Could This Microcap Could Be the Next 1,000-Bagger?
A look at HeartSciences ($HSCS)
The S&P500 rocketed over 24% in 2023, and has returned around 8% year-to-date. US Treasury bills, perhaps the safest investment in the world, are yielding over 5%. In this environment, many investors have a low appetite for risk, preferring to park their cash in tried-and-true vehicles.
But for those with a longer-term horizon and higher tolerance for volatility, microcap stocks offer exciting upside potential. And one little-known company, HeartSciences (NASDAQ: HSCS), is shaping up to be among the most promising microcap picks for 2024.
The Only Patented Public AI-ECG Firm
Standing out from the big tech and healthcare crowd is no small challenge. But HeartSciences has managed to do just that, solidifying its position as the only public company to successfully patent AI-powered electrocardiogram (ECG) technology. This intellectual property forms a wide and deep competitive moat, setting HeartSciences apart from the pack of tech giants and startups chasing the AI-ECG opportunity.
While household names like Apple and Google, along with a slew of smaller players, have thrown their hats into the ring, their efforts to secure patents have consistently hit roadblocks. Various lawsuits by firms like AliveCor and Masimo allege that the Apple Watch infringed on medical patents, particularly related to ECG and blood oximeter technology. In contrast, HeartSciences’ patent portfolio has sailed through the approval process, a testament to the truly groundbreaking nature of their technology.
The implications of this cannot be overstated. With its foundational IP, HeartSciences has essentially locked up the AI-ECG space. Any competitor seeking to bring a similar product to market will either need to license HeartSciences’ technology or risk costly patent infringement lawsuits. This gives HeartSciences an incredible leg up as it commercializes its MyoVista® wavECG™ device.
Tapping into a Massive and Growing Market
The global ECG market is a behemoth, and it’s only getting bigger. In 2023, the market size was estimated at $10.9 billion. But by 2032, it’s projected to more than double, reaching a staggering $25.1 billion. This represents a compound annual growth rate of 9.9%, outpacing the broader medical device industry.
Several factors are fueling this explosive growth. First and foremost is the rising prevalence of cardiovascular disease (CVD). As the world’s population ages and adopts increasingly sedentary lifestyles, the burden of CVD is growing. Scientists estimate that CVD claims around 19 million lives annually, making it the leading cause of death globally. In the US alone, someone dies from CVD every 34 seconds.
This epidemic is putting immense pressure on healthcare systems to improve cardiac screening and early detection. And that’s where ECG comes in. ECG is the first-line tool for assessing heart health, with over 300 million tests performed worldwide each year. However, standard ECG has significant limitations, often failing to detect signs of cardiac dysfunction until late stages when treatment options are limited.
AI-powered ECG aims to overcome these shortcomings by extracting far more information from ECG waveforms. By applying advanced signal processing and machine learning algorithms, AI-ECG can identify patterns that are invisible to the naked eye, enabling detection of even subtle cardiac abnormalities. This could allow for much earlier interventions, potentially saving countless lives and reducing the massive economic toll of CVD.
As the only company with patented AI-ECG technology, HeartSciences is perfectly positioned to ride this wave of growth. The company’s MyoVista device is poised to become the gold standard in cardiac screening, offering unparalleled sensitivity and specificity. With each MyoVista test commanding a premium price, HeartSciences is looking at a massive addressable market opportunity.
Separating the wheat from the chaff
One of the biggest challenges in fighting the global epidemic of CVD is accurately identifying those individuals at highest risk. It’s well established that factors like obesity, hypertension, and diabetes increase the likelihood of developing heart disease. However, not everyone with these risk factors will go on to have a heart attack or stroke.
In fact, many people who are overweight or even obese may have healthy hearts. Conversely, some individuals with normal body mass index may be silently harboring significant cardiac dysfunction. This makes it difficult for healthcare providers to know where to focus their limited resources for maximum impact.
HeartSciences’ AI-ECG technology is a game-changer in this regard. By analyzing the entire ECG waveform, not just the standard metrics like heart rate and rhythm, MyoVista can detect signs of cardiac dysfunction that would be missed by traditional screening tools. This allows for much more precise risk stratification, ensuring that those patients in greatest need of intervention are identified early.
Moreover, these algorithms can differentiate between benign cardiac findings associated with factors like obesity versus true markers of disease. So, in a population of overweight individuals, MyoVista can pinpoint the subset who have actionable cardiac issues and would benefit from aggressive treatment.
This capability is especially valuable as a new wave of highly effective obesity drugs hits the market. Medications like Novo Nordisk’s Wegovy (semaglutide) have shown unprecedented efficacy in clinical trials. However, these drugs come with a hefty price tag, sometimes over $1,500 per month. Identifying which patients are most likely to benefit clinically makes the economics much more favorable.
With MyoVista as the gatekeeper, pharmacy benefit managers could require documented evidence of cardiac dysfunction before approving coverage of expensive anti-obesity agents. This precision medicine approach has the potential to simultaneously improve outcomes and reduce costs, a rarity in healthcare.
Navigating the regulatory maze
Bringing a new medical device to market is a notoriously complex and expensive endeavor, with the FDA approval process often cited as the biggest hurdle. Countless startups have seen their promising technologies wither on the vine while trying to navigate the regulatory maze. Even tech giants with vast resources have struggled in this arena.
Take Apple, for example. The company made headlines in 2018 when it announced that its Apple Watch would include an ECG feature capable of detecting atrial fibrillation, a common heart rhythm disorder. However, the path to FDA clearance was anything but smooth.
Despite having a team of top-notch engineers and scientists, it took Apple over two years to secure the FDA’s okay. And even after approval, the real-world performance of the Watch’s ECG has been questionable.
HeartSciences is overcoming many of these regulatory pitfalls. Instead of trying to reinvent the wheel with a new wearable device, the company is focusing on enhancing the tried-and-true 12-lead ECG. By offering AI analysis of the same ECG waveforms that cardiologists have been interpreting for decades, HeartSciences is able to leverage a wealth of existing clinical data to validate its technology.
This is a smart strategy, as the FDA is much more comfortable with iterative improvements to established diagnostic modalities than with entirely new device categories. The agency has issued clear guidance on the use of AI in medical devices, outlining a relatively straightforward path to clearance for algorithms that aid in clinical decision-making.
HeartSciences has already taken a major step down this path, recently announcing the successful completion of a pivotal study of MyoVista. The trial, which enrolled over 600 patients at five US medical centers, demonstrated the superiority of AI-ECG over standard ECG in detecting cardiac dysfunction. With these data in hand, HeartSciences is well-positioned for a near-term FDA submission.
Even more encouraging, the FDA has been increasingly receptive to AI-powered medical devices in recent years. The agency has granted clearance to AI algorithms for cardiac imaging, setting a clear precedent for the use of machine learning in cardiology. This bodes well for HeartSciences as it seeks to bring MyoVista to the US market.
The proof is in the partnerships
In the world of early-stage biotech and medtech companies, partnerships are often the best indicator of a technology’s real-world potential. Big Pharma and leading academic medical centers are inundated with pitches from startups claiming to have the next big thing. So when they choose to align themselves with a particular company, it’s a strong vote of confidence.
HeartSciences has been racking up these validating partnerships left and right. Most notably, the company recently inked a deal with the Icahn School of Medicine at Mount Sinai, one of the world’s most prestigious medical research institutions. Under the terms of the agreement, Mount Sinai will work with HeartSciences to develop and commercialize a suite of AI algorithms for analyzing ECG data.
This is a huge coup for HeartSciences, as Mount Sinai is home to some of the foremost experts in cardiac electrophysiology and digital health. The institution has been at the forefront of applying AI to cardiology, with a track record of spinning out successful startups. By tapping into Mount Sinai’s deep well of talent and resources, HeartSciences is supercharging its R&D efforts and gaining invaluable clinical validation.
On the commercial side, HeartSciences won a contract to provide MyoVista devices to the Irish National Police force. Under the terms of the deal, members of the Association of Garda Sergeants and Inspectors will undergo AI-ECG screening. This is a powerful endorsement of MyoVista’s real-world utility and positions HeartSciences as the go-to provider of AI-ECG for occupational health.
As HeartSciences continues to rack up these high-profile partnerships, it’s only a matter of time before the company catches the eye of even bigger players in the healthcare industry. Large medical device companies like Medtronic and Abbott are always on the lookout for innovative technologies to bolster their cardiology portfolios. With its strong IP position and mounting clinical validation, HeartSciences would be a very attractive acquisition target.
Connecting the dots for investors
Putting it all together, the bull case for HeartSciences is clear. The company is operating in a massive and rapidly growing market, with a truly differentiated technology that has the potential to redefine the standard of care in cardiac screening. By applying AI to the humble ECG, HeartSciences is poised to unlock immense value for patients, providers, and payers alike.
The company’s intellectual property portfolio is a fortress, giving it a near-monopoly on AI-ECG for the foreseeable future. While tech giants and deep-pocketed startups may try to muscle in on this space, they will be hard-pressed to circumvent HeartSciences’ patents. This gives the company a huge head start as it races to commercialize MyoVista.
On the regulatory front, HeartSciences is following a well-worn path, leveraging the FDA’s comfort with AI as an adjunct to established diagnostic modalities. With a successful pivotal study under its belt, the company is on track for FDA clearance in the near term. This would be a major inflection point, opening the door to widespread adoption in the US market.
Meanwhile, HeartSciences’ partnerships with leading academic medical centers and commercial entities provide external validation and derisk the technology. These collaborations give the company access to the resources and expertise needed to scale quickly and navigate the complexities of healthcare reimbursement.
Financially, HeartSciences is in a strong position, with a lean operating structure and a clear path to profitability. The company’s razor-razorblade business model, in which it sells MyoVista devices and consumables on a per-test basis, is a proven winner in the medical device space. As adoption of AI-ECG grows, HeartSciences’ top line should scale rapidly while margins expand.
Of course, as with any early-stage company, there are risks to consider. HeartSciences will face competition from entrenched players in the ECG market, who may seek to develop their own AI offerings. The company will also need to navigate the complex web of payer reimbursement, which can be a lengthy and unpredictable process. And like all startups, HeartSciences may require additional dilutive funding rounds to reach its full potential.
But for investors with a high risk tolerance and a long-term mindset, these risks are more than offset by the potential rewards. At its current market cap of just over $6 million, HeartSciences is trading at a small fraction of its addressable opportunity. Even capturing just 1% of the $25 billion AI-ECG market would translate to a $250 million revenue stream, easily translating to an enterprise value north of $1 billion.
In a frothy market where meme stocks and SPACs grab headlines for all the wrong reasons, HeartSciences stands out as a rare microcap with a truly disruptive technology and a clear path to value creation. For those investors willing to do their homework and take a contrarian stance, this under-the-radar company could be one of the most exciting opportunities of the decade. With multiple near-term catalysts on the horizon, including FDA clearance and new strategic partnerships, the stars are aligning for HeartSciences to deliver outsized returns in the years ahead.
