Big Backers Boost Adherium's eHealth Prospects
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Adherium is rolling out a combined medical device/eHealth platform called Smartinhaler, which measures the effectiveness of inhaled prescription medications, and uses wireless technology to provide real-time data collection and reporting.
It isn’t often that a company that declared just a year ago in its initial public offering (IPO) prospectus that it did not expect to be profitable in the immediate future would attract the attention of global funds management giant Fidelity, but that is the case with Adherium Limited (ADR).
This month Fidelity tipped in $8 million to buy 16 million Adherium shares in a placement at 50 cents, taking its holding in the stock to 10 per cent. While the investment is little more than a cash rounding error for Fidelity – which manages US$272 billion ($361 billion) around the world – the salient point is the vote of confidence from such a heavyweight investor in an unprofitable company capitalised at just $74 million.
Adherium is a New Zealand biotech (now based in Melbourne) that is rolling out a combined medical device/eHealth platform called Smartinhaler, which measures the effectiveness of inhaled prescription medications, and uses wireless technology to provide real-time data collection and reporting from the medication sensors so that medication effectiveness and adherence can be monitored remotely by the patient’s physician or clinician. The Smartinhaler platform comprises a range of medical devices, mobile and desktop apps and cloud-based management software. The device provides alerts to improve medication adherence, and thus health outcomes for patients.
The medical industry uses the term “sub-optimal medication adherence” to describe the situation when patients do not take the correct amount of their prescribed medication. In the clinical sense, sub-optimal medication adherence can lead to compromised treatment effectiveness, and thus diminished quality of life for patients; in the economics of the health industry, this can lead to unrealised drug sales and avoidable costs. This is a global problem – and it is Adherium’s target market.
In the US alone, it is estimated that poor medication adherence for asthma and chronic obstructive pulmonary disease (COPD) is common, with only about 50 per cent–55 per cent of patients taking their medication as prescribed. The cost of sub-optimal medicine use in the US is estimated at about US$213 billion ($283 billion) annually, or 8 per cent of annual healthcare expenditure. Globally it is estimated to cost more than US$500 billion ($664 billion) a year. These costs and associated expenditure could be reduced if patients were to take their medications as prescribed – and more importantly, more patients would live longer and with better quality of life.
In Australia, Adherium estimates that only 43 per of asthmatics take their medication as prescribed all of the time, and only 11 per cent use prescribed preventative medication on a daily basis.
Adherium’s technology platform addresses this problem, by collecting the data from the patient through medication sensors, integrating it into useable form through its proprietary software, storing it in its cloud-based servers, and allowing access to it by physicians and clinicians, so they can remotely monitor and manage patients’ adherence to the medication, and intervene with alerts to improve this adherence – and thus improve patient outcomes. With its proven technology, Adherium is well placed to capitalise on this growing market need.
Fidelity is not the only big name that is backing Adherium. A month before the company floated on the Australian Securities Exchange (ASX), in July 2015, pharmaceutical big-hitter AstraZeneca made a US$3 million cornerstone investment in the company and announced a long-term commercialisation agreement with it. Under the agreement AstraZeneca will incorporate Adherium products into global patient support programs for patients with and asthma. Initially, the devices will be used to monitor patients’ therapy adherence and help guide them to improve, but in the future Adherium’s product range might be used to assess patients’ personal risk factors and monitor their conditions.
Last month, Adherium announced that AstraZeneca will use the Smartinhaler platform in a new US clinical study that aims to improve medication adherence in patients with COPD. The 12-month study will be conducted at seven US healthcare centres by enrolling nearly 400 COPD patients, starting in August.
Adherium was established in 2001 as Nexus6 Limited, when Garth Sutherland, an experienced engineer who suffers from chronic asthma, set about finding a technology based solution that would enable him to manage his own asthma much more effectively. Sutherland is now the chief executive officer (CEO) of Adherium.
The company’s 35 million IPO in August 2015 was over-subscribed – in fact, it was twice subscribed. The stock surged to 69 cents, for a 38 per cent premium, but had subsided back to issue price by February, where it has largely remained: ADR currently trades at 49.5 cents.
The company was quite open in its prospectus that it was not yet profitable: it said it “does not envisage in the immediate future that it would generate sufficient revenue to be profitable or be in a position to declare any dividends.” That does not look like changing quickly: for the most recent quarter, that ended 31 March 2016, Adherium reported negative cash flow of $1.76 million. But the company is well cashed-up, reporting cash in the bank at the end of the March quarter of $28.9 million – and that was before the Fidelity placement.
The company reported receipts from customers in the quarter of $140,000, making $588,000 for the year to date – but these are dwarfed by its costs. So this is an investment that can’t be priced on normal metrics. What Adherium investors have going for them is the size of the potential market that the company has, its validated market-leading technology – and what Fidelity and AstraZeneca see in it, from an investment and commercialisation perspective respectively. Adherium has received market clearance from the US Food & Drug Administration (FDA) and CE Mark (Europe), so it’s all systems go for sale into international markets. All things considered, this is a high-potential Antipodean biotech that looks worth a punt.
James was founding editor of Shares magazine, and oversaw one of the most successful magazine launches in Australia. He has also written for BRW, Personal Investor, The Age and Management Today, and was subsequently personal investment editor at The Australian and editor of financial website, investorweb.com.au