As a RAPper from the start, I am extremely excited about what the company has achieved in the short period since inception & more so about what is about to come as we commenced the Pivotal US Clinical Study and are hence now in the Main Game.
Before looking forward, I would like to address the 'elephant in the room' being Brian's liquidation of 6.8m shares for which the notice was released Friday. Initially, it also took me by surprise, however Brian was kind enough to give me an hour of his time and we discussed the share sale & also what we have to look forward to as RAPpers.
BL Selling 6.8m Shares - The elephant in the room
Firstly, Brian founded the company and as such, has a significant shareholding in the company to the tune of 50m shares / performance shares / options. While RAP was in its infancy (first month / two of relisting) Brian wanted to pick up a 'trading parcel' of shares in the company and as such these were purchased on market at around 2c. Note at this time, he was not a director of RAP.
As the story developed and RAP became more successful, not only did the SP gain traction, but Brian was made a director of the business. This instantly restricted his ability to trade RAP shares without not only board approval, but within specified 'approved trading windows'
We fast forward to early Dec 2016. Brian requested & received approval to sell his entire non-escrow share position which totalled 6.8m units. The 'trading window' opened as soon as the US Pivotal Study commenced via its first patient enrolled.
This part is critical - the study literally commenced with patient #1 and BL started to sell his position as soon as he could over the next 4/5 trading days. So all the conspiracies about the trials not going well etc is just fear mongering. This is why the director trading window opened - bc they won't have any 'inside' information about the trials given they literally just began.
Now for his reasons... We all know Brian is a medtech entrepreneur given he founded RAP & has a non-exec Director role with Alcidion (ALC) & involvement with other companies. For those who aren't aware, the majority of Brian's remuneration is in the form of share options & performance shares in various combinations. For example, prior to his recent pay rise for RAP he was earning $80,000 p.a. in the form of director fees (note this is now $180,000 p.a as per AGM approval). However, we also received millions of performance shares & options as part of his remuneration package.
The ATO deems performance shares & options as income & hence income tax is payable on them - irrespective of them being exercised, in the money or sold. The valuation model is the standard Black Scholes option pricing model. For example - at the Alcidion AGM he received 15m options in the company (3 x 5m option tranches with expiries in 2019) - this had a 'fair value' of AU$1m. The ATO will assess this $1m as income in this current tax year even though the options are not going to be exercised for a long time. As such, he has to pay income tax on that $1m income. (being the top marginal rate).
BL has a huge tax liability this year and his only 'liquid assets' are the non-escrowed RAP shares. He, like any other person would, sold these shares for $2m to satisfy his tax liability for this year & I'm sure put some aside for next years instalments given the Alcidion 'income' will be assessable next tax year.
This is the context & rationale for the sale of his 6.8m shares. I asked Brian if he was happy for me to share this information & he obviously was.
For those who want further validation of this, Brian was happy for you to call / email his asking. If you have done so previously, you will know he is extremely prompt in replying and giving his time.
Quick RAP Recap
A quick recap for those new to the stock:
- The tech works in children
- The tech works in adults
- The tech provides a more accurate diagnosis than the current 'gold standard' of care and more importantly, is correct in 98% of cases where the initial diagnosis by a physician was incorrect! (I.E. Of the occasions when the doctors got it wrong, the app proved to be correct 98% of the time)
Where we are at this point in time?
- The Australian paediatric trial across 2 high quality hospitals is ongoing
- The Australian adult trials across the same 2 hospitals is ongoing
- We have an active engagement with an unnamed 'WHO' (World Health Organisation) to conduct trials for the tech in the 3rd world
- There is an enormous level of interest in the RAP tech from Technology Providers (Apple, Microsoft), Telehealth Providers, Health Insurers & Big Pharma. These 4 groups arguably consist of the largest companies in the world with some of the largest cash stockpiles in the world
- We are actively pursuing European & Asian market entry
- We have commenced enrolment for our Pivotal US Study (explored in depth below)
The US Pivotal Study:
- We are engaged with arguably the 3 most prestigious hospitals in the US for our pivotal study. It is important to note that all these hospitals approached RAP for collaboration opportunities. This speaks volumes. The base hospitals are:
- Mass General
- The Cleaveland Clinic
- Texas Childrens Hospital
- The 3 sites will be collecting data at an alarmingly quick pace given not only the size of the hospitals, the number of the ED visits but also the fact that there are 3-collecting institutions along with their satellite hospital sites.
- My suspicion is that whichever disease is the most prevalent within the data collection will be the first FDA application lodged. (I.E. All 3 hospitals will be collecting the raw data & if say there is a statistically significant number of Pneumonia cases first, RAP will apply for their first FDA approval by way of Pediatric Pneumonia).
- The FDA is the mount Everest of the phara-world. Once the FDA green-lights the app, it will go viral (no pun intended) across the remainder of the 1st, 2nd & 3rd world without the requirement of physical clinical trials in those respective jurisdictions to gain approval. They will 'piggy-back' on the due-diligence done by the FDA.
- The US study will also generate unprecedented media attention for RAP in the largest investment market in the world - the USA! We know we are on the radars of the investment house community already with Fidelity being a significant shareholder. I know I'm scanning the daily news feeds looking for new RAP publications!
- The pace in which the enrolments occur should IMO be faster than many suspect. We often forget or fail to appreciate the actual scale of these operations.
Combined, these 3 institutions admit almost 4,000 Emergency Department patients EACH WEEK. The statistic floating around is that c. 30% of all ED admissions are respiratory related - this is c. 1200 patients each week. Even if we assume 10% of these admissions are going to enrol in the study, we would be enrolling at 120 patients / week. So the 'accumulation of data' phase should take no longer than 10 weeks on these numbers.
Upcoming News Flow
The next 6-months should be jam-packed with news flow as the 3-hospital sites roll off their trials. I expect weekly or fortnightly market-moving announcements given the sheer number of people / institutions involved.
I see it transpiring as follows:
>> Initial patient enrolment numbers (to provide the market with a guide for the pace of enrolment)
>> Interim results for the first illness, followed by the other illnesses across the US study in due course (4-5 x market sensitive announcements i.e. 1 per illness)
>> Submission for FDA approval for the first illness in children (thus beginning the 120-180 day de novo approval time line)
>> Submission for FDA approval for the 2nd, 3rd, 4th, 5th illness in children (thus having a ROLLING 120-180 day approval cycle PER ILLNESS)
>> Receipt of FDA approval for the first illness in children
>> Receipt of subsequent FDA approvals for the other illnesses in children
>> Repeat the cycle for adults
Those above 7-points are the expected news flow
ONLY FOR THE US PIVOTAL STUDY. We also have:
- WHO testing & possible commercialisation/licensing agreement
- Additional results from the ongoing Children & Adult trials in Australia
- Expansion in to Europe / Asia
- Other left-field events
As you can see, there is going to be more news coming in the next 6 months than you can poke a stick at!
Regulatory Tailwinds
- The global healthcare system is near, or at breaking point. The globe has an aging population & governments around the world are spending an increasing amount (relative to GDP) each year on healthcare costs. This is unsustainable in the long term.
- Governments all around the world are encouraging active investment in to medtech which will save them money and reduce the healthcare burden on their budgets.
A great example of this 'in action' is last week's decision 13-Dec (US Time), that saw a major FDA reform bill became law!
http://www.natlawreview.com/article/major-fda-reform-bill-becomes-law-medical-device-overview
Although this regulatory change specifically has no direct impact on RAP (given it is outside RAPs scope), it does have a thematic impact on the regulatory pathway for RAP.
That is, the FDA is being actively encouraged to make 'things easier' for ground breaking technologies and reduce the red tape surrounding these tech's which will save the US government millions & potentially billions in healthcare costs. This can only mean good things for RAP's regulatory approval pathway.
Path to Commercialisation / Monetisation
A lot of nay-sayers have been slamming RAP for the only fact that it currently earns Zero revenue & you know what - yes, that is absolutely correct at this point in time. However, as we all know the stock market is a forward looking tool which sees potential revenues & brings them forward.
To this, we have an enormous opportunity to significantly monetise our tech. I see the following potentials:
- Licencing deal to the WHO
- Licencing deal to either US Telehealth Company / US Health Insurer / US Device manufacturer or US Big Pharma
Just think how much of a
first mover advantage one of these companies is going to have by doing the first deal with RAP. If the interim results for the US Pivotal Study show similar accuracy rates as the Aussie study, these guys WILL NOT WAIT until FDA approval is granted, they will act immediately as they know FDA is a given. At this point, I see an epic auction & the prize will go to the highest bidder no doubt!
Think about it like this - Apple, Samsung & Huawei are battling for the Chinese mobile phone market. We know prevalent it is in the Asian culture to prevent the spread of illness is just by looking around the streets & seeing how many Asians wear face masks. (Note this is not to catch something, it is actually the opposite - not to spread anything). In the battle ground of Device Manufacturers, what is it worth to one of these companies to buy RAP & embed the tech as an OEM feature in each device? PRICELESS
This is only one such example.
It's been a while since I've posted something significant because frankly I'm sick of all the dribble that the RAP thread has attracted lately. STers & rampers trying to push their own agenda & actually thinking that their post will have an impact on the SP...
We are on the verge of something special here team & I see many multiples of the current SP in the very near future!
GO RAP!!
(20min delay)