Echo IQ [ASX:EIQ]
Healthcare & Biotechnology
AI-Powered Disruption of US Cardiovascular Healthcare
We initiate coverage on Echo IQ Limited (ASX: EIQ) with a fair valuation of $0.91, representing a 176% expected upside from the current share price of $0.33. EIQ is an Australian-based AI-powered company that has developed AIbased software for the earlier, more accurate, consistent and speedier (takes just a few seconds) diagnosis of Aortic Stenosis and Heart Failure (two of the leading segments of cardiovascular disease). Cardiovascular diseases are the leading cause of death in the USA and globally and are one of the highest contributors to healthcare expenses. Consequently, EIQ’s technology has the potential to help solve a significant healthcare problem and given the strength of its patented technology’s diagnostic outperformance vs current diagnostic approaches, EIQ is positioned well to financially capitalise on this opportunity, with the mediumterm goal to focus on the large opportunity in the USA. A key root cause for EIQ’s diagnostic outperformance is that its AI was trained off the world’s largest echocardiogram results database, something that its competitors cannot emulate; additionally, the value proposition of other AI players in this space is not geared to diagnostic decision support which is what EIQ offers (EchoSolv).
Strong AI-powered diagnostic results and associated benefits
EchoSolv has shown outstanding diagnostic outperformance across clinical trials. For AS, this includes being able to accurately identify phenotypes of the disease – 100% accuracy for severe AS (~70% improvement over human review) and the ability to identify mild/moderate cases of AS, which human review often misses. Similarly, with HF, 97% of cases were detected vs only a ~ 50% detection rate via human review. EchoSolv’s ability to accurately and earlier detect at-risk patients benefits hospitals themselves, in terms of resultant improvements to their productivity, costs, patient turnover and achievement of better patient health care outcomes, leading to the likely strong uptake of the technology (this can also be seen in the current pipeline of business that EIQ has achieved).
Well-positioned just prior to a USA-based revenue ramp
FDA 510(k) clearance has been given for the AS offering, with submission for the HF offering to happen later in the year. The strength of the clinical results the HF offering has shown, added to EIQ’s partnership with the USA’s number 1 ranked hospital for its FDA clearance required validation study, means that clearance for the HF offering will very likely be received soon. EIQ’s progress with reimbursement codes and its revamped management team, which includes US based commercialisation experts, leads to EIQ being well placed to monetise on the very large revenue opportunity that the USA market presents.
Valuation
We value EIQ at $0.81 in our Base Case and $1.01 in our Upside, with both cases reflecting conservative assumptions (refer to the Valuation section). EIQ’s software-based business model is inherently high margin, with just a few cents of COGS to achieve US$150 and higher one-time use revenue.