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USUALLY when a biotech-type company duchesses the investment gatekeepers there's one imperative in mind: getting dough through the door.

The brain monitoring equipment group has been doing the rounds of the rubber chicken set, but is confident the $13 million raised in last year's listing will fund its growth plans.

"That will be plenty, thank you. We do not burn cash at an alarming rate," says Brainz chief Justin Vaughan, an annoyingly proficient doctor, businessman and cricketer (he played six Tests for NZ).

The NZ-based Brainz is a rare beast in the biotech world in that while it's still emerging, it's already selling an approved, definable product.

Brainz's offering is a bedside monitoring machine for brain activity, especially for premature babies. The idea is that the data is available immediately and can be interpreted by duty doctors and nurses.

The neurologists, a rarified species, don't have to be disturbed from their dinners with Roche or Pfizer - or simply aren't on the payroll in the first place.

In essence, Vaughan says, the info is "dumbed down". "Currently, the only recourse is to call the EEG (brain scan) department and if it's one o'clock they might give you an 'urgent' slot at 4 pm," he says.

For adults, the monitoring is also useful for cardiac surgery, meningitis, near drownings and head injuries. "It's a sad fact that 99.9 per cent of them are not monitored to date," Vaughan says.

Locally, the so-called BRM2 devices have been taken up by 24 hospitals across 36 beds (13 per cent of all neo-natal beds). Globally, Brainz has sold 180 monitors across 150 hospitals.

The crux of the model is a distribution deal through GE Health. Vaughan is candid about the economics of the machines: of the selling price of $25,000, GE gets $12,500 while the cost of goods sold is $3500.

The $9000 profit margin is enhanced through the supply of disposables, which produces ongoing per-machine income.

In terms of potential, there are 17,000 neo-natal beds in the US. On the basis that the US just about covers the world, let's assume 34,000 beds globally and a 20 per cent take-up of the technology.

This translates into a "worldwide addressable market" of $170 million, or 6800 beds.

By now, intelligent investors (that is, Criterion's readership) will be pondering medical liability. Surely ceding monitoring to the non-experts leaves hospitals open to being sued?

Vaughan argues it's just the same as having nurses monitor blood pressure, or anything else.

The liability issues can work in Brainz's favour, because once one bub is monitored, every other one in the same ward has to be covered as well.

According to Vaughan, some hospitals have told Brainz they don't want the equipment. Their reasoning is that if something goes wrong with a patient, the medicos are standing on firmer legal ground if they weren't aware of the symptoms in the first place.

Vaughan believes these constraints will be temporary and that the real-time monitors will become as much a part of the bedside milieu as plastic fruit arrangements and Gideon's Bibles.

"There will come a day brain monitoring will be a standard of care," he says. "The challenge for Brainz is it has to be a Brainz device."

The next step for Brainz is gaining Food and Drug Administration approval for adult monitoring, as an add-on to the existing machines. Approval is expected in the (current) second half.

"In Australia and NZ it will be selling for $5000," Vaughan says. "The cost of goods sold is basically nil and we will need to sell 200-250 units to cover costs."

Brainz reported a $187,000 first-half loss. Brainz sold 30 monitors in the June quarter and as the break-even point is 200 monitors, it needs to get up to 50 per quarter.

Criterion's Brainz trust rates the stock a SPECULATIVE BUY. It would take a mean underarm delivery to curtail growth, but expect a long innings to sustained profitability.

Alternatively, Brainz could be clean bowled by a bid from the likes of GE Health or Philips.

http://www.theaustralian.news.com.au/story/0,20867,20153008-23634,00.html