Alcidion is an emerging operator in the field of hospital IT, with technology that can help reduce deaths attributable to medical error. The stock price has doubled since it listed on ASX in February this year.
-Alcidion's Miya uses data feeds from disparate systems to actively monitor and detect emerging risk
-US health care providers obliged to make massive investments in new clinical information infrastructure
-Australian government now pushing hard to digitise hospitals
By Eva Brocklehurst
Alcidion ((ALC)) is a life sciences company and an emerging operator in the field of health information, with technology that can help reduce deaths by medical error. The stock has more than doubled its price since listing on the ASX in late February, driven primarily by commercial progress in various Australian hospitals.
Medical error is now the third leading cause of death in the US and Alcidion has technology that can help reduce these debts while making hospitals more efficient. NDF Research initiates coverage with a Speculative Buy rating.
The researchers place the base case at 12.2c per share and 26.3c per share as the optimistic case, using a discounted cash flow approach. The target of 20c sits at the mid point of the valuation range. Alcidion is expected to grow revenue to around $12m in FY18 from $5m in FY15. This is on the back of continued contract wins in Australia and the first installation in the US, which the company expects in FY18.
The company is anticipated to be profitable from FY18 and the researchers believe Alcidion's current cash reserves will be sufficient to fund the company through to profitability. The past eight years have witnessed a massive increase in health care IT spending globally, as healthcare systems seek efficiency gains from electronic health records, remote monitoring and mobile solutions.
Moreover, payors insist on such investments to manage the massive increase in the use of health care which is driven by an ageing population and higher levels of chronic illness. Health care IT spending on NDF estimates is now in the realms of US$110bn and growing at a rate of 3-4% per annum.
So, what is the company's critical system? The "Miya" is a clinical decision support system. Hospitals already have numerous IT systems which track patients in various ways but the relevant information is often in department silos, where staff have to work to pull together the numerous unconnected pieces of information. Miya, by contrast, uses electronic data feeds from the disparate systems to which the platform is connected, actively monitoring to detect emerging risk. Alerts are then sent to the right people at the right time.
The platform does not just integrate data it also analyses using "best practice" knowledge. The system is currently used in 11 hospitals around Australia, three in Victoria's Western Health network, four in hospitals operated by the Northern Territory Department of Health and in the Northern Integrated Care Service run by the Tasmanian health department. There are eight major modules, including patient flow, mobile, access, tracker, clinic, orders, intensive care and emergency department.
The company argues that whenever Miya is implemented it increases hospital efficiency and reduces operating costs. The company's example includes the implementation of the emergency department module in Northern Territory hospitals where the number of patients serviced within four hours more than doubled thanks to the technology.
Emergency departments across the NT witnessed pathology tests cost reduced by 5%, because less were ordered. A critical 7% of all tests that should have been read, and previously were not, now were read. This saves emergency department heads hours per day by not having to seek out that critical 7%. NDF believes the repeat business from NT and Victoria indicates that the product is generating customer loyalty.
In the US, the researchers note, hospitals and health care providers have been obliged to make massive investments in new clinical information infrastructure, simply to comply with the legislation of 2009. A typical approach scraps existing systems and installs a new one supplied by a single vendor. Yet NDF notes there are significant drawbacks with a single vendor solution including cost, potential for delays and the fact that best-of-breed systems are often scrapped.
Alcidion avoids the pitfalls in this regard as it allows hospitals to continue to operate best-of-breed solutions and simply install a supervisory system that unifies the disparate clinical information systems into a common platform. This lowers costs and has less implementation risk. Researchers also note that in Australasia, until recently, there was an under-investment in health information, despite world-class healthcare systems.
They now believe hospitals on both sides of the Tasman are starting to catch up and looking for small, local companies to help. The market opportunity just in Australia, with its 700 public hospitals and 620 private hospitals, is considered significant, as there are around 10m hospitalisations in a year.
The Australian government is now pushing hard to digitise hospitals and its Australian Digital Health Agency is tasked with building infrastructure, set up in January this year. This decision augurs well for companies such as Alcidion, with on the ground experience to help hospitals go digital.
In the US, meanwhile, the benefits of electronic health records are considered legion, such as the potential avoidance of contra-indicated products, ability to do community health surveys and an ability to save time during a doctor's visit. As a “carrot”, in 2009 the US government issued US$36.5bn in incentives for doctors to implement such systems, while the "stick" part involved reimbursement cuts for hospitals which were not making meaningful use of electronic records, starting at 1% in 2015.
This has ensured that, as of this year, 96% of US hospitals had electronic health records compared with only 12% in 2008. As a result, the researchers believe the brakes are really coming off health care IT and Alcidion is well-placed to take advantage of this.
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