ALT 1411 - Company Update RB...2014/11/24 · Incentive ($1.0m), we estimate that ALT currently has cash on hand of $4.7m. At the current monthly cash burn rate of c$0.4m, this provides

Research Note

RESEARCH NOTE – PATERSONS SECURITIES LIMITED 1

All information and advice is confidential and for the private information of the person to whom it is provided and is provided without any responsibility

or liability on any account whatsoever on the part of this firm or any member or employee thereof.

ANALYTICA LIMITED

COMMENCES CONSUMER LAUNCH OF PERICOACH

ALT announced in November 2014 that it had commenced the consumer

launch of PeriCoach with the device publically available in Australia and

New Zealand through its website www.pericoach.com. The direct

consumer release follows over four years of development, testing and

consultation with specialists in urogynaecology, gynaecology and pelvic

physiotherapy. The Android platform is available immediately with the

iOS platform to follow, post approval from Apple Inc. ALT now plans to

establish new sales channels including direct-to-customer sales and

arrangements with distribution partners. It has recruited a sales team for

the NSW, Queensland, Victoria / Tasmania and WA / SA regions.

CE Mark approval - ALT announced in October 2014 that it had received

CE Mark clearance for PeriCoach. This allows the device to be marketed in

Europe with only minor procedural clearances and fees required for each

European country. The Company intends to pursue these additional

approvals based on commercial priorities.

Agreement with SportsMed – ALT also announced in October 2014

that it had signed a non-binding Memorandum of Understanding (MOU)

with SportsMed Global to pursue planning for the integration of PeriCoach

with SportsMed’s athlete information system. The MOU does not yet cover

specific financial transfers between parties as there are a number of

international jurisdictions which one or both parties have yet to do

detailed pricing studies. CEO Geoff Daly indicated that he expects the

partnership to enable ALT to bring forward its development pipeline, as

well as reduce costs in duplicated effort.

September Quarter 2014 update – The Company reported a cash

balance of $0.8m at 30 September 2014 with the quarterly cash outflow

of $1.1m comprising R&D ($0.5m), staff costs ($0.4m), marketing

expenses ($0.1m) and other operating working capital ($0.2m). Following

the receipt of funds from recent capital raisings ($3.8m) and an R&D Tax

Incentive ($1.0m), we estimate that ALT currently has cash on hand of

$4.7m. At the current monthly cash burn rate of c$0.4m, this provides

sufficient funding for the Company until at least the end of FY2015. By

this time ALT expects to be generating revenue from PeriCoach sales in

Australia, the US and Europe.

PeriCoach revenue model – The Company intends to sell PeriCoach on

a 12-month contract for $298 which includes the device, App and cloud

data storage. Based on our estimates, it needs to sell c20,000 PeriCoach

devices to cover its fixed cost base (or c1,700 devices per month). We

note that ALT’s fixed cost base has increased to c$4.2m pa (from c$1.5m

pa in prior years) now that it has entered full marketing mode.

Potential Catalysts

• Commencing global launch

• Encouraging demand indications

• Global mobile health uptake trend

• Potential corporate action

Key Risks

• General medical device operating risks include maintaining rights to

technology and patents; complex government health regulations; the

actions of direct and indirect competitors; market acceptance; loss of

key personnel; potential product liability; operational issues; and

additional capital requirements.

24 November 2014

RIC: ALT.AX BBG: ALT AU

Price: A$ 0.03

Shares o/s m 939.2

Free Float % 80.0

Market Cap. A$m 25.4

Net Cash A$m 4.7

52wk High/Low A$ 0.05/0.02

PeriCoach Indicative Timeline

4Q 2014 PeriCoach full launch in Australia

4Q 2014 FDA regulatory submission (US)

2Q 2015 PeriCoach approval in the US

Analyst: Ben Kakoschke

Phone: (+61 3) 9242 4181

Email: [email protected]

Disclosure:

Patersons Securities Ltd acted as Lead Manager to Share Placements that raised $1.2m and a Rights Issue that raised $2.6m at 3.0 cents per share for Analytica Ltd in October 2014. It also acted as Lead Manager to a Share Placement that raised $1.8m and Rights Issue that raised $1.2m at 2.4 cents per share for Analytica Ltd in May 2014; and Underwriter to a Share Purchase Plan that raised $1.8m at 1.7 cents per share for Analytica Ltd in September 2013. It was paid fees for these services. The preparation of this report was partially funded by the Company in accordance with the terms of an agreement with Patersons Securities Ltd. This report was prepared solely by Patersons and not by the Company.

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24 November 2014 Analytica Limited




COMPANY UPDATE

Commences Consumer Launch of PeriCoach

ALT announced in November 2014 that it had commenced the consumer launch of PeriCoach with the

device publically available in Australia and New Zealand through its website www.pericoach.com. The

release follows over four years of development, testing and consultation with specialists in

urogynaecology, gynaecology and pelvic physiotherapy. The Android platform is available immediately

with the iOS platform to follow, post approval from Apple Inc. The iOS platform is currently under

review by Apple Inc. and approval is required to make the PeriCoach App available for download (the

hardware is the same for both platforms). ALT now plans to establish new sales channels including

direct-to-customer sales and arrangements with distribution partners. It has recruited a sales team

for the NSW, Queensland, Victoria / Tasmania and WA / SA regions.

CE Mark Approval for PeriCoach

ALT announced in October 2014 that it had received CE Mark clearance for PeriCoach. This allows the

device to be marketed in Europe with only minor procedural clearances and fees required for each

European country. The Company intends to pursue these additional approvals based on commercial

priorities. We note that CE Mark certification is also recognised by many non-European medical device

regulatory jurisdictions, expediting marketing approvals in those countries.

Agreement with Sportsmed Global

ALT also announced in October 2014 that it had signed a non-binding Memorandum of Understanding

(MOU) with SportsMed Global to pursue planning for the integration of PeriCoach with SportsMed’s

system. The MOU does not yet cover specific financial transfers between parties as there are a

number of international jurisdictions which one or both parties have yet to do detailed pricing studies.

ALT indicated that a future product in the PeriCoach product development pipeline could involve the

combination of pelvic floor exercise data with other factors influencing the pelvic floor such as injury,

nutrition, medication, maternal history, as well as overall health and fitness. The Company expects a

partnership with SportsMed to accelerate the development of the PeriCoach cross-functional data

analysis system. CEO Geoff Daly indicated that the SportsMed software functionality is where ALT

aimed to be in 12 months and it would have taken ALT at least two years to develop SportsMed’s

international health and fitness market expertise. He expects the partnership to enable ALT to bring

forward its development pipeline, as well as reduce costs in duplicated effort.

Capital Raising

During October and November 2014, the Company raised $3.8m in equity through Share Placements

($1.2m) and a Rights Issue ($2.6m) priced at 3.0 cents per share. ALT indicated that the funds would

be used to fund marketing costs in connection with the launch of PeriCoach as well as general

working capital expenses. CEO Geoff Daly commented that the capital raising enables ALT to

accelerate sales and marketing opportunities and shareholders should expect to see and hear more

about the product in mainstream media over the coming months.

We note that, as previously flagged, ALT also received a $1.0m Research and Development Tax

Incentive relating to the financial year to 30 June 2014. The cash tax incentive is an initiative of the

Federal Government to assist small companies to invest in essential R&D to be internationally

competitive with new innovative products. ALT indicated that the funds will also be applied to the

advancement and roll-out of PeriCoach.

The Company reported a cash balance of $0.8m at 30 September 2014 with the quarterly cash

outflow of $1.1m comprising R&D ($0.5m), staff costs ($0.4m), marketing expenses ($0.1m) and

other operating working capital ($0.2m). Following the receipt of funds from recent capital raisings

($3.8m) and an R&D Tax Incentive ($1.0m), we estimate that ALT currently has cash on hand of

$4.7m. At the current monthly cash burn rate of c$0.4m, this provides sufficient funding for the

Company until at least the end of FY2015.

Clinical Trial

ALT announced that it has completed the design of its Clinical Trial for PeriCoach. Pending ethics

committee clearances, the study aims to use 100 participants at up to 10 sites in Australia, with

evaluations conducted at baseline, device training and implementation, 2 weeks, 4 weeks, 8 weeks,

12 weeks, 16 weeks, and 20 weeks post initial usage of PeriCoach. The study is not required for any

regulatory approvals and is being undertaken to provide clinicians and other partners with formal

evidence of the system’s efficacy.





ABOUT ANALYTICA LIMITED

Company Overview

Analytica Limited (ALT) is a developer and marketer of medical devices, with lead product PeriCoach

commencing a consumer product launch in November 2014. PeriCoach provides a mobile health

solution for the 1 in 3 women globally who suffer Stress Urinary Incontinence (SUI). The Company is

also commercialising its AutoStart Infusion System which is an FDA-approved burette with improved

safety and cost reduction features. A summary of ALT’s key products is illustrated in Figure 1.

PeriCoach comprises a consumer-level device, smartphone App, web portal and discreet case for

recharging and storage. The device works by evaluating muscle force in the pelvic floor muscles

(pubococcygeus and puborectalis) and transmitting the information to a smartphone. From there it

can be uploaded to a cloud-based portal, which enables remote access by clinicians as well as an

efficient way to deliver future software updates. Readings are typically taken in 2 minute sessions

comprising exercise and rest phases. This unique system enables clinicians, for the first time, to

remotely determine if a woman suffering SUI is correctly performing pelvic floor exercises, showing

improvement, or whether other possible causes need to be explored. ALT commenced a controlled

market release of PeriCoach in June 2014 and a direct consumer product launch in Australia and New

Zealand during November 2014. The Company is also planning to launch PeriCoach in the US and

Europe in 2015 once the required approvals have been received.

Initial electronics assembly and testing is conducted by a Melbourne electronics contract manufacturer

followed by shipping to a Sydney contract moulding manufacturer for final assembly and testing. Most

of the parts are standard electronic components with the exception of the batteries and proprietary

designed sensors which are sourced offshore and therefore require a longer ordering lead-time. The

unique force sensor arrangement is covered by patents in key global markets Australia, the US,

China, Brazil, Japan, India and Europe. Design Registration and Trademarks have also been obtained

in the same jurisdictions. We also note that ALT commenced development of PeriCoach in 2009 and

has spent c$3m on R&D and clinical trials to establish its proprietary database and App. The long

lead-times involved in generating sufficient clinical data and gaining regulatory approvals provides an

additional barrier to entry for potential competitors.

ALT intends to sell PeriCoach on a 12-month contract for $298 which includes the device, App and

cloud data storage. While the device cost has not been disclosed, we estimate it at c$90 per unit

given the lower initial production volumes and onshore assembly. We also note that the Company’s

fixed cost base has increased to c$4.2m pa (from c$1.5m pa in prior years) now that it has entered

full marketing mode. Under this assumption, ALT must sell c20,000 PeriCoach devices to cover its

fixed cost base or c1,700 devices per month.

Figure 1: Analytica’s key products

Source: Analytica and Patersons Securities





Market Opportunity

Global Incontinence Market

SUI is usually caused by trauma to the pelvic floor muscles during pregnancy, childbirth and

menopause. It affects 1 in 3 women worldwide which gives ALT a target market of 3m women in

Australia alone (1 in 3 of the 9m women in Australia aged over 15). The significant market

opportunity is also demonstrated by the size of the US incontinence pad market, which was valued at

$5.3bn in 2012 and is estimated to reach over $7.0bn by 2017.

ALT is also specifically targeting pre-pregnancy women aged between 20 - 40 years to assist in

strengthening muscles prior to childbirth, when pelvic floor damage is most likely to occur, and in

repairing muscles post childbirth. We note that the Australian Bureau of Statistics recorded 0.3m new

babies in 2012, which means around 0.3m mothers-to-be are being advised of the benefits of pelvic

floor exercises in preventing incontinence.

PeriCoach is a patient-driven solution targeting a market with a significant unmet need and a costly

load on the public system. It is a data-centric product with data aggregated from the first patient

onwards able to be used to mine clinical evidence for reimbursement, product enhancements and

clinical studies. An independent reimbursement report commissioned by ALT verified that US health

funds will reimburse for the costs of visits to a clinician for patients using the PeriCoach. In addition,

Australian Medicare recognises SUI as a chronic condition with reimbursement of clinician treatment

costs. We believe this reimbursement provides support for ALT’s clinician-centric marketing strategy.

Existing Monitoring Devices

A Kegel perineometer is an instrument for measuring the strength of voluntary contractions of the

pelvic floor muscles using an air pressure sensor. Figure 2 illustrates a personal perineometer (price

c$200) which is recommended by clinicians for home use to help women to monitor pelvic floor

exercises by measuring muscle strength. Figure 2 also illustrates a clinical perineometer (price

c$1,300) which enables clinicians to assess muscle strength and teach pelvic floor exercises with a

hand-held device. An electromyography perineometer can also be used to provide a clinical diagnosis

by measuring electrical activity in the pelvic floor muscles.

Figure 2: Personal and clinical perineometers Figure 3: Elvie mobile health device (development stage)

Source: cardiodesign.com.au Source: elvie.com

Performing exercises to strengthen pelvic floor muscles is acknowledged as the most effective

frontline treatment for SUI. The best results are achieved with a clinician’s training and assistance to

correctly perform the exercises on a regular basis. PeriCoach is the only mobile health incontinence

treatment system that enables clinicians to remotely monitor, manage and motivate their patients. It

is effectively a personal trainer for pelvic floor exercises which provides real-time feedback during

exercises and enables progress to be monitored by both the user and her clinician. It aims to promote

adherence to exercise programs with clinicians involved in all stages of the device’s development. We

also note that PeriCoach is the only device that directly reads the contraction muscle force (rather

than air pressure or electrical activity) to provide an accurate indication of strength.

We also note the recent emergence of Elvie (see Figure 3), a mobile health device which uses a

dynamometer to measure force torque and power of the pelvic floor muscles. It is being developed by

UK-based Chiaro which has the co-founders of Google Maps and Jawbone as early investors. Chiaro

aims to launch Elvie in March 2015 for £95 (c$175) and is currently taking preorders at £55 (c$100).

However, it is worth noting that the Elvie device does not communicate with clinicians and Chiaro has

not provided any updates on its regulatory progress.





Potential Catalysts

Commencing Global Launch

ALT commenced a controlled market release of its Android-compatible device and App in June 2014 to

a select group of healthcare professionals. The controlled release was designed to assist with process

optimisation and ALT indicated that a number of production efficiency, ordering and logistics

improvements had been identified. The first units were shipped to trained PeriCoach accredited pelvic

floor exercise clinics and specialists. This allowed patients to purchase a PeriCoach device and

subscription during a consultation with an accredited health professional using dedicated point-of-sale

hardware supplied by ALT. Controlled market release sales through the pericoach.com website also

initially required a referral code from an accredited pelvic floor specialist clinician.

ALT commenced the public launch of PeriCoach in Australia and New Zealand during November 2014.

The Company now plans to establish new sales channels including direct-to-customer sales and

arrangements with distribution partners and has recruited a sales team for the NSW, Queensland,

Victoria / Tasmania and WA / SA regions. ALT is planning to follow the consumer product launch in

Australia and New Zealand with launches in the US and Europe during 2015 after it has received the

necessary marketing approvals.

We also note that the production of PeriCoach is highly scalable with volumes able to be increased

without significant expense. The assembly and testing process is also not labour-intensive which

enables onshore production to be cost-effective after quality control and other overhead costs are

also taken into account. ALT indicated that it has a current production capacity of 2,400 units per

week with existing tooling designed for greater than 18 months at the maximum capacity. It also

indicated that the capacity can be doubled for c$50k under the existing design (c3 months to

implement) and massively increased for c$500k under a redesign (c6 months to implement).

Encouraging Demand Indications

ALT is adopting a top-down approach with its marketing strategy to drive endorsement from Key

Opinion Leaders, specialists and GPs. In anticipates that the involvement of clinicians during the

development phases will ensure the device’s relevance and path to market. In addition, the direct-to-

consumer model aims to better patient outcomes without imposing a cost on clinicians. The Company

indicated that recruiting clinicians is a key marketing focus and it had received strong support and

enthusiasm.

In February 2014, PeriCoach received encouraging feedback from a commissioned market research

phone survey with key findings illustrated in Figure 4. Notably, the survey found that up to 50% of

the women interviewed indicating that they would use the device if recommended by their clinician.

In March 2014, ALT exhibited PeriCoach at the Urological Society annual scientific meeting and

indicated that it was ‘overwhelmed’ by the positive reaction from clinicians. In April 2014, ALT

provided an update of PeriCoach marketing activity indicating that more than 75% of the c250 pelvic

healthcare professionals visiting its booth at recent incontinence conferences have asked to be kept

informed of product updates, release date and professional training programmes.

Figure 4: Market research phone survey (February 2014)

Source: Analytica

In September 2014, ALT also provided an update from the national Continence Foundation of

Australia meeting that was recently held. The state and national Continence Foundation of Australia

meetings have been a key focus in driving clinician awareness and recruiting. ALT indicated that the

PeriCoach team recruited over 75 clinicians and trained 23 during the national meeting, with the

marketing booth well attended and received by delegates.





Global Mobile Health Trend

Mobile Health (mHealth) allows for mass customisation of healthcare including individualised

monitoring, treatment plans and measurement of treatment response. It also helps make the patient

an active driver of their own care which helps to facilitates behavioural modification. Through the use

of proprietary sensors, software and algorithms, smartphones can effectively be turned into medical

devices to deliver specific diagnostic, monitoring or treatment benefits. The emerging mHealth

technology field will ultimately allow clinicians to securely access patient monitoring data, review

treatment progress and medication adherence and adjust patient action plans accordingly.

According to Deloitte’s 2012 TMT report, over 1bn smartphones are expected to be sold annually by

2015, providing unprecedented mobile access to information. mHealth has been a key beneficiary of

this trend with 247m people downloading mHealth apps in 2012, up from 124m in 2011 according to

Research2Guidance. According to a 2011 Pew Research Center report, global mHealth revenue is

projected to reach $23bn by 2017 with monitoring services for chronic diseases accounting for c65%

of $15bn. This is illustrated in Figure 5. In addition, Kalorama Info predicted in a 2012 report that the

US wireless monitoring market for chronic diseases will triple over the next 3 years to $22bn as

shown in Figure 6.

Figure 5: 2017 mHealth services revenue Figure 6: US wireless monitoring devices

Source: Pew Research Source: Kalorama Info

Key Risks

General Medical Device Operating Risks

• Obtaining, securing and maintaining rights to technology and patents are an integral part of

securing potential product value in the outcomes of medical device R&D and can lead to

patent disputes

• Complex government health regulations, which are subject to change, add uncertainty to

obtaining approval to market medical devices and this risk increasingly also applies to mobile

health applications that conform to certain device regulatory guidelines

• The actions of current competitors and new entrants is a risk that exists in the medical device

industry, and may include direct competitors with a comparable device or indirect

competitors such as incontinence pad manufacturers

• Market acceptance of medical devices is uncertain and can be impacted by difficulties in

marketing, acceptance by patients and clinicians, delays in marketing and the advancement

of new competitive products

• Development and sales objectives depend on the principal members of the development,

marketing and management teams and could be impacted by the loss of key personnel

• Potential product liability risks and warranty claims are inherent in the manufacturing,

marketing and use of medical devices (PeriCoach is expected to have a 2-year warranty)

• Any disruption in sourcing key raw materials or difficulties faced by its suppliers could

adversely impact operational performance

• Medical device development and commercialisation requires funding over a long period of

time, however, we note that ALT is now fully funded to launch PeriCoach and can increase

the production capacity without a significant expense if required





Company Structure

Capital Structure

Figure 7: Capital structure

Description Number (m)

Ordinary Fully Paid 815.4

Placements raising $1.2m at 3.0cps in October / November 2014 38.3

1 for 8 Rights Issue raising $2.6m at 3.0cps in October 2014 85.5

Total Ordinary Fully Paid 939.2

Options - exercise price 3.3cps; expiry 29 October 2018 44.5

Options - exercise price 4.4cps; expiry 12 February 2019 5.0

Options - exercise price 7.4cps; expiry 22 May 2019 6.4

Source: IRESS and Patersons Securities

ALT indicated that the $3.8m in capital raised during October and November 2014 would be used to

fund marketing costs in connection with the launch of PeriCoach, as well as general working capital

expenses. CEO Geoff Daly commented that the capital raising enables ALT to accelerate sales and

marketing opportunities and shareholders should expect to see and hear more about the product in

mainstream media over the coming months.

Key Shareholders

Figure 8: Key shareholders

Shareholder Number (m) Holding (%)

Dr Michael Monsour (Chairman) 127.7 13.7%

Source: Analytica

Prior to the capital raisings which took place in October 2014, Directors and Associates held 18.4% of

shares on issue and an estimated 70.0% of options.





Board of Directors

Dr Michael Monsour – Executive Chairman

Dr Monsour is a medical practitioner with business interests in Queensland medical centres. He

operates a medical management company that provides management support to medical

practitioners and is also one of Australia's leading providers of software systems for Occupational

Health and Safety and Medical Accounting.

Warren Brooks – Non-Executive Director

Mr Brooks was the Managing Director and Founder of boutique Financial Advisory firm Clime AFM

which was a wholly owned subsidiary of ASX-listed Clime Investment Management. He founded

Australian Financial Management (Investment) in 1998 and sold the business to Clime Investment

Management Limited in 2006. Mr Brooks previously had 28 years’ experience working in Investment

Banking and Stockbroking.

Ross Mangelsdorf – Non-Executive Director

Mr Mangelsdorf is a Chartered Accountant with 27 years’ experience. He works with SME production,

manufacturing and retail firms assisting them with business, taxation and management services,

taking on the role of Chief Financial Officer for a number of firms. Mr Mangelsdorf is a director of a

Queensland-based land development company and a chartered accounting firm.

Carl Stubbings – Non-Executive Director

Mr Stubbings’ experience in the sector spans over 30 years with a focus on medical diagnostics as

well as biotechnology. He has specialised in sales with a particular emphasis on marketing across

North America, Latin America, Asia Pacific and Europe as well as roles covering manufacturing and

administration.

Management

Geoff Daly – Chief Executive Officer

Mr Daly is a Chartered Biomedical and Mechanical Engineer with 22 years of professional engineering

experience, the last 17 in the medical device industry. He has an honours degree in Mechanical

Engineering from the University of Queensland and an Executive MBA from the Australian Graduate

School of Management in Sydney. Mr Daly has expertise in design processes, quality systems, and

business system improvement, and is trained in the use of Six Sigma tools. He has extensive hands-

on design experience of product development in FDA QSR and ISO 13485 environments in some of

Australia's largest and smallest medical device companies.

Bryan Dulhunty – Company Secretary

Mr Dulhunty is the founder of CoSA Life Sciences, a specialist Life Science company established for 15

years providing Company Secretarial, CFO, general management and strategic advice to life science

companies. He has extensive experience in the financial control of Life Science companies previously

holding positions of Executive Chairman, Managing Director and CFO roles of various listed life

sciences companies.





Documents

ALT 1411 - Company Update RB...2014/11/24 · Incentive ($1.0m), we estimate that ALT currently has cash on hand of $4.7m. At the current monthly cash burn rate of c$0.4m, this provides