Dr Boreham’s Crucible: Painchek

Small Caps | Sep 11 2023

Tim Boreham highlights a device used to detect pain in non-verbal patients, such as those suffering dementia and infants.

By Tim Boreham

ASX code: ((PCK))

Share price: 3 cents

Market cap: $39m

Shares on issue: 1,297,989,542

Financials (Year to June 2023): revenue $1.95m (up 99%), loss of -$7.57m (-$5.72m deficit previously), cash of $2.51m (down -59%)

June quarter 2023: revenue $605,000, customer receipts $737,000, cash outflows -$549,000, cash on hand $2.51m, quarters of available funding 4.6

Chief executive officer: Philip Daffas

Board: John Murray (chair), Mr Daffas, Ross Harricks, Adam Davey, Cynthia Payne

Identifiable major shareholders: Peters Investments 9.1%, J+E Consulting 2.9%, Kreshnik Hoti 2.9%, Mustafa Abdul Wahed Atee 2.9% Philip Daffas 1.7%.

Drug developer Mesoblasts ((MSB)) recent epic fail with the US Food and Drug Administration (FDA) has prompted moments of introspection for other ASX-life science plays due to front the feared regulator with approval applications.

In the case of the stem cell therapy developer, Mesoblast had all the right vibes that the FDA would approve its marketing application for its paediatric graft-versus-host disease therapy.

But it was knocked back for a second time.

Painchek chief Phil Daffas isnt taking anything for granted as the pain management monitoring company readies a small clinical trial to support its planned FDA entreaty under the de-novo (new device) route.

Still, Mr Daffas would be mightily surprised if the regulator said no, given the low-risk nature of the tool that is widely used in aged-care centres here and in the UK.

The [device] protocol has already been refined three times with FDA inputs, he says.

Expected by mid-2024, FDA clearance would expand Paincheks addressable market by two million beds, compared with around 600,000 beds currently.

Were the voice

Paincheks eponymous device is an algorithmic-based tool to measure the level of pain experienced by non-verbal older people, typically those suffering dementia.

We give a voice to people who cannot reliably verbalise their pain, Mr Daffas says.

By profiling the patients face, within three seconds, the software application comes up with a pain score based on five facial expression measures.

These facial scores add to a manually-derived checklist, based on the Abbey pain scale developed by Adelaide pain-ologist Dr Jennifer Abbey.

Mr Daffas equates the tool to a digital thermometer relacing the old mercury one: the purpose is the same but the new version works better.

In effect we have taken the Abbey pain scale and automated the facial assessment aspect and built on observational pain assessments.

As an adviser to the company, Dr Abbey is evidently unfazed at the prospect of redundancy.

So far, Painchek has recorded more than three million pain assessments, which enables analytical reports to be provided to the nursing homes.

They can track pain management across all of their facilities and use it for auditing and accreditation purposes, Mr Daffas says.

From lab bench to nursing home

Painchek was called Epat Technologies - as in Electronic Pain Assessment Technologies - which was vended into ASX-listed gold explorer Minquest in 2016.

Epat was founded in 2010, based on a Curtin University research project and the company changed its name to Painchek in early 2018.

Mr Daffas had a three-decade career in health diagnostics and devices, notably at Roche and Cochlear.

The uni approached me and asked whether the project was commercial and scalable and we worked with the research team to build the model, he says.

I bring to the table the experience of being able to globalise a business, which most Australians dont have.

Several members of the Curtin University project have stayed for the ride, including Painchek chief scientific officer Jeff Hughes.

In 2017, company won Australian Therapeutic Goods Administration (TGA) and Conformit Europenne (CE) mark approval. These gatekeepers then approved a newer version called Painchek Universal, which can be used on all patients (not just non-verbal ones).

Shed the meds

Mr Daffas says that at least 60% of aged care residents cannot reliably communicate their pain levels, because of cognitive impairment.

Often these residents act aggressively or strangely, but this could be because of uncommunicated pain. As a result, anti-psychotic drugs and sedatives are often inappropriately dispensed.

If you can diagnose the pain first and treat it, you can often change the behaviour, he says.

The operator of 24 homes and 1,300 beds, Orchard Care in the UK Midlands reduced anti-psychotic medication use by -10% by using Painchek, with a -30% reduction in sedative dispensing.

In some cases, Painchek has determined that pain can be less than what had been assumed, resulting in lesser use of constipation-inducing opiates - and laxatives.

With verbal patients, the Painchek Universal iteration is handy for digitally recording pain improvement (or otherwise).

Where theres pain, theres gain

Painchek already has a decent foothold in the Australian aged care sector, claiming a circa 25% market share.

Drilling down a little, the company so far has signed up 700 providers accounting for 50,000 beds, in a total market of around 220,000 beds.

The clients pay a subscription of $50 per bed per year and can carry out as many assessments as they like.

In the UK, the company has gone from 5,000 beds to 20,000 beds across 800 providers in the last 12 months, in an overall market of 440,000 beds.

Thats less than 5% of the market, but theres no reason why we also cant get to 25% of the UK market in a similar time frame as we did in Australia, Mr Daffas says.

Painchek also has a presence in New Zealand and Canada.

Standing on our own two feet

Investors idly perusing Paincheks numbers might get the impression the company has gone backwards, as it covered around 80,000 beds in Australia two years ago.

The reason is that in 2019 the Federal Government provided a $5m grant to fund 100,000 beds for patients with dementia or cognitive impairment, with the contract then extended to June 2021.

With these subsidies long gone, Mr Daffas is pleased that so many clients agreed to continue to roll-over their contracts on a user-pays basis.

Paincheks clients range from having 40 beds to more than 3,000 beds, but market consolidation means the typical client is getting bigger.

Local users include Baptistcare, Allity, Ozcare and Anglicare.

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