Sydney. Tuesday 14th. 12.34pm.

Just as Bridge Street ran slick and red with the blood of investors, fundies, crypto-ingénues, CEOs and their caps – both small and large from sectors across every corner of the market – something strange and green and preposterous emerged from the chaos.

Out on the periphery of where the tech sector borders the health sector, the plucky smartphone-based respiratory diagnostic maker, ResApp Health (ASX:RAP) was surging like a fiend, up 50%.

The plucky global pharmaceutical giant Pfizer had just supercharged its broadly supported original offer for 100% of ResApp by as much as $78m, with the proviso – and this would seem a no-brainer – that RAP can reproduce the promise of its COVID-19 screening cough results.

Those tests just rock. They’re what the promise of the business is built on.

Back in March, ResApp produced some pretty sensational data out of a smartphone-based screening test for its algorithm which attracted the attention of Pfizer after the thing successfully identified COVID infection in nine out of 10 COVID-positive patients just by recording the filthy sound of their diseased coughing.

In a largely unnoticed Tuesday note to the market, which (in its defence) was too busy bleeding out everywhere, ResApp revealed the pharma-giant and owner of such chemical hits as Viagara and… Viagara… was all set to pump up its bid to 20.7 cents a RAP share cash — basically double the original 11.5 cent offer.

The board are falling over themselves to recommend the super-booster bid which implies an overall RAP equity value of $180m — pending of course, the results of their own test of the bug-sniffing algorithm – the deal would drop to 14.6¢ if RAP’s tech doesn’t hit performance targets.

ResApp boss Dr Tony Keating (Ph.D.) has stood by the board’s decision to wholeheartedly support Pfizer’s first offer, although this new one is pretty fab too – and represents a “material increase” on the first one, which again, was really great.

Needless to say, but in the age of COVID, a machine learning, cough-a-lot app which can tell your common cold from your killer-COVID like the one ResApp’s been talking up could come in super handy for a big pharma with a standing global yet wonderfully vulnerable customer base.

What’s grabbed Pfizer by the corporate testes is the idea of pocket-sized AI tech which, through the phone mic alone, can identify the coughs which smell suspiciously like COVID (nine times out of 10).

RAT killer and more

The company reckons the tech is a PCR and RAT test killer, saying back in May that the algorithm is as good as a ‘rule-out screening test’ for COVID-19. One which can be built out at scale and distributed globally at the swipe of a finger.

If ResApp got a kick out of blindsiding the ASX back in April after revealing that Pfizer wants to buy every bit of the company at 11.5c a share – placing a market value on RAP circa $100m, it didn’t really hammer home the opportunity – fading instantly into the obscurity of a lengthy voluntary suspension, pending an update on the proposed acquisition which subsequently melted into a pre-inflationary memory

Now, relative to ResApp’s share price just ahead of the initial bid the new deal represents a celebratory 130% premium (with the confirmed data, and a smidge above 62%, without).

Why did the board so eagerly accept the first bid?

First up, RAP is still a way off from profitability, collecting just $80,900 revenue for the half year to December 2021, a nice 75% beat on the previous, and while cash receipts jumped 44 % to $178,000 across the most recent March quarter, net cash outflows jumped 62% to $1.6m

By March ResApp had circa $1.7m in the bank.

RAP shares have traded between  glorious 50c high back in September 2016 and an all-time low of 4c , last July.

What Pfizer did next

Here’s the detail of the renegotiated offer in my most articulate, shortest distance between several points, summation. I call them bullet points (wait, my wife says everyone does), which, according to Robert Bringhurst in his highly regarded The Elements of Typographic Style, are merely:

bullet: A fat midpoint, not always round, used as a typographic flag. Bullets are commonly hung in the margin to mark items in a list, or centred to separate larger blocks of text.

Bringhurst, taking the pain out of punctuation since 1946.*

The new offer

  • ResApp Health and Pfizer have agreed to increase the scheme consideration from A$0.115 per share in cash to:
    • A$0.207 per share in cash, upon satisfaction of a Confirmatory Data Readout Condition (Confirmed Data Consideration); or
    • A$0.146 per share in cash, in the event the Confirmatory Data Readout Condition is not satisfied (Unconfirmed Data Consideration)
  • Relative to ResApp’s share price just ahead of the Initial Scheme, the Revised Scheme Consideration represents a material premium of:
    • 130.0% based on the Confirmed Data Consideration
    • 62.2% based on the Unconfirmed Data Consideration
  • Draft Independent Expert Report confirms that Revised Scheme is fair and reasonable and in best interests of ResApp shareholders
  • The ResApp Board unanimously recommends that ResApp shareholders vote in favour of the Revised Scheme

ResApp CEO and MD Tony Keating (MD)  was keen to call the renewed offer a ‘renegotiated agreement,’ after there was some disconcertment about the way Keating jumped at the first.

“The ResApp Board is pleased to announce the renegotiated agreement with Pfizer which represents a material increase in the consideration to be received,” he said on Tuesday.

“The Board believes this offer provides an attractive premium to the undisturbed ResApp share price, reduces the risk for shareholders by providing certainty through an all cash offer, while also valuing the upside potential of these COVID-19 results.

“We believe that it represents significant value for all shareholders and the ResApp Board strongly recommends shareholders vote in favour of the transaction in the absence of a superior proposal.”

After more than a decade commercialising medtech, Keating – totally a doctor (of mechanical engineering) himself – created the initial business strategy for ResApp and has led the commercialisation of the tech to date.  His bio is a fun read.

 How does it work?

The app is an algorithm-based AI tool which can spot a chesty malady from five coughs into a phone and then a trawl around its database for the correct  “signature” of the patient’s cough.

Our very own Dr Tim Boreham  perhaps describes it best:

“Yep – we’re talking about the millennial equivalent of the stethoscope – the favoured prop of medical TV drama producers ever since soapies were invented.”

Tim describes the origin and audacity of the tech in beautiful detail here. It’s a better read even than Keating’s bio.

So what now?

Well, it’s not the first time Dr Keating, the RAP directors and their shareholders have ridden this particular pony.

On Tuesday – for the second time – the RAP board again unanimously backed, and urged shareholders also back, the revised deal at a looming vote.

What happened in between, while RAP was cooling its jets in an extended trading halt in Hawaii (it wasn’t) was an independently commissioned expert report by BDO  which put the value of a ResApp share at 14.6¢ to 27.7¢, with a preferred value of 20.7¢ per share.

For now, ResApp is in cahoots with the Australian Therapeutic Goods Administration and US Food and Drug Administration about carrying out a larger double-blinded trial.

“We are in discussions with a number of parties to bring this product to market,” Dr Keating says.

He says the software application could be used by airlines for mass pre-flight passenger checks, or alongside a government check-in application. It could also be incorporated into a smartphone, alongside all those other pre-loaded tools of varying worth.

The integrity of the tests could also be enhanced via fingerprint or facial recognition now common on smartphones.

“We’re talking to pharmaceutical companies, tech companies, government and any number of big organisations who can help us bring this technology to everyone’s home,” Dr Keating said a couple days ahead of the Pfizer news.

* It’s worth noting in the tome’s inset notes, Bringhurst illustrates the three main types of bullets:

  • a round •
  • a square ■
  • and a square rotated 45 degrees ◆ 

Other sorts of bullets favoured by scribes and hand-compositors of metallic type include both ❥ and ❧, of which the latter is also a type of fleuron.