The Offer

Company Overview

Heart Test Laboratories, Inc. was incorporated in Texas, the USA in August 2007, and operates as a medical technology company by deploying innovative AI-based solution technology to ECG (also termed as EKG) for enhancing the ECG’s clinical usefulness. The company is majorly inclined toward making the ECG an effective tool for cardiac screening, especially in the frontline or point-of-care clinical settings. The company’s first product MyoVista wavECG (MyoVista), is a 12- lead resting ECG which is also aimed to yield diagnostic information about cardiac dysfunction which was earlier only available through cardiac imaging and is waiting for the FDA clearance. The business model is devised around the sale of MyoVista and the usage of the proprietary supplies that are electrodes that will be required for each test, ‘razor-razorable’. Post-FDA approval the group aims to cater to the frontline healthcare in the US which includes cardiology, and primary care to help the physician for making conclusions in referring cardiology process, retail clinics, and insurers.

Key Highlights

Primary Offering: The company is offering units of securities, issuing 1,750,000 Units at USD 5.00 per Unit (which is the midpoint of the price range set in the IPO prospectus), each Unit consisting of: a) One share of Common Stock; and b) One Warrant to purchase one share of Common Stock. The Warrants may only be exercised at an exercise price of USD 5.00 per whole share of Common Stock.  The Common Stock and the Warrants comprising the Units are immediately separable upon issuance and will be issued separately but will be purchased together in this offering.

Use of Proceeds: The group estimates the net proceeds from this offering will be approximately USD 7.2 million, assuming an initial public offering price of USD 5.00 per Common Share (which is the midpoint of the range set). The company has estimated an approx. of USD 8.4 million of the proceeds if the underwriters exercise the option of over-allotment in full. The company intends to use these proceeds for achieving FDA clearance for the MyoVista device, then the reaming will be allocated to research & development, completing the pivotal clinical study for the validation, working capital, and general corporate purposes, etc.

Dividend Policy:  Since its inception, the group has never paid any dividend and does not intend to pay dividends on its Common Shares anytime soon.

Sector Overview

• Potential growth in the urgent care clinics: The broader medical equipment and testing devices are in high demand especially the health awareness ignited post COIVD-19 pandemic. Various other treatment sites have been launched such as retail clinics, urgent care clinics, concierge medicine, etc. The report from Insight Partners suggests the markets reach approx. USD 1 billion in 2027 from USD 3.4 billion in 2018. The urgent care clinics market sector is demonstrated robust growth. As per the IBIS world market research report, the industry revenue is estimated to increase with an annualized rate of 4.6% to USD 40.3 billion in 2022 and is expected to grow higher in the coming years.

• Growing ECG market: Tt is estimated that approx. 1.5 million to 4.0 million ECG (electrocardiographs) are conducted across the world every day. Alone in 2015, close to 770,000 ECG devices were sold across the globe. As per Markets and Markets Diagnostic ECG Market (2019- 2024), the worldwide ECG device segment is anticipated to grow by USD 3 billion in 2024 (excluding supplies) with a compounded annual growth rate of 6.4%.

Financial Highlights (expressed in thousands USD):

Source: IPO Prospectus

• Declining revenue: The group reported revenue of USD 10k for the 9MFY22, which is lower than the revenue of USD  11k in the pcp. Revenues are mainly derived from the sales of the devices, electrodes, and various other supplies.
• Increase in loss from operations: the loss from operations increased to USD 73 million in the reported period as compared to the loss from operation of USD  1.78 million in the pcp, which was on account of higher operating expenses.
• Increase in net losses: the group reported net losses of USD 77 million in the reporting period which is higher than the net loss of USD  1.60 million in pcp.

Key Management Highlights

Source: IPO Prospectus

Risk Associated (High)

Investment in the IPO of "HSCS" is exposed to a variety of risks such as:

• Pending FDA approval: The biggest risk lingering on the company is the pending approval of the MyoVista from the FDA, and further operations are completely dependent on the same.
• Weak Financial Position: The company experienced increased expenses, widening of losses from operations, and an increase in let losses, which raises a serious concern about the financial stability of the group.
• Immense competition: The medical device segment though is a niche area, but it is revolutionizing at a high speed which leads to increased coemption among existing and new incoming players. There are various big names already prevailing and have captured the market like GE, Philips, & Nihon Kohden Corp. which causes the other players to offer products at lower costs, thereby impacting the margins.

Conclusion

Since incorporation, the company has raised funds through the sale of equity and the issue of debt securities. The company’s first product: MyoVista is waiting for the clearance from FDA, post that the group will start the business operation on a normal scale. Any failure to obtain the license can cause the business to fail. The medical testing equipment and ESG devices industry are set to expand at a rapid pace and the company’s technology to keep itself in the market pace is impressive. The financials of the company as of now are weak, but any pivotal favorable change in terms of the approval from the FDA can turn the financials of the company in its favor. Also, the makrt is quite volatile on the back of rising interest rates, geopolitical issues, supply chain related issues, rising shipping costs and inflationary pressure, which could have a weigh on the HSCS’s IPO performance. Hence, Heart Test Laboratories, Inc. IPO looks "Neutral” at the current price and in the present market scenario, given the associated risks.