Healwell AI After closing its upsized $20-million bought deal offering, Eight Capital analyst Christian Sgro thinks Healwell AI Inc. has been able to “extend its runway in its land-grab opportunity in healthcare AI.”
“As commercial traction builds in the background, we see HEALWELL as having the ability to potentially acquire $40-milion-plus of revenue, more than doubling the business,” he added. “We look forward to seeing these puzzle pieces slotted in place, and for momentum to continue as the company executes on its M&A pipeline with increased flexibility.”
On Wednesday, the Toronto-based healthcare technology company, which is focused on AI and data science for preventative care, issued 14.8 million units at $1.35 each.
“We model a current net cash balance of $29.0-million, which excludes 1) deep in-the-money convertible debentures that we treat as equity in our valuation analysis, and 2) $16.8-million of related party balances largely payable to WELL Health (WELL-T, TP: $10.00, BUY),” said Mr. Sgro. “Given WELL’s interest in HEALWELL, we believe there will be a collaborative dialogue around timing and cash/equity consideration.
“We expect $20-million of capacity to have the ability to acquire $40-million-plus of revenue in combinations of cash, equity, and earn-outs. We think a premium target area is AI, specifically increasing the screening capacity of HEALWELL from the 200+ conditions currently. The second area is research or digital health assets. A clinical research acquisition would benefit meaningfully from HEALWELL’s screening capabilities, across areas like trial recruitment and design. Digital health assets, including EMRs or practitioner tools, can expand the reach of the platform while scaling high margin recurring revenues.”
He also touted the company’s increasing validation in the sector, noting: “HEALWELL’s technology is seeing continued traction in medical journals. In our view, the most impressive is this week’s feature in JAMA, an international peer-reviewed medical journal. In collaboration with Sunnybrook Hospital, Pentavere’s DARWEN was the AI engine of choice for extracting information from patient records to assist in staging cancer. We think these references are important in conversations with the healthcare network and pharmaceutical partners.”
Keeping a “buy” rating for Healwell shares, the analyst raised his Street-high target by $1 to $2.50. The average is $1.34.
“We think near-term M&A is likely to enhance network effects, unlock synergistic value, and scale HEALWELL into its current valuation. HEALWELL currently trades at 11.3 times and AI-focused healthcare peers trade at 7.8 times. Key risks to our target include unsuccessful M&A and unfavourable regulatory developments,” he concluded.