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Research: Healthcare
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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Pacla Medical |
Backhug: Treating spinal joint stiffness
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Healthcare technology |
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24 June 2022 |
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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.
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Research: Healthcare
Basilea has announced the approval in China of the intravenous (IV) formulation of Cresemba, the company’s antifungal drug, for treating adult patients with invasive aspergillosis and invasive mucormycosis. The oral formulation of Cresemba is already approved in China where it is marketed by Basilea’s licence partner in the region, Pfizer. We see approval of the IV formulation as a positive development for Basilea; in 2021 China accounted for 19% of the global antifungal drug market, second only to the United States. However, we continue to see inclusion of Cresemba on the National Reimbursement Drug List (NRDL) in China as key to unlocking the full value of the Chinese market. We expect Basilea to benefit from the considerable experience of Pfizer in navigating the NRDL inclusion process for Cresemba. We continue to value Basilea Pharmaceutica at CHF847.7m or CHF71.6/share.