At the moment, they're selling in Australia, New Zealand and the UK, and they are about to launch a product for infants that they will sell directly to parents as opposed to institutions like they do with the aged care ones. The one to parents will be a bit more expensive. At the moment, the subscription for aged care is $50 dollars a year, so they're probably going to be $10 dollars a month for parents. They've got worldwide patents and he says there's no competitors, there's nobody else doing this. The technology came out of Curtin University in Perth and the bloke who invented it is still with the company as their chief technology officer and Philip himself, I think was global marketing person for Cochlear for a while, he also worked for Roche in diabetes monitoring for a little while too, so he's got a bit of experience in this field.
So, look, interesting company and just what you might call, certainly pre-revenue, pre-profit anyway and they're starting to do some business.
So, here he is, Philip Daffas, who is the CEO and managing director of PainChek.
Table of contents:
Cash position
Pain management platform
Market share
Competitors
Business history
IPO
Good morning, Philip. Now, with these interviews we always start by talking about cash. What's your current burn rate at the moment and how much have you got in the bank?
Our monthly burn rate is around $500,000 to $600,000 dollars a month. I would say in the past year, we have actually had additional expenses such as the FDA clearance work which has cost over $1 million dollars, a technology upgrade and some cybersecurity work which is key for global expansion — got to get that right, otherwise you can't market effectively. So, our actual cost has been higher than that in the past year, but those are one-off costs and we're back to about a $500,000-$600,000 burn rate per month.
How much of that is staff?
I would say we're quite lean actually, we've got a staff of around 28-29 people all together, plus obviously some consultants. But I'd say still about 60 per cent of the cost is staff and 40 per cent is opex.
We'll get onto the details of your business model in a moment, but you said in the latest quarterly you got 90,000 contracted licences, with an annual recurring revenue of $4.3 million once the licences are fully implemented. So, given that your burn rate is, what, about $2 million, $2.5 million year, does that mean that you're effectively now cash positive?
No, no, our burn rate is probably around more like $5 million a year, $5-6 million a year.
Oh of course, sorry, yeah. I was just looking at the quarterly burn rate, actually, that's right, it's $2 million.
Yeah, so we're on track for it, absolutely we're on track for it. We're probably running at actually around about just under $3 million because we sell licences and then we actually recognise the value of the licence when we implement, so there's always a lag between the two. Of course, we've done a lot of licences the last 12 months, both in Australia, New Zealand and in the UK. So, we're catching up with that and yes, we're on the track... What we always try to say is that roughly 100,000 licences - and we're at more than 90,000 now obviously — 100,000 licences gets us to what we call our breakeven, excluding R&D and corporate costs, around close to 180,000 to 200,000 would be our breakeven point, our constant breakeven point. To give you some sort of scale example, that's just 4 per cent of the global aged care market, it excludes everything else. So, it's a very, very scalable and very, very profitable business.
So, given your pipeline, when do you think you'll reach full breakeven?
Well, that's what we're aiming for right now. Our key to get to that, we believe, we've got 30 per cent penetration of the Australian market at 60,000 beds; we've got close to 10 per cent in the UK, 30-35,000 beds; but getting into the United States market which is 2 million beds, that's the driver — and I think I've just mentioned, we've completed our FDA study, we're about to submit the documentation and we're looking for FDA clearance towards the end of this year. We've got partnerships in there already, so getting the US going is, I would say, the big spark to actually get to that breakeven point very rapidly.
Now, basically, the business model is subscription, right?
Correct.
And you're talking about beds, so is it a subscription per bed, is it?
Correct, it's about $50 dollars per bed, per annum, and we do it across all beds in major care facilities. So, 100 beds times $50 dollars, is $5,000 dollars per annum. If they're a thousand beds, then you just multiply upwards. And of course, there is some time, we do give discount to some of the larger clients we have and especially for volume and for term, I mean our largest client is Bolton Clarke and that's a 7,000 beds agreement. So, we have 50-bedders and we have up to 7,000-bed agreements. But $50 dollars per bed, per annum is the core — so, it's less than a cup of coffee per month to have a good investment for a person.
And they pay the number of beds times $50 dollars or whatever it is, per annum, no matter what the usage of the app is, is that right?
Correct, use up as much as possible, we encourage you to use it as much and as often as possible, because the more you assess pain, the better you manage pain and the better the outcomes you have.
Right and what's your churn rate? Do you have one yet?
We've been getting between 85 to 90 per cent retention every quarter, which we think is very, very good, and the only reasonably sort of lose some clients is when their integration systems don't work or they lose a sponsor for the area or they just don't have the technology to get things setup fully. But certainly we are very, very strong in the large groups and every aged care facility now is being setup with iPads and technology for digital monitoring and us being an app, it's very simple, we just go straight onto their iPads and iPhones, etcetera, that they use for their day to day recording of medication and other patient managements.
And has anyone ever dropped out or cancelled their subscription because they've said that it doesn't work for them?
Absolutely not, our technology is based upon the historic guidelines we have of how to assess pain, that's been around for 20-odd years. The thing is, before PainChek, this was all manual and often guess work. What we've done is bring in objectivity to it, we've brought in the AI to do the most complex part of facial assessments automatically and we guide the carer through the other assessments to help them — it's actually an educational tool as well as a pain assessment guidance tool. It's got regulatory clearance, we've got multiple publications and it's now recognised effectively as a state of the art — in fact, the old pain assessment tools with the Abby Pain Scale, was developed by Dr Jennifer Abbey and Dr Jennifer Abbey is on our advisory board and is our biggest supporter and says that PainChek is the evolution of all this work.
Well, first of all, just explaining, pain assessment is difficult, right? It's very difficult to do, even for people like us who can verbalise, but our mission is to give a voice to those people who can't reliably verbalise their pain. On one extreme, you have adults, such as those people who live dementia or cognitive impairments in an aged care facility, as an example, who've lost their ability to communicate effectively. On the other hand, we've got pre-verbal children, so those who have not built those communication skills as yet. So, we've actually got two versions of the product, one is for adults and one is for children and both of them use — we call it smart automation.
Have you started selling the one for children yet?
We're just starting, we're just starting, we just completed a whole series of market research with parents and we're now actually launching the first product direct to parents, actually, for home care, to better manage pain at home. You can manage temperature at home but you can't manage pain, so having a device that goes on with the thermometer means that all those treatments, Panadols, etcetera, Nurofens, can be treated not just for temperature, but now also for pain. So, this is a really exciting market and in fact, the infant market is significantly larger than the adult market. So we're treading carefully but it's a super little product.
But how are you going to sell that, just in the Apple app store?
Absolutely, that all goes through the app store, in fact, all of our products are on the app store, but some are subscription guided, so they have to come to us for passwords to get access, that's the adult in the aged care facility. But the infant product will be sold direct to consumer through the app store and the Google Play store.
And then you have to pay Apple and Google tons of money, right?
[Laughs] Well, they take a percentage, but we've also given the option to come to us directly to purchase and also, we will have a multiple channel partners in this, there's a lot of parent groups, etcetera, etcetera, who are really keen on the product and looking to become channel partners to us. I used to do global marketing for Roche Diagnostics, the blood glucose monitoring field. You know, once you start doing direct to consumer, you end up with multiple channels, but the goal is to make that a global product, as is the adult product right now.
What does the AI actually do to establish how much pain the person is in?
Well, that's a really good question. Just a bit of background, let's take the adult product, it is a regulatory clear, we've got multiple clearances in markets. It's a digital device and it comes in the form of an app. We use AI to actually do the most complex part of the assessment, which is the facial assessment and our AI models — this is really important — have been trained on coded facial images of people who are in pain, to ensure that we can detect pain related facial expressions, the real pain. Good AI is all about good data and our data source is ground truth. How the product works is quite simple, we all go through passport control these days, we all sign in for things that use facial assessments.
So, first of all, the PainChek app, when it starts, it opens a mobile camera over your device, it conducts a three-second scan of the resident's face and we analyse the document, the presence or absence of nine facial features which indicate pain. These features include things like brow lowering nose wrinkling, parted lips and closing eyes. These expressions are often too complex or too subtle to detect with the naked eye. So, we do that automatically using the AI via the camera on a smart device, we then combine that — we then guide the carer through what we call the non-facial pain features, these are things like vocalisations, movements, behaviours and activities. And we guide the carer to input any observations of these through a digital checklist that's built into the app. We then combine the facial elements and the non-facial elements to calculate a pain score and then assign...
Out of what?
It's a total score of 42 test points, 42 test points could be there, then we get a score and that score is assigned to pain intensity, ranging from no pain, mild to moderate or severe pain. So, it's a bit like a thermometer, the further up you go, the more observations you have, the higher the pain scale. That is the standard way of actually trying to assess pain, but we've automated it and we've brought in both the combination of AI and human intelligence.
Then that presumably determines what sort of analgesics the carer provides?
Correct, absolutely. So, you then treat, whether it's an analgesic or whether it's another instant prevention, it could just be a massage, it could be something simple, then you come back and you reassess to see if the pain severity has gone down or is continuing along. So, it's assesses, you treat and then it monitors.
How long does the assessment take?
It takes a couple of minutes, it's pretty rapid. The more you observe people, you see them on a day to day basis, when you come to the assessment, you know what to look for from the behaviour side, then you document those, then you use the AI, automatically three seconds to pick up the facial expressions and document that. So, very rapid, very simple, and when we fill in the result, we've integrated with almost every data EMR system, medical system in aged care, so the results go straight into the medical records, then drive the actual medication.
So you've got 30 per cent of the market in Australia, this is the aged care market, right?
Correct.
What about elsewhere in the world, what's the situation in — I know you're not selling in the US yet but what about the UK and Europe?
The UK, we have a team there, we've got something like close to 35,000 beds now in the UK and that's about 8%, 9% share of the market there, so it's about 450,000-500,000 bed markets. We've got sales now in Canada, only about a couple of thousand at this stage, but we've done that more remotely from Australia. Some Canadian clients saw this at a conference, were very keen so we started in Canada. And we have one of the largest aged care homes in New Zealand, Summerset Care — again, we did this during COVID, actually, it's all done remotely and when they signed up, they were a 2,000-bed client as well. So, we are a global business already, we've got sales in three continents and also, we've done more than 5 million clinical pain assessments across those 90,000-odd beds. So, that growth is growing very rapidly.
How many beds in total have you got now?
We've got the new numbers coming out soon, we've got more than 90,000 beds now, more than 90,000, getting very close to that 100,000 mark, our first key milestone.
Where did you come up with the $50 dollars or the price of it? Do you think it's enough? It strikes me that you've got a lot of customers, you're signing people up, but you're not making a profit yet?
Well, it's interesting, I think the reason we're not making a profit, is because our past investors put over a million dollars in the FDA studies, we've done a technology upgrade. I think the pricing, actually, is good at this stage, we've got opportunities to increase price, we've got some other features we're working on right now, for example, on the infant product we're also developing what we call the voice assessments, so we're able to discriminate between a baby's cry of pain and no pain, so that's another new feature that can come in and raise prices. But generally, we believe if you look at the market, the aged care market, it's something in the region - the aged care market is worth over $300 million dollars per annum, so we just scratched the surface so far and at that $50 dollar rate, that's a good market.
The infant market at our price, that's more like $10 dollars per month for the infants, so that's a home use product. And we worked out that 1 per cent penetration of the infant market - there's about 150 million kids born to first time parents each year around the world — would give us a similar size of market — 1 per cent of the kids market is the same as the whole of the aged care market. So, these are very, very big valuable markets, we're just starting to know our penetration now.
Is the price for parents of infants the same as it is for aged care beds?
No, that's going to be different, that's going to be more like close to $10 dollars per month and it's a direct to consumer market opportunity. By the way, we're also looking to go into hospitals, we've got an agreement with InterSystems and that will be a different pricing in hospitals, because in hospitals pain assessment is conducted far more frequently, as you can imagine; and we're also entering the home care market, we've got a number of home care agreements happening now and again, that will have its own pricing model. So, we started off in aged care at that price to make sure we could actually get a foothold into it, aged care have gone from paying nothing for pain assessment because it's been guess work, to paying something, so as we get more established and we're bringing new features and new capabilities, better integrations, then we can review and increase our pricing down the road.
Do you think, as you're looking at your pipeline and so on, do you think you'll need to raise some more money?
Well, we believe going into the United States will be key, to get into the United States, yes, we will need to raise some money as part of that strategy. I always say this, I could make the company profitable today if I stopped all international investments or expansions, we could make it profitable today, just on our Australian numbers, we could close everything down and make it profitable, but that's not our goal. Our goal is to make this, I'd worked for Cochlear for many years, I was there from the early days, actually, and saw how we could make Australian technology, not just in Australia but make it global and make it highly profitable. PainChek's got all the same credentials and our goal is to make this a very, very big profitable business for the company. And look, as I said before, these are very large markets we have patents as well, we've got all trademarks in place for the technology and we've got a great demand in those international markets.
No, this is the great thing, the competitors are the old manual paper-based pain assessment tools that have been around for many years. So, with our patents in place, we've got patents in the US, Japan, China, Europe, UK, you know, we've got a 15-year to 20-year lead on this, so this is a unique situation, that's why we do want to maximise the opportunity and make this a true global business. My background, I've done global marketing for Cochlear, I've done global marketing for Roche Diagnostics in the diabetes field, that's my area of expertise and that's what we want to do.
Tell us a bit about the history of the technology, it came out of Curtin University, didn't it? When was it and how did it come about?
Well, our chief technology officer is Professor Jeff Hughes, he started this project back in 2012, he's a pharmacist, he ran the School of Pharmacy at Curtin University. Jeff and some of his team used to do medication rounds in aged care facilities and when they went around, they said, "Look, pain is not being managed properly, people are not assessing it properly, they're not doing it well... The tools they're using to try use the data, the paper based tools are poorly managed or poorly used, they're complex, subjective... We've got to find a better technology." So, as Head of the School of Pharmacy at Curtin, he kicked the project off, a PhD project with some of the students there and they looked to develop a new technology, perhaps back in 2012-13. By 2015, there was a prototype.
I got involved in 2016, I was brought in by the university to see how this could be commercialised, I saw a great opportunity. Pain is a vital sign really, it should be a vital sign like blood pressure is, like temperature is, but it's not there. So I saw this as a fantastic opportunity, we pulled together a business plan and then too the company has been spun out of the university and listing on the ASX through a backdoor listing in 2016, when I came onboard then as the CEO and managing director.
Do you think with the benefit of hindsight, you listed a bit early?
Well, I think it's any product in that research stage is probably not the right time at that stage, however I do think it's Australian phenomenon, we have the opportunity to list the company like we did and enable the ability to actually build or get capital to commercialise. That's a unique Australian thing and actually, I want to say our shareholders who came in then have been supportive ever since then, loved the project, loved what we're doing and it's given us a route to the market which probably wouldn't have been available in any normal circumstances.
Your initial listing price was 2 cents and in early 2019, you were about 3 cents and suddenly the stock went 10-fold in a couple of months, what was that about, why did that happen?
Well, we developed the product, we actually brought it to the market, we got regulatory clearances in 2018, I believe, and then in 2019 as part of the Royal Commission in Aged Care, we met with Minister Wyatt, he recognised this is a great product to improve the situation in aged care. In 2019, we got the regulatory clearances, we got a $5 million Government Grant to rapidly penetrate the Australian market. We'd met with the FDA and they gave us the green light to start clinical study to actually get FDA clearance to the US. We started in the UK with a partnership there. So, everything was moving, an absolutely perfect scenario, that was up to November, 2019. Then in February 2020, COVID hit and it was all aged care closed their doors, FDA closed their doors for anything new and novel and therefore, we had two years literally where we just had to sort of maintain our situation. Fortunately, we had the grant, we'd managed to penetrate a lot of the aged care facilities even during COVID, we did that digitally. We had to go to a purely remote process, which has been very good for us now because we use that now for all our training, all our support. Then since then, we've actually transferred so many of those clients that were on the Government grant, onto full paid, which shows the value of the product. Most of those people who had took the Government grants up for the first year, paid for by the Federal Government, are now on fully paid contracts direct with us at PainChek and that's transmitted across into UK market, Canadian market and New Zealand as well.
Right, very good, well it's been fascinating talking to you, Philip, thank you.
Thank you very much, Alan, for the opportunity.
That was Philip Daffas, the CEO and managing director of PainChek.
