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NeuPath Health Inc (NPTH.V)- undervalued medical play, solving one of Canada’s hardest problems

09/11/2020

There’s a million ways to invest, and we’ve covered most of them. You could follow Warren Buffett’s market moves, commit to a specific pattern and philosophy, invest according to your astrology chart that morning… (we would like to officially recommend you not do the latter)

At Equity Guru, we like to find companies that follow Social Capital’s mission: “advanc[ing] humanity by solving the world’s hardest problems”. A problem-solver not only has a sellable asset – but also a story that sells to today’s young investors. As we all know, a bull on the market either has an asset, or an incredible marketing story, and the reliable stocks have both. (We’re not saying Tesla doesn’t have both, but *image of the 20% drop yesterday*)

Today, we’re going to talk about a company with an excellent problem-solving asset – an excellence that definitely smooths their marketing path.

 

Meet NeuPath Health Inc (NPTH.V). 

NeuPath operates under two leading brands in Ontario, CPM (Centres for Pain Management) and InMedic Creative Medicine. Between those 2 brands, NeuPath has 12 locations across Ontario, making them Canada’s largest provider of chronic pain management services.

The clinics offer “comprehensive chronic pain assessment and multi-modal treatment plan based on recommendations by a group of trained physicians to help patients manage their chronic pain and optimize their quality of life.”

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A fabulous goal, to be sure. But is NeuPath a social investment, one that easily appeals to investors with a society advancement agenda in mind?

To classify NeuPath as a social investment, it needs to fulfill the following purposes:

  1. Is NeuPath solving a difficult problem
  2. Is this a good investment

 

Is NeuPath solving a difficult problem?

The answer is an emphatic YES.

(In full disclosure, we’ll now be discussing the statistics of substance abuse and suicide.)

According to an article  written by Mary E Lynch, MD FRCP, President, Canadian Pain Society:

“Pain is poorly managed in Canada. This includes acute pain caused by ongoing tissue damage, trauma or surgery, chronic pain and pain related to terminal illness. Reasons for this include under-recognition of the problem, lack of education regarding pain assessment and treatment in graduating health care professionals, and grossly inadequate funding for research regarding pain. Although we have the knowledge and technology, Canadians cannot be sure they will receive adequate or appropriate treatment for pain along the entire continuum of care from community health professionals to specialists in tertiary health care institutions.

The magnitude of the problem is increasing. For example, one in five Canadians experiences chronic pain, children are not spared and the prevalence of chronic pain increases with age.”

If you just skimmed that, the main takeaways are:

  1. Chronic pain affects one in five Canadians
  2. We don’t really have a standard solution for chronic pain, despite all the medical advances

It goes without saying that chronic pain is an issue, regardless of age and gender, and isn’t a simple problem dismissed with a “you get used to it”. The impact of coping with chronic pain is famously and dramatically portrayed in House MD – but it’s not difficult to imagine the very real consequences for the average Canadian.

It’s therefore no surprise that Canada is the second largest per capita user of prescription opioids in the world. This is certainly in part because for the past two decades, Canadians have been told that prescription opioid medications are safe, effective, non-addictive solutions for acute, chronic and persistent pain. The italics are deliberate. Prescription opioids are certainly capable of being abused, and

The rise of prescription opioids has grown in Canada and has now reached a crisis level.

 

 

Pain Costs Money, and lives

“Health economists from Johns Hopkins University writing in The Journal of Pain reported the annual cost of chronic pain [in the United States] is as high as $635 billion a year, which is more than the yearly costs for cancer, heart disease and diabetes.”

There’s admittedly less data available when it comes to Canada and pain. However when “Taking these estimates and applying them to the Canadian population, the estimated combined direct and indirect costs of chronic pain in Canada would total approximately $56 to $60 billion per year (Wilson et al., 2015)”.

In fact, chronic pain is one of the most common reasons for seeking health care in both Canada and the United States.

Of course, pain’s influence over society is not limited to monetary values only: it is also horrifyingly and expectedly one of the most significant factors behind substance abuse and suicide.

According to the latest available data, Statistics Canada estimates 4,157 suicides took place in Canada in 2017, making it the 9th leading cause of death.

When examining the various risk factors for suicide, this article posted by US National Institute of Health stated:

“it is apparent that many of these factors can be associated with living in chronic pain. As noted, many pain patients experience concomitant depression and some have histories of alcohol and substance abuse. These patients experience hopelessness and isolation due to their pain, and they endure many losses, including their work and family roles.”

NeuPath recognizes chronic pain as a complex condition that is driven by a number of biological, behavioural / psychological, and social factors – and it is that acknowledgement that is the secret to their success in helping those afflicted.

The  treatment plans developed by NeuPath’s licensed healthcare providers are multimodal and designed to address as many of these factors as possible. An approach a far cry from the common and apathetic practice of prescribing painkillers to drown pain.

In addition to treating the pain sensation itself, NeuPath aims to educate patients and provide them with the confidence and tools required to better manage their chronic pain.

2. Is this a good investment?

If someone were to ask my personal opinion, the answer would again be an emphatic YES.

  • 28,342,735 Shares issued 
  • $11,222,000 CAD Q2 revenues (despite COVID-19)
  • For the three months ended June 30, 2020, adjusted EBITDA was $600,000, an increase of 43% compared to $421,000 for the three months ended June 30, 2019.

I don’t even need to provide comparables to demonstrate that the company is severely undervalued at a market cap of $24,942,000 as of Sept 9th, 2020 (shares trading at $0.88).

Organically, with a footprint that covers approximately 67% of Ontario’s population and a mere 56% capacity utilization, NeuPath has ample room to grow their revenue without the upfront capital cost of building/acquiring new clinics.

Additionally, while operating within a fragmented market with the powerhouse backing of Bloom Burton and an all star management team, NeuPath is poised to grow further via M&A’s.

There’s an obvious problem that isn’t going away anytime soon unfortunately. If there’s no magic potion, then there needs to be a comprehensive solution –  and NeuPath is well positioned geographically and metaphorically to provide that aide. It’s a win-win that lacks markers of expected high upcoming costs, and is expected to grow.

I’ve said it before and will say it once again:

It’s no secret that we like making money. If we can make money with something that literally would make the world a better place, we’re all in on that.

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