Wazzup ResApp?

This post represents the first in a series of THREE posts that I have written at the request of readers. After my slightly sarcastic review of iSonea where I sort of lumped iSonea and ResApp together in to the “turd” category, but without any real elaboration, I had several requests for clarification. Incidentally, I appreciate it when people do that and I think it’s fair. Also, if I ever make a statement that you think is unsubstantiated, let me know and I will write a follow-up. Sometimes I do make general statements where I have done some background reading but haven’t made a specific citation, and I am happy to clarify.

So… ResApp (ASX : RAP). To be honest, part of the reason why I glossed over this company was because I don’t think there is anything much of excitement to say about it. I like the ASX ticker code, and that’s about it. Sure it’s a neat idea, I am not knocking the basic concept – indeed that’s part of the appeal of this baby company to its shareholders. It’s not very hard to understand what ResApp does. There is also no doubt that the smart phone / “phablet” is going to become a concentration point for all kinds of healthcare service provision, diagnostics, wearables, etc. A quick stroll though your app store of choice shows just how quickly the health application market is taking off.

I guess there are four main reasons why I don’t think this company is a viable prospect :

  1. The technology may or may not actually work. I don’t think the company has moved the technology along very far from its academic origins at the University of Queensland and any publication or validation I have read referred to incredibly small data sets and very limited clinical repertoires. I have had some considerable experience in taking machine learning technologies to the market (including through FDA channels) and I am skeptical that ResApp has done enough to even ascertain whether the technology has the potential for clinical validation. For example, if you were going to validate that the application could detect pediatric pneumonia, you’d need to do a very significant study and compare with chest X-ray infiltrates and microbiology. Not only is this a tough study to design and execute, but it is also relatively expensive and there is huge variability in morphologic/infiltrate radiographic characteristics, which has to intrinsically impact respiratory acoustics = large patient numbers. I honestly view it as more of an “idea” than a technologically robust implementation. Moreover, automated analysis of respiratory acoustics is something that has been done for close to two decades and there are a hell of a lot of ways to tackle the problem. I see nothing in ResApp’s technology strategy that would block a potential competitor.
  2. I don’t actually think ResApp is doing much development. If you look at the last 4C filing, this company basically pays their board more money than they spend on R&D/product development. It may be an anomalous “snapshot” given the proximity to some modest financing, but if you look at the use of proceeds statement from their placement, why would you invest in this company? It’s going to spend more money on corporate and administration costs than product development. It’s proposing to sell a consumer health product, but it is going to spend $100,000 on marketing. Certainly with the cash the company is proposing to spend on “clinical trials”, we are probably not talking about X-rays, microbiology, patient follow-up or anything run through a CRO. Basically, this company raised some cash that is hardly going to move the needle on a product, and is – on the whole – wastefully deployed.
  3. There is no doubt that we have difficulty with early-stage funding in Australia in healthcare/life sciences. But the same cannot be said for IT and applications. If the ResApp technology really had some potential, it would have been far more cost-effective to have developed it as a private eHealth company. I know plenty of investors that would have taken a look at this and if you deduct the offering expenses and corporate/admin costs (mostly associated with being a public company) all you are really talking about is a $2-2.5m raise. Peanuts. You may view this comment as a bit petty, but if there was really something “there”, it didn’t need to be backed into Narhex for this level of capitalisation. I don’t have fundamentally anything against re-purposing a shell, that’s all fine and dandy if the new asset is good, but when I look at the use of proceeds, the real extent of development (noting that there is no realistic cost provision for quality/regulatory, FDA advisory, etc.), etc. and combine this with the “usual suspects” behind the deal, I don’t think it’s more than just a story.
  4. From a product development and regulatory vantage, the only way that there is going to be any real value capture in this technology is if it becomes an “aid to diagnosis”. That’s a pretty high regulatory bar for an automated diagnostic product in a consumer technology platform. Not only is ResApp not even remotely financed to deliver on that level of product development and validation, but its not even clear that if it did that it would change patient care anyhow. So it either stays as a “novelty” app that someone pays a few bucks for (noting that millions of people have respiratory conditions, so this could turn into rather a large number) or it … ah… stays as a novelty app that someone pays a few bucks for that has an FDA marketing authorisation. That’s the problem with “apps”. There is also plenty of competition out there from other apps that claim to do many of the same things, or at least provide “benchmarks” for diagnosing different conditions – many of them for free. It could be that ResApp plans to make money out of managing the physician referral process but that business model hasn’t really yielded much so far by way of actual successes either.

I personally don’t believe that a machine learning algorithm can do extremely detailed “blanket” analysis of respiratory sounds. All the studies that have been done to date are for a specific patient class against “normal”. That’s a pretty low bar test of efficacy. But let’s say they can – it doesn’t change the fact that diagnosis of respiratory conditions is far more than just advanced acoustic analysis of coughs. There are plenty of other clinical symptoms that are required to make an accurate diagnosis, precisely because sounds don’t tell the whole story. Many asthmatics wheeze, but not all wheezers are asthmatics. But what I really don’t like is the articulated “vision” that ResApp will move the needle in the “developing world”. That’s mostly rubbish – and nothing more than a vague hand-waving justification for throwing some big numbers out there. When diagnosing respiratory conditions in the developing world, the most important clinical information is microbiology, and that isn’t going to get delivered by this particular app company.

Tomorrow I will be posting on “Paradigm Pharmaceuticals” (hint : no paradigm shift) and on Thursday, NanoSonics.

21 thoughts on “Wazzup ResApp?

  1. Thanks Chris. Here’s my layman’s response. Your key points relate to lack of development and funding. The company says clinical tests are being done in two WA hospitals, using a nurse and a recording device for $60,000. The hospitals will be doing the expensive tests in the normal course of treatment, so no need for ResApp to pay. So sample size is being addressed. The data then goes back to Uni of Qld who refine the algorithm.

    The path to FDA approval has been mapped already and is being followed. Apparently it is a new kind of application path recognising telehealth as a new healthcare delivery channel, and the application process costs just $250,000. So there is big disagreement between you and ResApp over what needs to be done for FDA approval.

    The structure of these backdoor listings into shells is inefficient, I agree with you. Apparently venture capital is even more greedy, so maybe the alternatives with these kinds of early stage high risk plays are not better. I don’t know.

    The commercialisation options are broad and the company is vague in this area. You mention use as an “aid to diagnosis” and I think this is canvassed. The company is not suggesting it can diagnose everything, just a subset of respiratory conditions.

    I wasn’t present in any investor briefings, but heard some of this second hand. Just my thoughts and apologies in advance for possible inaccuracies.

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    • I think that your comments seem very reasonable and not “layman” at all. The new FDA guidance on telehealth applications are completely ancilliary to the diagnostic medicine pathway. It’s not so much about the cost of the regulatory filing per se, but rather the cost of preparing the materials for submission.

      As for the “refinement of the algorithm” piece, that doesn’t fly. The purpose of those clinical studies are to validate the algorithm that will actually be in the filing. That doesn’t mean that the algorithms can’t be improved on the basis of ongoing clinical data (that obviously makes sense) but any changes to the algorithm would need to be revalidated with a new clinical study and a performance/risk assessment performed as part of the new product release. Remember, in this scenario, the FDA doesn’t care about just improving “diagnostic hit rate”, it also cares about false positives/negatives and in the impact on patient care.

      Of course, if as I suspect, there is no actual impact on patient care, then maybe the FDA wont care either. If it is not an “aid to diagnosis” but just an ancilliary piece of information that isn’t intended to change patient care, then the FDA approval required is much simpler, but then the value creation is questionable.

      Thanks for reading.

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  2. *Sigh*…Apps. Is that what the LifeScience sector in Aus has become?

    To add to the list of question marks you have raised over this company, I would suggest that a person who is neither a medic nor an academic, yet proffer the Dr. tag in their professional (and no doubt personal) lives are the highest form of Self-Aggrandising Tool (in caps!).

    By its very nature, this industry is full of PhD’s, and that’s a good thing. However, an individual who has a business role and happens to have a PhD, gains little or no clout from touting their title in order to convey some form of credibility or capability.

    In fact, the only cred they might garner will be from the uninformed and easily led who have no awareness that without a PhD, nobody in science cares a jot for your thoughts!

    Perhaps that’s the fundamental philosophy behind ResApp? Flog it hard to the mug retail punter who might not notice their CEO is not quite the hardened business builder, boardroom warrior, nor at the leading edge of acoustic engineering, rather is one of a couple dozen commercialisation consultants Uniquest use to find sources of capital.

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    • Hi DJ,

      I don’t think it is really all that bad, I think it’s more important to weed out a few rotten tomatoes before the whole bag gets rotten too. Some people think I am all dreary about the ASX biosciences scene – I am not at all. What irritates me is that it can be – and should be – so much better.

      The “Dr.” thing is sort of an amusing point to me. If someone has done a Ph.D then I think they are definitely entitled to call themselves “doctor”. For me the “wanker” test is whether it is also “Dr” on one’s credit card or frequent flyer card. In the case of the medical space, the Dr. title carries with it some degree of credibility, not so much for shareholders but more for trying to establish some sort of (at least attempted) credibility with our medical brethren. Alas, however, my perspective on this matter is tainted because I am also a “lowly” Ph.D.

      … it should be noted, however, that a Ph.D is a the “true” Doctor (Doctor of Philosophy). A medical degree is a vocational degree and, thus, not a doctoral degree. But we don’t over-emphasise this fact to our esteemed medical colleagues because they are still, on the whole, smarter than us, make more money than us and can afford better teeth whitening products. It’s really hard to talk down to someone whose teeth look really good. Have you tried?

      However, when it comes to the ResApp “philosophy”, I think you give the company far too much credit. I don’t think there is a philosophy, except to park another asset with a nice story into yet another failed company. A little pizzazz, a dose of Aston magic, and Bob’s-your-uncle, another shitty ASX listed bioscience company is born with enough shekels in the tin to gravytrain the board of directors for a couple of years.

      Liked by 1 person

    • Dick, heads-up buddy, I think your judgement on this one is being clouded because of who the CEO is. I really don’t think the mug retail punter would even know who the CEO is, let alone care whether or not they have the title of Dr.

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      • Meh, maybe. I don’t begrudge the man the job just cos he’s never held one of a similar remit before, per se. And I do believe the retail punters buy into the ring of confidence from a spanky title.

        The Dr. thing is a pet hate though.

        Of course, LT it right. PhD’s are perfectly entitled to pull it out as they see fit. Just as JP’s are entitled to put ‘JP’ on their business cards (SAT’s).

        I simply question what people are hoping to achieve by doing so. My belief is that it is either inherent superiority and/or window dressing, neither of which sit easily with me.

        In my line of business I meet PhD’s in the commercial world on a daily basis. The ones who refer to themselves as ‘Dr.’ are usually the least inspiring.

        beep beep

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  3. Chris you are moderating this thread. I’m all for robust debate and fruity language. But IMO you shouldn’t allow posts that don’t add anything new and factual to the debate, and instead use emotive, ad hominem arguments. This is degenerating into a HotCopper thread. Please don’t let the riff raff in!

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    • Ok. Chastisement and reader preference duly noted. You are probably right.

      Thanks for at least attempting to holding me to a higher standard. Of course, with that principle in mind, perhaps I shouldn’t allow people to post under the name of “Dick Johnson” or “Road Runner” or even “Umizoomi” either? It’s always the challenge of allowing anonymous posting, isn’t it.

      To my feeble mind, Umizoomi as an alias has a slightly Japanese tinge to it, so I am sending you a sad, sheepish looking pokemon face. Sad Pokemon

      Liked by 1 person

  4. I won’t use any puns this time to avoid this blog degenerating into a HotCopper thread 🙂
    Let me try and paint a clearer picture of this story……….

    Whoah Road Runner… so instead of writing a 2 page missive on the potential of this company – which I will not allow into the thread because it was nothing more than an unsubstantiated regurgitation of company propaganda – I invite you to write a guest post. You tell readers why ResApp is a company worth investing in. If it’s not completely stupid, I will post it as a counterweight to my fairly scathing assessment.

    There are three conditions:

    1) It is not anonymous. I watched a hell of a lot of hours of the Road Runner as a kid and I am pretty damned sure that the extent of his of communication repertoire was “meep meep”. By induction, that means you are not Accelleratti Incredibus. You gotta put a name to it (and a real one, not like Dick Johnson, which considering that we all know that particular individual’s identity – and we love him – is a bit of self aggrandisement since we know most Kiwis are not well-endowed in the tackle department).

    2) You can’t just give me a blurb of HotCopper fecal matter. I want references to company statements, ASX filings, links to FDA policy, papers, etc. For example when you tell me that the company is more than adequately financed to run a clinical trial of the type required for what is realistically going to be a PMA, you need to substantiate it. Don’t tell me they are going to run it off the back off clinical practice at some clinic in WA. Show that you at least understand that just setting up a 21 CFR 11-compliant eCRF to manage a study like that is at least $400k.

    3) I don’t want to hear “IMO”, I want you to responsibly explain to other retail investors why this is a good stock. If it suits you to do so, you can poke me in the eye. I don’t care.

    Otherwise, I can’t post it on this forum. I do occasionally let the standard drop and I also partial to the odd bit of fruity language as noted by a couple of posters (language, incidentally, that I consider to be part of the vibrancy of English), but this is not HC.

    I appreciate your comments and engagement, Road Runner. If that’s your real name…

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  5. Hey Chris

    I should have indicated that my post was meant as a sarcastic piece based on detail deficient company announcements and typical HC posts. Unfortunately sarcasm doesn’t always come across well in writing 🙂

    My main concern with ResApp is that until a pre-submission meeting is conducted with the FDA I don’t know how they can be confident that their budget for data deidentification, verification and security processes, as well as the linking of data to written records will be adequate for FDA submission purposes. Maybe Umizoomi can provide some more information regarding the new application process that costs just $250,000?

    Now to provide fair balance on the question of costs, you did make a comment that due to the budgeted amount the “clinical trials” would probably not involve X-rays, microbiology etc. However, the company has stated that for their trials they are only recording coughs. Patients would still be receiving normal diagnosis from the hospitals which would include chest X-ray and/or microbiology depending on the clinical diagnostic pathway and disease indication. If the company is only comparing cough data to the full clinical diagnosis performed by clinical staff in the hospitals, wouldn’t this significantly reduce costs in this particular area?

    Meep Meep

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    • I stand corrected RR. Your sarcasm is so convincing, you fooled me.

      You should become a sell-side analyst.

      Meep meep pfllllllllll (that tongue zerbert sound RR makes when he has particularly spectacularly outwitted W.E. Coyote…)

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  6. Interesting analysis. Now its 2016 I believe RAP has done a fair bit in a short period of time (including heavy marketing). Here are my quick points.
    1. The tech whilst still undergoing adult clinical trials – the paediatric application has shown the accurate diagnosis of the most common respiratory illnesses. The value of this alone is extreme especially in a Telehealth/developing world setting.
    2. The technology RAP has acquired has been in development for over 6 years with Dr Udantha and UQ. ResApps primary aim is not to continue development of their algorithm rather conduct trials, refine and commercialise the tech.
    3. Valuation of an app without any major trials is extremely difficult and RAP took the safe route. The increase from 2c – 12c says enough regarding demand.
    4. You’re absolutely right, the app will initially be used as an aid to diagnosis. This also makes the regulatory pathway efficient with the FDA. A Dr or nurse will still be in presence of the patient – I like to think of RAP as a 21st century stethoscope.
    Digital Health is real and RAP is well positioned to be at the forefront. In an age of instant, tap and go everything – the demand for instant accurate diagnosis or even prognosis is highly valued.

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    • Yes but the company needs to explain how it is going to 1) differentiate its “app” and 2) make money. We have had “digital stethoscope” tech for a decade and it hasn’t flown, so the story has to be more

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      • The app (or shall I say technology) has no immediate competitors – so differentiating it should not be an issue. ResApp will be filing patents which will make the self learning algorithm completely their intellectual property. Also management have done well in marketing their product to government officials, CEOs of hospitals and TeleHealth providers. in particular at the New York Pneumonia Day summit and next week in Dubai.

        In regards to making money the two immediate revenue streams will be from Telehealth consultations and in the medical aid space. Clients who are essentially having a skype call with their doctor have no way to put a stethoscope through a phone – this is where RAP comes in. Currently in the US, TeleHealth calls go for $50+ with RAP targeting a $5-10 per use of their algorithm, not a ridiculous amount considering its an immediate result. Bill and Melinda Gates also called for a $5US approx use per in the medical aid space – all you need is a nurse and a smartphone. In fact RAP already have a commercial ready app called Pneumophone.

        With the recent roadshows and global presentations which have/are been delivered. I am confident management will source a healthy commercial deal going forward. Lets see what happens.

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      • Look, to be honest, I don’t like people spruiking stocks on this site and I don’t like unsubstantiated “selling”. Most of what you say you can’t back up.

        RAP has plenty of competitors – go and visit the Apple or Android App Store. There will be plenty of lesser applications that will capture mind share and $s because they are strongly marketed by firms with much more financial clout and marketing commitment than RAP.

        Patents and intellectual property have almost no value in this space because it is virtually impossible to tell what is “under the hood” for a competing solution. There are also plenty of ways to tackle the problem that RAP has elected to tackle and having read a few of the academic papers, there is nothing that stands out to me as being particularly remarkable (though I also acknowledge, it’s all in the implementation). I am certainly not blown away by claims of companies that “will be filing” patents.

        You seem to have a lot of forward-looking knowledge of what is going on in the company. Go away.

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    • Ordinarily I would respond as this is an archive site.

      I think shareholders have made a boatload of (paper) money out of this but my position remains the same. It’s a hollow chocolate bunny.

      Take a look at their clinical trial design on clinicaltrials.gov. This is not a serious trial.

      Like

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