Pacla Medical — Backhug: Treating spinal joint stiffness

Pacla Medical (PACLA)

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Research: Healthcare

Pacla Medical — Backhug: Treating spinal joint stiffness

Pacla Medical is a private health care technology firm that has developed Backhug, a robotic physiotherapy device for treating pain. Pacla operates a scalable subscription model where customers typically pay £99/month for a 12-month contract (there is also a purchase option), potentially generating high levels of SaaS-type recurring revenue. The addressable market to reduce back pain is estimated at about 197 million people globally and worth $76bn in annual revenues. Pacla’s sales for the last 12 months were £21k; it has already sold 25 units and has a waiting list for 300. The planned £5m capital raise would allow expansion into the key US market and facilitate targeted growth to c 5k units over the next 18 months, with Pacla expecting FY24 sales to reach £14.1m.

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Healthcare

Pacla Medical

Backhug: Treating spinal joint stiffness

Healthcare technology

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24 June 2022

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Private

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Private

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Business description

Pacla Medical is a Scotland-based, private health care technology company whose novel physiotherapy device (Backhug) aims to treat pain by releasing joint stiffness in the back. Backhug allows home treatment without needing a professional practitioner and can be used to benefit patients with chronic back pain, multiple sclerosis and other conditions.

Bull

Novel technology and device differentiated from competitors.

Large US market opportunity.

Generates high levels of SaaS-type recurring revenue.

Bear

Capital constraints may have an impact on potential growth.

Needs regulatory and UL certification approval.

Small installed base.

Analysts

Ken Mestemacher, CFA

+44 (0)20 3077 5700

Dan Ridsdale

+44 (0)20 3077 5700

Pacla Medical is a research client of Edison Investment Research

Pacla Medical is a private health care technology firm that has developed Backhug, a robotic physiotherapy device for treating pain. Pacla operates a scalable subscription model where customers typically pay £99/month for a 12-month contract (there is also a purchase option), potentially generating high levels of SaaS-type recurring revenue. The addressable market to reduce back pain is estimated at about 197 million people globally and worth $76bn in annual revenues. Pacla’s sales for the last 12 months were £21k; it has already sold 25 units and has a waiting list for 300. The planned £5m capital raise would allow expansion into the key US market and facilitate targeted growth to c 5k units over the next 18 months, with Pacla expecting FY24 sales to reach £14.1m.

Novel technology to reduce pain

Backhug is an app-operated physiotherapy device designed to loosen stiff spinal joints and reduce the associated pain. In contrast to conventional manual or mechanical treatments that only address the symptoms and may be ineffective, Backhug uses novel, patent protected technology with 26 robotic fingers that sense and adapt to each individual’s back shape and size. Its ability to pinpoint the joint stiffness that causes the pain, personalisation, cost effectiveness and convenience are all key differentiators for Backhug, which takes a mechanically different approach than other products that only treat muscles.

Market: 197 million people and a $76bn opportunity

Back pain is a global issue, affecting about 30% of the adult population in any given year, with the total cost of chronic pain to the EU economy estimated at €441bn by the European Pain Federation EFIC. In addition, the WHO estimates that the US loses 149m work-days per year. Management believes that about 197 million people across the globe struggle with chronic back pain and can both afford and access Backhug. Pacla estimates that this represents a $76bn annual revenue opportunity.

Capital raise to expand capacity

As of December 2021, Pacla has an installed base of 25 with a waiting list of 300. However, a significant limiting factor is insufficient capital to manufacture enough devices to meet expanding demand. To address this, it is raising £5m in equity over the next couple of months in order to manufacture and market about 5k Backhugs, with management estimating it could reach c $17m in annualized recurring revenue by the end of FY24. As production scales and unit costs decline, management expects to reach profitability at the EBIT level by FY24.

US market: A key catalyst for investors to watch

Management is targeting the US for its primary market, as it is one of the biggest healthcare markets in the world. Pacla plans to use paid advertising, partners and endorsements to drive sales. Of the 5k additional units to be funded by the capital raise, it forecasts selling 90% of those in the US. Management’s success in executing its strategy and US roll-out will likely be a key catalyst for investors.

General disclaimer and copyright

This report has been commissioned by Pacla Medical and prepared and issued by Edison, in consideration of a fee payable by Pacla Medical. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Pacla Medical and prepared and issued by Edison, in consideration of a fee payable by Pacla Medical. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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