FEEDBACK PLC (FDBK) (CEB(CEB)nvestment (PIRI) Sector: Healthcare Feedback When looking at a medical image, doctors always want to know what s in the image and what does it mean? Feedback offers an opportunity to invest in two innovative, niche, medical imaging technologies that give doctors a helping hand. One provides a platform for sharing medical images between locations, the other, which is on course to achieve regulatory approval, adds new information to the analysis and treatment of cancer. With cash in the balance sheet, the aim is to drive into new clinical markets and build a substantial medical imaging group. Introduction May 2014 saw Feedback transformed into a medical imaging software technology company with strong long-term growth prospects following the acquisition of TexRAD and CCI, which also owned a stake in TexRAD. Feedback is free to focus on medical imaging tools having disposed of its previous electronics businesses and having spent a period as an investing company. Key Data Total Issued Shares 190,746,746 Market Capitalization 2.28m Current Share Price 1.2p Shareholders: Shareholder No. of Shares % T E Brown 49,589,111 26.00 T W G Charlton 46,724,808 24.50 W R Ruffler 12,597,893 6.60 University of Sussex 9,400,000 4.93 Share Price Performance: Medical imaging software forms part of the $24bn (2012) global medical imaging equipment market according to Transparency Market Research in a report that estimated compound market growth of 5.4% to $35bn by 2019. According to the GLOBOCAN project which uses data from the International Agency for Research on Cancer and other publicly available information, there were 14.1 million new cancer cases in 2012 worldwide, of which 43% were in the developed world. Lung cancer has been the most common cancer in the world for several decades and is estimated to be the cause of one-in-five cancer deaths, with an estimated 1.8 million new cases in 2012 42% of which are in the developed world. Colorectal cancer is the third most common cancer in men and the second most common in women, with 55% of the 1.36 million new cases occurring each year in the more developed regions of the world. Important. All disclaimer information can be found on page 27 of this document Page1
TexRAD: Feedback owns TexRAD Ltd, a world leader in the quantitative textural analysis of cancer tumours shown up in routine medical imaging technologies like X- rays, Computed Tomography (CT) and Magnetic Resonance Imaging (MRI). Looking for quantitative imaging biomarkers, TexRAD assesses images more effectively and promises to improve treatment decisions whilst saving money for the NHS and other health providers around the world. Significant Research Base: TexRAD has built its reputation through leading global cancer research centres where it has been used as the basis of many peer-reviewed publications showing its ability as a prognostic marker and to predict and measure patients response under different treatment regimes. Regulatory Approval: TexRAD revenues have so far been generated from sales to research institutes. Having achieved regulatory approval, expected by early next year, TexRAD will enter two key clinical markets: helping assess drugs under development, and the so called personalised medicine where doctors look for additional information so they can make more effective treatment choices for their patients. CCI: Cambridge Computed Imaging Ltd, Feedback s other medical imaging tools business, are specialists in analysing and presenting medical images. Instrumental in developing TexRAD, CCI develop products to enable a multi-site multi-disciplinary team approach to using medical images, an increasingly frequent feature of complex decision making in fields such as cardiothoracic and cancer care. TexRAD In a market of such scale, and driven by powerful forces high costs, an aging population, an increasingly westernised diet, and the US Medicare Benefit Schedule (Obamacare) medical providers are always looking to get more out of their existing investments and reducing costs. TexRAD promises both: increasing the effectiveness of expensive medical scanners whilst improving patient care pathways and making a more targeted use of treatments. TexRAD has built a strong base of research evidence published by leading institutions including University College London Hospitals, Johns Hopkins University, Baltimore, Maryland, USA and Tata Memorial Hospital, Mumbai, India. The next step is to seek regulatory approval to market TexRAD for clinical use which would allow its commercial exploitation by new customers and open up new streams of revenue. Of particular interest in the short term are the drug trials market where TexRAD can help drug companies understand the effectiveness of pharmaceuticals under development, and personalised medicine where it can provide assessments that help doctors make more effective treatment choices. Management are hopeful of gaining regulatory approval to enter these markets in Europe and the USA by early 2015. Cambridge Computed Imaging CCI is the development powerhouse of the group and was responsible for building TexRAD s algorithms into a commercial product. Experts in image processing and analysis, CCI will continue developing TexRAD whilst investing in its own line of products. Built on industry standards, CCI s Cadran picture archiving and communications system (PACS) enables images to be accessed and securely archived under the strict disciplines demanded by medical clients. CCI has the recurring revenues associated with enterprise software but has new products under development that will allow it to break into a global niche imaging tools market. There are approximately 2,500 specialist oncology and cardiothoracic imaging centres worldwide. Original equipment manufacturers and drug companies continue to bring new products to market that offer physicians more options but increasingly complex decision-making problems. Hospitals have formed multi-disciplinary teams to deal with the complexity in the most efficient way possible but still there is a need to bring in remote expertise. In this environment, CCI saw the need to provide a toolkit that both enables multi-site multi-disciplinary team-working and puts quantitative tools like TexRAD into the hands of decision makers. Page2
Future Prospects Management intend to build Feedback through a programme of product development, partnerships and strategic acquisition. TexRAD and CCI will invest in product development and market entry. TexRAD will evolve a pay-per-click cloud based business model as it enters clinical markets, allowing it to access the scale potential of its technology whilst bringing it in line with tariff based funding methods used in medical markets around the world. CCI has identified an under served specialist imaging niche in multi-disciplinary teams which it has had some early success in filling. Having built Cadran as an extensible platform, CCI s strategy is to both develop more of its own, and partner for third party imaging, tools that benefit from being marketed together. Potential annual market size for specific cancers in the developed world Charge per study Lung cancer Colorectal 25 17.5m 13.8m 40 28m 22.1m 50 35m 27.6m 100 70m 55.2m Note: Based on estimated number of relevant patients each year and 1.25 studies per patient. Quantitative Textural Analysis understanding the basics Most drugs work well with some patients and less well, or not at all, with others. The problem for doctors is that there is no reliable way to work out which patients fall into which group. At a simple level, oncologists and radiologists use medical imaging to help with diagnosis, and to identify the stage and progression of tumours. However, the complexity of tumour biology means that these traditional methods offer little help in prognosis or whether a particular patient will respond to specific treatment. TexRAD s quantitative textural analysis is used to find signatures in medical images that are otherwise invisible to the human eye. In effect, TexRAD s patented technology adds mathematical analysis into the mix, highlighting texture as an effective prognostic tool. This can be used to stratify patients into different prognostic groups who could be treated more effectively whilst saving the costs of ineffective treatment. Potential market for TexRAD from global oncology clinics Workstation sales 36m 5.4m Annual support revenues Finance After raising 300,000 in funding, completing the acquisition of TexRAD and CCI, and completing readmission in May 2014, Feedback had approximately 540,000 in the bank after fees. Directors own 53.11% of Feedback so their interests are aligned with other shareholders. The two main shareholders are Trevor Brown and Tom Charlton (who has also loaned the company 189,000) both non-executive directors, neither receives fees for his services. Feedback is expected to be cash-flow negative after central overheads in the shortterm, albeit probably at a reducing rate. The business will require working capital while revenues are built up and investment is required for the further development of TexRAD and CCI s products. Both TexRAD and CCI have made progress with limited cash resources prior to their acquisition by Feedback and access to additional cash will help to accelerate the progress of the businesses. The company s cash should last until the end of 2015 even whilst initial revenues are modest. If revenues do not grow as quickly as expected then there is scope to adjust the level of development spending in order to conserve cash. Note: Based on estimated number of clinics each buying a workstation for 18,000 plus 15% pa support income. Page3
Conclusion Feedback offers investors an opportunity to invest in two innovative, niche, medical imaging technologies that put new tools into the hands of medical decision makers whilst reducing overall cost. Regulatory approval is expected to be achieved by early next year. Bringing new technology to the market is rarely easy even if it appears to be superior to existing technology. Like all new products and services the customers need to be made aware of the software, which will require sales and marketing resource. The profile of the software has been boosted by published medical papers and TexRAD winning the Molecular Imaging Award at the Radiological Society of North America but the rate of take-up of the technology is uncertain. Feedback wants to build a medical imaging tools group that can offer a range of technologies and services to make the most of the medical images generated and enable doctors to work more effectively and efficiently. The key short-term milestone is gaining regulatory approval and when that is achieved it should spark a positive reaction in the share price. Board and management Feedback has a small board with one executive and three non-executive directors. The directors own 53.11% of Feedback. Nick Shepheard Mr Shepheard is chairman and chief executive of Feedback and the only executive director. He joined the board in February 2011 and sold the original businesses and turned Feedback into a clean shell. He has worked as a consultant for a number of technology businesses when he focused on product and market development. Mr Shepheard owns 5 million shares in Feedback and options over 5 million shares exercisable at 1.25p each. Simon Barrell Mr Barrell, who joined the board in November 2012, is a chartered accountant who has been a director of a number of AIM-quoted companies, including market research firm ToLuna, which was taken over in 2011, Napier Brown, which was acquired by The Real Food Company in 2005, plus Octagonal, which was formerly known as SureTrack Monitoring and a number of other AIM shells. Mr Barrell does not own any shares in Feedback but he holds 800,000 options exercisable at 1.25p each. Trevor Brown Mr Brown became a director in January 2014 (he does not receive any fees) having built up a stake in Feedback. He previously built up a stake in doctors surgeries developer CareCapital and was involved in converting the AIMquoted company, renamed Advanced Oncotherapy, into a proton-based cancer treatments technology business. He is also a director of AIM-quoted investment management firm Braveheart Investment Group. Mr Brown owns 49.6 million shares in Feedback (26%). Tom Charlton Mr Charlton has been a significant shareholder in Feedback since 1997 and he was on the board between January 2003 and November 2004. He returned to the Feedback board in January 2014 (he does not receive any fees) and he was also a shareholder in CCI before it was acquired. Mr Charlton is a former chairman of ex-aim company Pinnacle Staffing. Mr Charlton owns 46.7 million shares in Feedback (24.49%). He has also loaned 189,000 to Feedback. Page4
Senior management Dr Balaji Ganeshan (scientific director, TexRAD) Dr Ganeshan is scientific director of TexRAD and was instrumental in the research and development of the original TexRAD IP. He now focuses on the sales and marketing of TexRAD in the clinical research market. Mike Hayball (managing director, CCI) Mr Hayball has been instrumental in developing the TexRAD algorithm into a commercial system. He co-founded CCI in 2001 and he has been involved in the development of software for other medical imaging companies. Dr Stephen Brown (operations director, CCI) Dr Brown is co-founder of CCI and he is CCI s systems architect and regulatory lead. He is involved in software development and customer liaison. DISCLAIMER This research note has been prepared and published by Peterhouse Corporate Finance Limited. The information that this note is based on is publicly available, the sources of which are believed to be reliable. The accuracy of this report is not guaranteed and nor is its comprehensiveness. Any opinions that are expressed are those of the analyst who wrote the report at the time of publication. The research contained within this note is designed for professional advisers; it is not aimed at retail investors. This is not an inducement to subscribe, buy or sell securities or units in the featured stock and it is designed purely to provide information. Under FCA rules, this document is defined as a marketing communication. This document has not been prepared according to the legal requirements that promote the independence of investment research and therefore it is not subject to any dealing restrictions ahead of publication and distribution. Peterhouse Corporate Finance is regulated and authorised by the FCA for the conduct of investment business and operates a strict policy regarding the timing of personal account dealing. Peterhouse Corporate Finance employees may hold the stock featured in the report. The value of the securities mentioned in this report may fall as well as rise and the nature of small and microcap stocks means that they may be subject to large and sudden swings. It may be difficult to buy or sell the securities mentioned in this note. Past performance is not necessarily a guide to future performance. This communication is intended for professional clients as defined in the FCA s Conduct of Business rules (COBS 3.5). Peterhouse Corporate Finance Limited. 2014 - all rights reserved. Page5