Please note: this post originally appeared on The Constant Investor here.
Kate Quirke is the CEO of a small healthcare IT business called Alcidion. It had a backdoor listing in 2015 and it didn’t really get anywhere. It went up, it went down, and back where it was three or four years ago. It took over Kate’s business called MKM Health and another business called Patient Track which was part of MKM Health, and now are off and running. Kate is running the business, and her old partners in MKM are also helping to run the business. Ray Blight, the founder of Alcidion has stepped back although he still owns a fair few of the shares along with his partner.
It’s an interesting story: Alcidion is basically a disruptor of healthcare IT and healthcare patient records keeping. There is a business in helping hospitals maintain their patient records and it’s been going on for a long time; there’s a lot of big American companies that do it and what Alcidion is doing is bringing artificial intelligence and algorithms into that business and is disrupting it and presumably doing it on price so I’m not sure about that.
They are just off and running, potential obviously for big gains in future but it’s still got the job ahead of it. As with all of these early stage businesses there are risks but it’s well-worth listening to Kate Quirke describe what she’s doing.
Here is Kate Quirke, the CEO of Alcidion.
Kate, perhaps you could just help us understand the structure of the business and the products because obviously Alcidion has been going for a while and then it bought MKM and Patient Track last year which brought you into the business and you became CEO, that was last July. What were the products that came in with MKM and Patient Track, and how does it all hang together?
Okay, thanks for that. Alcidion for some time has been about its focus is on making use of the increasing amount of healthcare data that’s being digitised and that’s been something that the industry has been investing into the last five to ten years and Alcidion has built a technology platform that allows to draw on that data and apply clinical decision support or artificial intelligence if you want to call it, or algorithms to that data to improve clinical decision making and patient outcomes.
If you look at the sort of data that’s being collected in healthcare at the moment anyone can probably relate to the four-hourly taking of observations, blood pressure, temperature and so forth. All of that data collected over time tells us something about a patient real time whilst they’re in hospital whether they’re getting better or whether they’re deteriorating.
One of the products that came as part of the acquisition was a product called Patientrack which actually provides all of that information in an electronic format, patient details about during their stay. One of the great things that we have in that acquisition was more data being available to our technology and analytics platform to improve the quality of the data that we’re using in decision making. Patientrack brought that along.
MKM Health itself, whilst they were one of the majority shareholders of Patientrack they were also a significant integration and data services business in healthcare so they were a sizeable organisation, well recognised for their capability to bring data and integrate data into platforms like the one that Alcidion had build so it was a very synergistic coming together of organisations where we had a data platform that could benefit from more data and the skills and capability to enhance that ability to bring that data in. In addition we had more geographical span.
MKM was already with Patientrack in New Zealand and UK so that gave Alcidion immediate market access to a wider geographical market.
Are you the ‘K’ in MKM?
No, I wasn’t. I joined the organisation probably about five or six years after it started. The ‘K’ is actually Donald Kennedy who is our General Manager of our UK business. The three, ‘M’, ‘K’ and ‘M’ are still part of the business. As a matter of fact Collin McKinnon, who is the first ‘M’, has just been appointed our COO/CFO for the Alcidion Group.
Right, he was one of the founders of MKM and with Paul Marriot and Donald Kennedy.
Paul Marriot and Donald Kennedy, and then myself and another gentleman, Andy Smallman who is still in the business, joined it later and decided it would become way too unwieldy to add our initials to the lettering as well.
Right, fair enough. Now Collin reports to you?
Yes, he does. As a matter of fact in MKM whilst we were five directors that owned the business we did have a corporate structure in place and I was the CEO and Collin was the COO/CFO in MKM when we ran it as well.
Alcidion was originally a backdoor listing from a company called Naracoorte which is a mining business, and that was in 2015. In a way was the acquisition of MKM by Alcidion last year in July, was that almost like a backdoor listing of MKM into Alcidion? Because you’re running the place and Collin is second in charge and Ray Blight is set to step down. Is that kind of what’s happened?
I’ve heard that said but the reality is the core part of who Alcidion is and what our proposition to the market is is in fact the technology platform that Alcidion has been working on for some time and they have put a lot of R&D and investment into that platform. The Miya Precision Platform, which is Alcidion’s core technology, is really at the heart of what the Alcidion Group is now about. We have Malcolm Pradhan, who was the founder with Ray Blight of Alcidion, he is our Chief Medical Officer and heads up our research and design. He is still very much driving where Alcidion is going in terms of its technology.
I think it’s fair to say that we’re in this together and Duncan who was the CFO/Company Secretary, Duncan Craig, has only just left the organisation last week and he certainly was very instrumental in the transition period of taking the organisations and bringing them together.
I don’t know this but just looking at the business and the cash flows and the share price over the past three or four years Miya, that product hasn’t really got anywhere and that that’s why Ray and Malcolm had to kind of buy MKM and Patient Track, to make a go of it?
I think there has been a lot of research and development and investment in Miya as a platform and part of the success of Miya as a platform was relying on this digitisation of healthcare data and it’s fair to say that Miya was slightly ahead of where the healthcare IT market was in terms of being able to pool all of that data. It is heavily reliant on big data from a digital environment.
Firstly I’d say I think Ray and Malcolm have certainly been investing in developing where we are today. In that respect yes, it hasn’t actually turned into potentially what they had envisaged. Also what was really important about that I think is as an organisation Alcidion has been very focussed on a very smart technology and engineering from an IT perspective but had not put significant focus into the delivery and sales and marketing requirements and capability needed to get that to the market.
Part of the strategy post the listing was to look at M&A activity that would increase their capability around reach, sales and marketing and delivery capability, and in finding MKM they have found that partner that can deliver that. We were profitable, we have a significant reputation in the industry for successful delivery of not only our own products but third party products and so therefore it was a smart move on their behalf to look at bulking up that part of the organisation.
Are you saying that MKM is needed, and you personally are needed, for distribution purposes?
Certainly we provide the distribution capability because we have 150 plus customers currently across Australia, New Zealand and the UK, MKM and Patientrack did, who are using either our services or one of our products. We have significant relationships already in place with the end customer and an ability now to take the proposition of this smart informatics technology platform to our existing customer base.
What do you do for them, for the 150 customers?
A range of things. Obviously, the Patientrack solution, which is all about clinical documentation and electronic observations, is part of it. We also work with a large number of customers in helping them integrate, bring all of the data from the many disparate systems that they buy, a pathology system, a radiology system and electronic medical record, bringing that together so that they all share information. Unfortunately in healthcare a lot of the data exists in silos and they need skills and technology such as ours to turn that into meaningful information at the bedside.
I liken it to a credit card company for example that has lots of information about everything you buy, where you buy it and how often you buy it but they use smart algorithms across that to identify for example potential fraud. They’re constantly surveying all of that data to identify all of that data to identify if there’s some unusual activity occurring.
What Alcidion’s proposition is is that we’re using that data to constantly surveil a patient’s current status, are they deteriorating, are they getting better and if they are deteriorating then identifying and notifying a doctor or a nurse that they need to visit that patient and do something about it. That sort of capability needs both a technology platform and the skills to understand data.
As I understand it the MKM business was begun by those guys, ‘M’, ‘K’ and ‘M’, and they came from big four professional services firms and so the original proposition was as almost a management consultancy for the health industry. Then they gradually moved into IT, is that right, and then they started to bring in some software solutions?
Yes. First of all they left the big four with a view to setting up an IT consultancy in healthcare so it was always about IT. They basically recognised a need in the market for not so much the big management consultancy firms but for people who understood the application of technology so that was always the proposition and then during the course of that the skills that we had and acquired allowed us to look at developing new software applications. One of those was Patientrack, and we did that actually in conjunction with a professor, Michael out of Monash Health at the time.
We had real world opportunity and real world input but we at MKM had the technology capability to build new solutions. It was an evolution over probably 15 years, we moved heavily into the technology product side at MKM probably about 10 years ago.
That was with Patientrack was it?
Right, so as you were going along did you and your partners in MKM think we actually need now to get a much better data capability and including artificial intelligence or algorithms and did you then identify Alcidion as a potential merger partner? I’m not trying to get you to tell me whether it was a reverse takeover again, I’m not really concerned with that. I’m just wondering whether you saw that as the next step for MKM?
Definitely. We had evolved, we had a great product in Patientrack and certainly in the United Kingdom we were getting a lot of interest from our customers over there and new potential customers for ability to expand our capability beyond Patientrack to look at more logistics, algorithms and artificial intelligence and therefore at the same time that Alcidion was looking for an M&A partner we had identified that we were going to look at either whether we did something ourselves, whether we looked at getting a private equity partner and so forth. It was very opportunistic that at the same time we were looking to do what our next steps were in terms of data.
I had identified that need probably two or three years ago and we were working through the potential next step for partnering or merging or being acquired.
Right, and how much of Alcidion do the old MKM people now own? I’m just looking on the shareholder list pf Alcidion and it still looks like Malcolm and Ray have got most of the shares.
Malcolm and Ray got the majority of it in terms of the people working in the business. The third shareholder is Blue Sky who was the equity partner of Alcidion and then the next three I think listed there is Caledonia and has become Colin McKinnon, Donald Kennedy and myself. Malcolm and Ray still have a significant shareholding.
I’m just trying to think through why Alcidion might have been spinning its wheels over these years and what you can bring to it. I wonder whether the problem is that trying to sell software solutions to hospitals as a sort of outside provider of it I presume on some sort of subscription or whatever where most of the hospitals are pretty well-resourced. They probably want to do their own rather than buy it in. Is that the problem?
Definitely not the case. Most hospitals are moving away from actually doing anything in house because they’ve recognised that the core capability of keeping up with all the changes in technology is not really what healthcare systems are about so we are definitely seeing more and more people moving to subscription based models for their IT and that’s one of the reasons that MKM as a service is part of our business was growing so much year on year, is that we were seeing a real shift away from hospitals doing it themselves and using external providers.
The real issue around Alcidion, an Adelaide based company that was very focussed on its technology and not having reached its full potential, I honestly believe was about one, the healthcare industry was not necessarily ready for the platform data capabilities, that is definitely something that’s been emerging in the last few years and the data analytics market was reported in 2018 to be around $14 billion USD but the suggestion is there will be 15 billion USD in the next five to six years.
This is definitely the growing part of the market and I think Alcidion really has reached a point now where it needs the arms and the legs and capability of an organisation like ours to take that to the wider market.
I saw an announcement recently, I’m just trying to find it now. The most recent announcement was 25th of February, they signed a new contract with ACT Health. The total value of the new contract is $711,000 over 2.5 years, that doesn’t seem very much to me.
That’s an add on, that’s an extension.
Patientrack first of all went into the Canberra hospital, then ACT Health bought the whole of our fleet, Miya and Smart Page as well and added that on. That was a contract we announced early in this first half which was around $4.5 million and now they’ve extended the use of Patientrack to another hospital, the Calvary Hospital. These are add on contracts. The total contract value over three to five years at all of those together is around $6 million.
Right, and is that the typical contract value when a hospital buys your full quite of products, that’s what they’re paying?
Yeah, on average a 500 to 600 bed hospital will pay around $1 million a year.
Right, and when you say it’s over three years do you have to renew it at the end of that time, do you?
Most contracts are usually for three to five years in healthcare with optional renewals on the customer’s behalf. I recently signed one with a large health department for 20 years but it was five plus five plus five plus five. It’s an option to renew most healthcare customers are fairly sticky because once you are involved and you have done a lot of work to become part of the fabric of the organisation changing out solutions is not as straightforward.
How does the process of signing up a hospital work do they go to market, have a beauty parade and then you’ve got to pitch for the business?
That’s probably a good way to put it, yes, mostly, not always. Yes, procurement obviously in a government sector is you need to go through that process. We are seeing the emergence of more innovation type funds being utilised in healthcare and we have recently been successful in one of those in New South Wales Health where we have been selected to run a proof of concept using the Miya platform to show out some innovation in healthcare and in that sense you don’t need to go through the same vigorous procurement requirements.
Just tell us a bit about what MKM has brought to the table. You said you’ve got 150 customers, are you now working through those customers selling them the Miya package along with Patient Track and whatever else you’ve got?
Yes, so part of what we’ve done in the first six months is to train up the sales and marketing team in all components of what we offer in terms of what Miya brings to the table. We’ve looked at the propositioning of how we take that to market and we’re now actively pursuing what we call cross-selling opportunities into our existing customer base and of course, taking the combined offering to new customers. Because we’re now a company with both capability and a wider product solutions set we’re far more attractive to the healthcare market as well.
Do you reckon you’ll pick up all 150?
No, I doubt that all 150 will necessarily select the Miya platform but I think what we will do is have enough of a momentum with those 150 that we will also become attractive to the multitude of other hospitals that we aren’t currently implemented in. If you look at the NHS in the UK where we have around 30 plus hospitals running Patientrack at the moment there are in fact 300 NHS trusts, 60,000 beds, we’ve only really just begun to enter into that market but because we actually have a position and an office over there, the ability to take this new Miya platform is really where we see potential growth.
How much are they paying for Patientrack?
Patientrack is usually around half of what their Miya expectation might be so 300,000 to 500,000 per annum depending on the size of the organisation as to how many beds they have generally.
Obviously, you’re looking to in a sense upsell them to Miya?
Yes, that is our proposition.
Have you got any of those 30 to buy Miya yet?
Not yet, we’ve only been at it sort of for five or six months and probably in the UK only directly been selling to them for the last three months or so although we have got considerable interest.
Right. In these pitching processes that we talked about is it competitive, are there others doing exactly the same thing as you and you’re sort of competing on price or is it that you are able to compete simply on service?
Of course we have competitors in the market, there are not many that do exactly what we do but there are some that do elements of what we do so the Miya component in terms of this healthcare analytics capability married alongside our Patientrack solution and our services is somewhat unique in the territories that we are currently marketing to but we will find individual companies that might do some of what we do in that market so there’s no doubt that we are looking at being competitive but I wouldn’t consider where we’re at being a price competition at the moment, it’s much more around the proposition of what we can bring to the table in terms of technology and then in healthcare it’s very much around being a trusted partner and proving that you can actually deliver.
Many people have heard of big IT systems in healthcare and many other industries not going the way the customer had planned, so having proven track record to deliver is very important to healthcare customers.
I’m just trying to get a sense for investor subscribers of the potential for this business. It just seems to me that in some ways you’re like a subscription business yourself which means that operating leverage is enormous potentially.
Yes, and certainly our proposition is that we believe we are on a forward revenue trajectory, we have come together, we now have both the capability and the technology to apply to a market that’s ready to take it and we can do it in a way because we have a platform that is cloud capable so we can provide it fairly easily in a subscription environment to our customers. We are going to see, we believe, significant revenue capability in the next two to three years.
Yes, that was my next question really, is this a five year story or a ten year story do you think, what does it feel like to you?
Look, it’s too hard to tell right at the moment how rapidly it will be taken up but I would say at least in the next three years we will see some significant uptake. I think five years from now you will see the geographies that we are in, if not all the vast majority of them, needing and using this type of technology and at the moment it really is at the beginnings of the uptake but the interest is enormous worldwide.
Are you competing against any very large organisations that are potential acquirers?
I think when we look at some of the large organisations in healthcare and IT the big American electronic medical record vendors, Cerna, Epiq, InterSystems, very large organisations, they certainly have been trying to be agile enough and innovative enough to be in this space but because of the vast amount of investment they’ve got in their existing underlying transactional base systems they struggle at this end so it’s certainly a potential that organisations like that could see what we have built as being significant value add to their proposition at some point in the future.
Interesting, are you in some way a disruptor to them?
Yeah, the way you were talking about them is that you’re bringing an AI capability into an existing patient records business, are you?
Yes, that’s what we’re doing and I think that the disruption of healthcare is exactly what we’re about, it’s been an industry that has been a laggard in terms of the adoption of information technology. They’re very good at disrupting obviously with the use of high tech in terms of provision of improved healthcare but have been somewhat a laggard in the use of IT to disrupt. We’re seeing now an acknowledgement that doctors and nurses and the complexity of the patients they’re now treating, they can’t possibly be able to synthesize all of that data all day long and be able to provide the most effective patient care and they’re recognising it themselves.
They are looking for disruption, we are seeing the workforce obviously becoming more focussed on younger individuals moving through that are used to technology in their day to day lives and expect it in their working life as well.
Fascinating. It was really interesting talking to you, Kate. I appreciate it, thank you.
Thank you very much, Alan.
That was Kate Quirke, the CEO of Alcidion.