In my lifetime, there have been some truly remarkable advances in medical science – from the first heart transplant in 1967 to the mapping of the human genome in 2003. And the pace of innovation in medicine seems to be accelerating as I get older. Recently I picked up a copy of National Geographic with a newborn boy on the front cover. The headline read: “This baby will live to be 120”. That’s staggering when you consider that the average life expectancy for a British male was 70 when I was born.
But despite this phenomenal progress, there is one core element of a human being that, given its complexity, represents the final frontier for medical research: the brain.
We understand the brain much less completely than the body’s other organs. Given its complexity, neural disorders are among the most difficult to address with a high degree of confidence. And degenerative diseases such as Alzheimer’s and dementia are fast becoming a menace to our ageing society. That will only continue as longevity extends towards that 120 number.
So, how to we begin to address these issues? Well, by seeking to understand the brain. And today I want to tell you about one company that is making huge advances in doing just that.
This company has developed a brain sensor that could prove a quick, accurate and affordable way for researchers and clinicians to monitor brain activity. And I think there are at least three thriving markets that this company could sell into. Let me explain why I think this stock could triple from here…
The great promise of brain sensors
Today, we can learn a great deal about an individual patient’s heart, lungs or liver through x-ray, MRI scanning, exploratory surgery and chemical tests. A doctor observing damaged heart tissue, for example, will readily know what the options are and how best to proceed. The brain just isn’t as straightforward.
For obvious reasons, we are less keen on invasive procedures where the brain is concerned. When the surgeon ‘goes in’, we need to be sure he or she is aiming for precisely the right millimetres of tissue. Similarly, if researchers are to make the breakthroughs that we want in understanding and treating neural diseases, they need an accurate way to map and understand brain activity in all its complexity.
The standard approach has been EEG, or electroencephalography, an old technology that has been around since the 1940s. This involves glueing sensors to a patient’s scalp, after shaving and preparing the skin. It isn’t a terribly pleasant experience, nor is it as accurate as required given interference from the scalp and cranium which impedes accurate readings.
However, progress in high-performance computing and mathematical modelling mean that EEG data can now be collated with the necessary precision and accuracy. And Electrical Geodesics (EGI) listed on AIM earlier this year in order to exploit this opportunity.
EGI’s main product is a ‘dense array’ electroencephalography (dEEG) process. The density of the sensors deployed, up to 256, coupled with EGI’s hardware and software provides a quick, accurate and affordable solution to researchers and clinicians. It is also popular with patients in that the sensors are part of a net that is worn over the patient’s head without scalp abrasion, providing for speed and comfort.
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Three big markets to sell to
There are three key markets that EGI seeks to address:
Neuroscience research – this is a $50m market where EGI has a leading position in the high-end (128 and 256 sensor) segment. Selling to researchers is important in providing an endorsement for the product, but it is also valuable in its own right, with funding support for brain-mapping projects in the US and particularly the EU (a notably generous institution) where a ten-year €1bn human brain project has recently been announced.
Clinical neurology – a $500m market where EGI’s quick and efficient systems should be attractive to clinicians under pressure to speed up patient throughput. It is estimated that one billion people worldwide will suffer from a neurological disease at some point in their lives. EGI has plenty of room to grow here.
Neurosurgery – this is an exciting opportunity. An estimated 30-40% of the 65 million primary epilepsy sufferers do not respond to drugs. Recent clinical trials demonstrate that patients undergoing resective surgery enjoy better outcomes and quality of life than those receiving drug treatments. However, side-effects are a risk from any inaccuracies in such invasive procedures. Accurate pre-surgical planning is the key to success which is where EGI’s dEEG process can add value in telling the surgeon exactly where to place his scalpel. As dEEG’s adoption increases in epilepsy surgery, we should expect it to broaden into other areas of neurosurgery.
A stock that could double or treble from here
EGI is based in Oregon and has drawn a lot of its expertise from the state university where founder and CEO Dr Don Tucker is a professor and a renowned expert in the field of brain electrophysiology. On the corporate side, the finance director, Christine Soden, was formerly in that role at BTG, where non-executive director Dr John Brown was also chairman. This provides me with confidence about their ability to win support from UK institutional investors and raise further funds as the business grows.
The company raised £7m on listing (brokers are Peel Hunt) to leave net cash of £6.5m. This will support the launch of the next generation of systems (the GES400) in mid-2013 and the sales force. Sales last year achieved $12m which is tiny in the context of the $500m-plus addressable market. There is also a replacement sales element; the sensor nets last for around two to three years and costs up to $5,000 each, which helps the quality of revenues.
With a mere £30m market-cap, EGI’s valuation is very undemanding for this market opportunity and cutting-edge technology. This is a stock I’ll be following very closely in the months ahead.
• This article is taken from our free twice-weekly small-cap investment email, The Penny Sleuth. Sign up to The Penny Sleuth here.
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