Meeting Notes

Novita Healthcare – On the ground floor in the emerging market for digital therapeutics; the next wave in healthcare

April 18, 2019

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Novita Healthcare – On the ground floor in the emerging market for digital therapeutics; the next wave in healthcare

Novita Healthcare launched its digital therapy application focussed on treating childhood attention in mid-2018 and over the past year has been optimising its business model and market entry pathways and is now focussed on building commercial traction and scaling up the business. I recently caught up with CEO, Glenn Smith.

COMPANY DATA

Date of ReportASXPricePrice TargetAnalyst Recommendation
18/04/19NHL$0.022N/AN/A
Date of Report20/02/19ASXST1
Price$0.058Price TargetN/A
Analyst RecommendationN/A
Sector: Technology52-Week Range: $0.0046 - 0.048
Industry: Health Information ServicesMarket Cap: $9.88 million

Source: Commsec

What do you do?

Novita is a new class of healthcare business focused on using digital technology to undertake patient screening and to deliver patient therapy. Novita’s first product is Tali Train which is a world leading digital tool to strengthen core underlying attention in early childhood. Tali Train is primarily targeted at children under 8 with Autism and ADHD.

The underlying research for the technology was conducted by developed by the Neuroscience department at Monash University and has been developed into a commercial product by Novita. Its efficacy has been demonstrated through a number of randomised clinical trials and Tali Train has received Class 1 Medical Device classification with the Australian TGA (Therapeutics Good Administration) and as a Class 2 Medical Device cleared for marketing by the FDA (Food and Drug Administration) in the USA.

Tali Train is a structured training program delivered to children through a series of games accessed on a tablet or smartphone. The program is undertaken across 25, 20 minutes sessions over 5 weeks. Clinical trials and in-market experience have proven that the program delivers significant improvements in attention which are sustained into the long term.

What is the business case?

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.

What are the growth opportunities?

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.

Financial overview

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.

What do I think?

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.


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This document is provided by Gordon Capital Pty Ltd (Gordon Capital) and InterPrac Financial Planning Pty Ltd (InterPrac). The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts.


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