This week: ASX v Wall Street
FYTD: ASX v Wall Street
This week we spend some time discussing a small but important component of most clients’ portfolios, Alternative Assets. We’re in the process of making new venture capital-style investments in health and financial services.
We also discuss another new Australian Equity portfolio holding called Impedimed (IPD ASX).
What are Alternative Assets?
‘Alternatives’ are assets that do not fall into the conventional investment categories (Equities, Bonds/ Income Securities, Property, Cash etc).
Alternatives can typically include private equity or venture capital, hedge funds, managed futures, art and antiques, commodities, and derivatives contracts.
These instruments have a relatively low correlation to clients’ other asset classes and for which investment horizons are typically longer-dated and also less liquid.
While technological development is considered an important part of modern society, there are few ASX stocks that provide quality exposure to this theme. Those companies that do are often highly sought after and valuations in these businesses are therefore quite expensive.
Another way to access companies that are thriving through the use of technology may be prior to these companies being large enough be listed on the ASX. These are often called ‘early stage’ investments. Small investments in biotechnology and medical equipment are a great example of this.
What Alternatives for investors have?
We are in the process of adding three new positions to our Alternative Asset portfolios We discuss these below.
Cyban is a medical technology company that has developed a brain monitoring device that can measure intercranial pressure, brain oxygen levels and cerebral perfusion in a non-invasive, continuous manner.
Traumatic Brain Injury (TBI), resulting from high impact such as that sustained in a car accident, has a 50% mortality rate and two-thirds of survivors have serious long-term disabilities.
Currently, within intensive care units, hospitals monitor brain pressure via hourly physical examination often using an invasive probe (ICP) inserted via surgical procedures to remove part of the cranium/skull. Accordingly, on several measures including cost, side effects and quality of diagnosis, a non-invasive monitoring process is considered superior.
The team developing the technology is based in Melbourne, with associations with St Vincent Hospital and Melbourne University. Clinical testing of the device has been done with US Cleveland Clinic, Duke University and the Royal Edinburgh Infirmary in the UK.
Epiminder is developing its cloud-based ‘Minder’ device to continuously monitor electrical activity in the brain for epilepsy management in patients (for months to years). We have added to our current position in the portfolio in their follow up capital raising.
Epilepsy affects 65 million people globally, with current medications only effective in two in three cases.
Current limitations of treating patients with epilepsy include:
a) Identifying whether a patient has had a seizure, what type of seizure they have had (and where in the brain) and the frequency of their seizures. We currently rely on self-reporting, however patients can experience multiple seizures with little to no awareness.
b) Titrating/adjusting seizure therapy – without this feedback/monitoring it can be difficult to know what amount of medication to administer, whether medication changes have in-fact improved outcomes, all while having to balance this with potential toxicity related to the medications being given.
Our position in this company is supported by co-investment by other parties with clinical and commercial expertise including Bionic Institute, Melbourne University and most notably ASX listed Cochlear (COH), which is 45% shareholder.
We also note that Epiminder collaborates with Seer Medical on epilepsy seizure detection and forecasting. Seer Medical is another holding in our Alternatives portfolio.
We are participating in a Convertible Note funding facility for this start-up financial services technology business. Their aim is to create a marketplace for trading equity in unlisted companies.
Most of the time, privately-owned companies are often smaller in size and minority shareholders are unable to easily trade these shares. Attracting/accessing investors with deep pools of capital requires
- easy access to information to allow price/valuation discovery;
- robust legal and regulatory framework;
- secure payments and record-keeping;
- ease of transaction/settlement etc.
So, a mechanism offering these elements could prove invaluable for employees of start-up and private companies to be able to realise liquidity in their shareholdings. For founders/companies it may assist in attracting and retaining staff while preserving company valuations. The principal behind the Liquidise business was founder of Self Wealth (SWF) which is a small, ASX-listed investments and trading platform which allows retail investors to trade a broad range of listed market securities in Australia and internationally.
New stock in the Australian Equities Portfolio
Over the past couple of weeks, and especially this week following the completion of a capital raising, clients may have noticed a new stock called Impedimed in their portfolios.
In what promises to be an ‘overnight’ success on the back of more than a decade of toil, the company has now entered a new dawn in which its key technologies are suddenly at the top of the list of “need to use” technology for the long-term treatment of cancer patients
ImpediMed Limited (IPD) develops and markets bioimpedance spectroscopy (BIS) equipment for medical applications. Its lead application is L-Dex, a BIS technology for monitoring early-stage
lymphoedema. Lymphoedema is a debilitating complication of cancer treatment (surgery and radiation therapy). The L-Dex, and subsequent SOZO device is better at identifying lymphoedema earlier and more accurately than the current standard of care.
After developing the first version of L-Dex almost a decade ago the company began a long and relatively unsuccessful task of demonstrating to cancer centres (especially in the US) the value in using the technology. Comprehensive trials (PREVENT results shown in chart below) proved the superior outcomes of BIS measurement and key opinion leaders all agreed with its value.
L-Dex sales didn’t excel. What was the problem? Research undertaken by the author found at least three over the past decade:
- the cancer guidelines (most doctors follow the guidelines) didn’t require a better solution than the current standard;
- who pays for such a service; and
- the organisation of cancer centers wasn’t perfectly tuned to the inclusion of L-Dex within standard patient care models.
No expert to whom we spoke doubted the value of the use of LDex.
All this changed in March 2023 when the use of bioimpedance spectroscopy BIS was inserted into the NCCN guidelines. The National Comprehensive Cancer Network (NCCN) a not-for-profit alliance of 33 leading cancer centres devoted to patient care, research, and education. Impedimed is exceptionally well place as the FDA-approved provider of BIS.
Following the inclusion into the guidelines, the first hurdle was overcome and the second regarding payment was also unlocked. US insurance companies will generally reimburse treatments within the guidelines.
Impedimed is now proceeding, firm by firm, through the approvals approach and this will take time (18-24 months) and money (for staff to market and explain). News from amongst the first insurance companies to pay included (a) highlight the value the payer saw in the process; (b) the direct naming of Impedimed device as a solution; and (c) with a higher than expected reimbursement dollar value.
With guidelines and reimbursement solved, the third problem of organisational behavior will evolve with time.
ImpediMed believes that the total addressable market (TAM) could be as large as A$600m to A$1 billion, and other analysts suggest the company may be able to install up to 4500 devices.
The stock will remain a small position in the Alternatives portfolio at this stage. We expect a range of developments, approvals and momentum over the coming two years will provide the company with opportunities to prove-out its sales and or licensing model, and possible raise additional equity.