PKS Holdings strengthens ties with US healthcare giant, boosts revenue outlook
Health & Biotech
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Special Report: PKS has leveraged its existing partnership with New York-listed Abbott Laboratories, to ink a revised deal with new and improved terms.
Healthcare tech platform PKS Holdings (ASX:PKS) has taken an important step forward in its growth strategy, announcing a new deal yesterday which significantly strengthens its global distribution platform.
The company, which listed on the ASX earlier this year, provides a core product called RippleDown – a Clinical Decision Support (CDS) software system that leverages patient data to drive improved decision making in health organisations.
PKS went public earlier this year with an established SaaS-based profit model generating strong margins with a “sticky” client base the company has been building since 2011. It also had a number of partnership agreements to embed its CDS software with existing health platforms.
One key partner was Abbott Laboratories (NYSE:ABT), the $216 billion US healthcare company that generates annual revenues of almost $50 billion. And PKS announced yesterday that the two sides had extended their existing licence and distribution agreement to 30 April 2022, with an automatic two-year renewal period.
Among the revised commercial terms, the deal with Abbott will shift to a volume-based model where PKS earns additional licensing revenue based on the number of patient episodes, rather than a fixed fee.
Speaking with Stockhead from the company AGM today, PKS chairman Mike Hill said the new framework provided a strong platform to accelerate sales growth.
“Abbott sells Rippledown branded as AlinIQ,” Hill said. “They aim to sell AlinIQ to big global pathology operators and have done so 22 times so far.
“They have a large pipeline of opportunities all over the globe. As an example, a large European pathology lab network which might have 70 labs would licence the application.
“One improvement in the new distribution agreement specifically addresses the volume of episodes which flows through the CDS application.
“Previously we had no control over the number of licenses they purchased, now we’ve agreed with Abbott that the licence rate towards PKS would be linked to the size of the customer measured by the number of episodes [pathology tests].
“Now given it’s based on a volume metric. If they do, say, 16m episodes that will now equate to eight licences, where beforehand they may have just had taken one licence. At circa $20,000 each, the new volume arrangements multiples our revenue opportunity from $20k to $160k.”
PKS will also benefit from ongoing support from Abbott as part of its go-to-market strategy, with a joint-led sales drive for new customers in conjunction with revenue-sharing arrangements specifically focused on customers in each other’s backyards – namely Australia and the USA.
“We often provide support to Abbott once they’ve opened the door to huge customers where PKS can assist, discuss and demonstrate the technology side of the pitch,” Hill said.
“So we’ve also now agreed a new joint commercial partnership arrangement in such joint co-led customer opportunities, where PKS invests in the pitch and we’ll cut a deal based on the total contract value.
“So instead of the $20k licence that we would’ve got, it will be a percentage share of the overall contract value.
“It’s worth keeping in mind that we can charge attractive margins because companies save a lot, create efficiencies and capture knowledge by using this CDS product.
“So in a revenue share situation with Abbott, we get a share on contract value rather than just an indirect licence fee, which is something we’ve never had before with our channel partners.”
At the same time, PKS now isn’t exclusive with Abbott, this frees up the ability to grow a direct salesforce and provide more resource support to those share customer opportunities.
In the past, PKS did particularly well with pursuing its direct customers, which attracts a higher revenue per customer ratio (average direct customer revenue is $170k pa).
Abbott’s customers live already include 22 licensed arrangements across global jurisdictions across the US, Europe, the Middle East and Asia Pacific.
PKS said both parties were now targeting a “material acceleration of the rollout going forward”.
The revised partnership now gives PKS access to a pipeline of over 250 large pathology clinics and hospitals, increasing the potential for global market penetration of its RippleDown software with the commercial backing of a global distribution partner.