Small Caps | Aug 07 2014
-Health app for smart phones
-First application in depression
-Buy rating from Baillieu Holst
By Eva Brocklehurst
Biotech minnow BioProspect ((BPO)) is developing a new diagnostic test for mental illness. The company believes the test has potential to become the world's first quantitative, evidence-based test for mental disorders. The primary application is likely to be for depression, which could affect around 4-5% of the global adult population and for which there is presently no objective method of diagnosis.
Depression is a costly illness, not just because of cost of treatment or even lost days worked but because those who are depressed are less motivated to look after themselves and this can contribute to other illnesses, while a failure to diagnose depression raises the chances of people taking their own lives. Baillieu Holst expects further studies will be conducted on other conditions and notes anxiety disorder is of particular interest, given its high prevalence. One large US survey found that in any 12-month period, 18% of US adults experienced an anxiety disorder of some kind.
Intriguingly, the company is working on a consumer app for smart phones for tracking mental health, initially as a monitor of chronic stress – which should be available via Google Play and the App Store. This would not be an official diagnostic but would flag the desirability of the user seeing a physician. This app is considered a likely early revenue source by Baillieu Holst. The broker expects that after an initial validation study, the test will be filed for approval in the US as well for a CE Mark in Europe, probably in 2015.
The test, which Baillieu Holst calls Invatec as it came from a privately held Perth-based company called Invatec Health, involves the use of externally worn sensors that capture circadian heart rate data. This data is then uploaded to a cloud-based server for analysis using proprietary algorithms. These flag mental health conditions based on subtle changes to Heart Rate Variability (HRV). HRV is reduced after heart attacks and frequently such patients become depressed. In recent years a body of work has elaborated a link between reduced HRV and depression. Routine use by a physician would likely make it easier to identify patients that are not so easily indicated by other subjective and time consuming diagnostic techniques.
Baillieu Holst believes BioProspect is undervalued. The base case valuation is 0.7c a share, on which the broker bases its target, and the optimistic case is 1.5c. The broker underpins a Buy rating with the reasoning that the test will ultimately be administered by a physician, subject to clinical validation and regulatory approval. Of course, there is the risk that gathering the necessary HRV data with existing sensor and mobile phone technologies proves too difficult and the upcoming clinical trial may show specific inadequacies in the test. There is also the risk that physicians resist the introduction of the test as a diagnostic tool.
The broker likes the leadership of the company, with executive director Claude Solitario being involved in development of various technology-based ventures over the past 25 years. The current CFO of Fortescue Metals, Steve Pearce, is also an advisor to the board, which Baillieu Holst considers bodes well for the financial and commercial strategy. BioProspect listed on ASX in 2001 and has become a player in developing software to provide health related information. Recently the company exercised an option over Invatec Health. This is a three-stage process that will ultimately mean the test and associated intellectual property is fully owned by BioProspect.
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