connectivity to allow remote monitoring. Although the company boasts of patent protection for its core technology, the bottom line is that this is basic technology.
While it would be possible to get a patent for HealthBeacon’s particular bin design and particular sensor and internet connectivity, it would not be possible to take out patent protection that would prevent somebody else designing an alternative disposal bin with a different form of sensors and connectivity. Any reasonably tech-savvy company could back-engineer a different product to go after HealthBeacon’s market without much impediment.
That said, the Irish company does have ‘first mover’, advantage which can prove very profitable, even without unique technology – as evidenced by the likes of Tesla and Amazon (albeit on a rather different scale). HealthBeacon could possibly dominate this sector and pay off for shareholders in the medium term.
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