Globally 136 million children, including about 400,000 in Australia, have clinical attention difficulties which may manifest in long term learning, development and social inclusion issues. The annual cost in Australia of childhood attention difficulties is estimated at $24 billion. Medication is the most common treatment option where long term impacts are uncertain and where there may be side effects. Tali Train is a compelling complimentary program and a potential alternative. It is a drug free, low impact digital solution which can be tailored to the needs of each child and is relatively low cost (comparable in clinic regimes can run into the thousands of dollars as opposed to Tali’s few hundred dollars).

It is a unique proposition where there is a clear unmet need. The only other company that Novita is aware of exploring similar fields is US based Akili which has a number of neuroscience research programs underway including potential digital treatments for ADHD and Autism spectrum although it is believed that Akili is looking at the application for adolescent children. Interestingly, it raised US$68 million in August 2018 in a Series C funding round.

The challenge for Novita is to build traction and commercial scale and the immediate priority is to build momentum and market penetration in Australia. The routes to market are via schools where some 200 are delivering Tali Train to students, through clinicians including paediatric specialists and child psychologists, and direct to parents.  As Tali Train is TGA registered, it is available through various insurance schemes including the NDIS. Over 1,000 children have undertaken the program over the past 9 months and momentum is building.

Novita has multiple growth opportunities including product extensions, international market development and complimentary digital therapy products.

Tali Detect is currently in development. It will act as a screening tool that measures performance and will provide comprehensive reporting on progress. Further extensions and program management tools for schools and clinicians are also in development.

Once a strong domestic position has been established, international opportunities are likely to be explored. Although routes to market entry are yet to be developed, they are likely to include local distribution partners. Clinical trials will need to be undertaken in the US to gain a higher level of FDA registration which will give Tali Train access to the insurance system which is necessary to build any sort of market presence.

As Novita is in the early stage of commercialising Tali Train, operating revenues are modest and it is spending cash to build momentum. The main revenue source has been research grants. The cash burn in the December 2018 quarter was $375K suggesting an annual rate between $1.5 million and $2.0 million. This will largely depend on the growth in revenues and the marketing and business development spend. As at 31 December 2018, the company had cash reserves of $1.7 million. The company’s balance sheet is typical of early stage technology companies with the asset base dominated by intangibles ($1.7 million, 35% of total assets) and cash reserves. In addition, the company has a $1.0 million investment which arose from the sale of a previous business.

Digital therapeutics is the next wave in healthcare. Numerous consumer health related digital apps have been available for some time although their value is not very clear. Digital therapeutics is another class altogether, underpinned by solid research supported by pharmaceutical grade clinical trials with a view to seeking FDA and other regulatory approval. From a relatively modest base of about US$1 billion, the market has been forecast to grow to about US$9 billion by 2025. This looks like being an exciting market which will probably start to reach maturity and scale in the second half of the next decade and Novita is in on the ground floor and has first mover advantage in treating early childhood attention. This is a good place to be.

The market potential is enormous, but I like that the company is focussing on building a strong domestic position before it launches internationally. Too often small early stage companies launch to market with a global strategy only to fail due to lack of resources and poor market knowledge. By focussing on the local market, Novita will acquire important market learnings and user experience as well as the opportunity to fine tune its business models before it heads off internationally.

The company has taken the right steps to support its commercialisation strategies having built a local development team and put in place sales, marketing and management infrastructure to support the roll-out of Tali Train. Further, the development of the screening tool, Tali Detect will establish an integrated patient management pathway which has the potential to become a powerful sales driver and conduit for clinicians and schools into Tali Train.

The challenge is now in execution and building momentum. This primary constraint will be to manage its funding. Cash resources look to be adequate for the next six months but further funding will be required for some time before it becomes cash flow positive, especially if the company wishes to accelerate its sales and marketing program.