Before I start, I am obliged to remind our viewers that this is not advice only general commentary from my extensive research in this area.
The therapeutic landscape is changing. Now applications on iPhones are being used to treat medical illnesses. Who would have thought? Novita healthcare (NHL) is an Australian medical technology company. Novita is striving to position itself at the forefront of this newly emerging landscape, by commercialising its application Teaching Attention Learning Initiative (TALI).
TALI is a revolutionary game-based program for young children suffering attention difficulties or disorders such as autism, which increases the risk of attention deficits. TALI exercises target core attention skills, such as selection, focus, and distraction. Each level will adapt to the child’s capacity avoiding a one size fits all approach.
Unlike the standard medical treatment of Ritalin, TALI is less invasive, less expensive, and less time- consuming. Most importantly, TALI targets the underlying cause for the attention-deficit instead of just providing temporary relief to the symptoms. Moreover, 400,000 (Australian) and 6.4 million (worldwide) children currently suffer from severe attention difficulties.
How did Novita surge by 1100% in two weeks?
NHL surged by 1100% from 0.01cents 23rd October – 0.11 cents 6th November.
Price sensitive event 1: U.S Reimbursement Code for TALi Detect 24th October
On the 24th of October, NHL announced that TALI Detect, one of Novita’s training programs, can now be delivered to patients in the US via the American Medical Association (AMA) Common Procedural Technology (CPT) codes. What a mouthful, right? The CPT codes are just a collection of numbers that each represent the medical service performed and the reimbursement to the medical practitioner. TALI Detect is a gamified program to assess attention deficits in children. TALi detect is reported under CPT code 96146 for reimbursements in the U.S.
Novita can leverage CPT code 96146 to secure critical partnerships and capture significant U.S market share. Consequently, Novita will deploy TALI Detect, through the Duke University of Psychology, Neuroscience and Medical Centre, to roughly 2000 American children. In turn, investors instantly recognised the revenue potential of this CPT acceptance. Thus, sparking an initial rise in the share price.
Price Sensitive event 2: U.S Reimbursement Code for TALi Train 1st November
On the 1st of November, Novita announced that TALi Train, one of Novita’s training programs, can also be delivered to the U.S market via CPT codes of 96130,96131,96132 and 96133. TALI Train is a 25-session intensive program that strengthens children’s selective, sustained, and executive attention. TALi train has received clearance from the Food Drug Authority (FDA) and the Therapeutic Goods Authority (TGA). Consequently, TALi Train is the only regulatory cleared children intervention attention program. Thus, giving Novetia a significant market foothold.
TALi train aims to improve the attention ability of children who have ADHD. According to the ASX announcement, “6 million children currently suffer ADHD in the US”. This market opportunity increases Novita’s drive to make TALi Train accessible to these suffering children. Novita’s altruistic actions also radiate out to investors the potential revenue uptake. Thus, further driving up the share price. The CPT codes for TALi Train and TALi Detect illustrated significant company growth.
A balanced perspective
Novita holds significant upside potential in the medical technology market. However, here at YIG, we like to provide young investors with a balanced perspective. So, let us examine the risks (negatives).
Firstly, NHL is not a profitable company. Instantly, creating alarm bells inside the mind of an investor. NHL’s lacks profitability because of the extremely high software and operational cost of developing TALi and the minimal sales revenue. NHL’s current unprofitability is significantly impacting their Return on Equity, which is at -143.3%. Meaning that investors’ funds have not been effective in generating a profit. Another financial concern is Novita’s negative cash flow of -2.56million.
To understand whether the key financials above are negatively impacting growth, investors must review Novita’s insider transactions. Unfortunately, there has been more insider selling than buying of Novita’s stock in the last three months. An alarming sell was by Peter Diamond, who sold 596 thousand for 0.06 cents each. Ultimately indicating that Mr. Diamond doesn’t have strong faith in the future and wanted to cash out on the temporary rise.
Where to from now? The future for Novita Investors
Novita is a speculative penny stock. Novita’s net profit margin has increased from -620.1% (2018) to -355.5% (2019), and negative cash flow is understandable because of the high software costs for TALi. Speaking of TALi, the CPT codes for TALi Detect and Train could provide significant revenue growth.
Moreover, the National Disability Insurance Scheme (NDIS) expanded TALi’s access to potential customers on 12th November. 28,601 NDIS patients are suitable to use TALi, providing more revenue growth. If Novita continues to grow at the current state, the stock would be one to watch.
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The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
Written by Associate of YIG, Patrick McLoughlin