Small cap Sensyne Health (SENS:AIM) operates in the fast-growing specialist area combining healthcare and artificial intelligence.

It is also a story with an ethical bent as the model should help deliver income to the NHS.

Sensyne Health, which joined AIM in August 2018 raising £60m, analyses anonymous data from the NHS to help improve medical practice and care using artificial intelligence algorithms developed by Oxford University.

The company is keen to increase its capacity to curate and analyse significant datasets, prompting a recent agreement with accounting firm EY.

The deal will allow Sensyne Health to boost capacity, increase its scale more rapidly and develop a framework for the ethical use of patient medical data.

HOW DOES SENSYNE HEALTH GENERATE SALES?

Sensyne Health generates sales by using data that is made anonymous by the NHS through a pre-agreed tool with analysis of the data also pre-approved by the relevant NHS trust.

This data is processed by the company before being sold to pharmaceutical firms to underpin medical research and to improve clinical trials.

Thanks to the model used by Sensyne, the NHS retains ownership of the data and patient confidentiality remains uncompromised.

Clinical trial failures, particularly at the Phase III stage, can have a significantly negative impact on pharmaceutical businesses so anything that improves the chances of success should be a compelling proposition.

Clients contact Sensyne Health with questions and requests for specific information that can be answered using the high-quality data from the NHS.

A request for information is expensive, costing between £100,000 and £150,000, with analysis generally taking a few weeks with the help of  computer scientists. 

HOW DOES THE NHS PARTNERSHIP WORK?

Sensyne Health currently has access to NHS patient data from Oxford University Hospital, South Warwickshire, and Chelsea and Westminster Foundation Trusts.

Each trust will receive £5m worth of shares in Sensyne when a partnership is formed, plus a royalty on any products developed using its data.

The NHS trusts collectively hold a 10% stake in Sensyne Health, encouraging beneficial collaboration between both parties. The stake in NHS hands is likely to increase when more trust partnerships are agreed.

BENEFITS OF CURATING DATA

Sensyne Health has a range of digital health products that can generate and curate data, such as GDm-Health, a system that can be used to monitor gestational diabetes.

Chief executive officer Paul Drayson says GDm-Health has allowed Sensyne Health to create a database on diabetes in pregnancy, helping to improve management of the condition.

LICENSING EXCITING DISCOVERIES WITH LITTLE RISK

A company can get analysis on patient data on a specific condition before a clinical trial starts through Sensyne Health to help with the design and find out what patients were treated with.

Research conducted by Sensyne Health can lead to the creation of new intellectual property that can be licensed to pharmaceutical companies for upfront and milestone payments, as well as royalties.

The company has no UK-listed competitors, with the closest rival being DeepMind Health. This is a subsidiary of DeepMind Technologies, owned by Google parent company Alphabet.

DeepMind Health uses NHS data via partnerships to develop technologies for improvements, although it has not been an easy time for the business.

Google recently came under fire over its decision to move DeepMind Health into Google Health. Critics say this breaks a pledge with the NHS that data will never be connected to Google accounts or services.

Peel Hunt analyst Miles Dixon says the decision may create challenges for NHS partnerships, particularly after London’s Royal Free Hospital previously failed to comply with UK data protection laws when working with DeepMind.

WHAT ARE THE RISKS?

Sensyne Health has bold plans to double the number of NHS trust partnerships to six over the next two years.

The company is not profitable but does generate revenue, with sales expected to rise from £0.1m to £0.6m in the year to 31 December 2019 according to the forecasts available from house broker Peel Hunt.

In 2020, sales are forecast to rise to £2.3m before jumping more than five-fold to £12.5m in 2021, although the business is still expected to be loss-making at that point.

One of the difficulties for Sensyne Health is finding the right people in a competitive field and this is where a big chunk of the IPO proceeds is being spent.

Drayson says Sensyne Health’s biggest expense is its people, not its artificial intelligence platform. He wants to recruit more staff, particularly computer scientists to analyse the data, from 40 to 80 by the end of 2018. 

Another key risk is that Sensyne Health may be unable to seal new NHS partnerships at the pace it hopes.

WHAT IS THE POTENTIAL?

Data analytics in artificial intelligence could be lucrative with a potential peak market worth approximately $60bn according to the McKinsey Global Institute.

Dixon notes some significant transactions in this space ‘Google paid over £400m for the London-based start-up DeepMind in 2014 and Roche recently completed a $1.9bn acquisition of Flatiron Health,’ he says.

However with the company not likely to be profitable for some time, investors are going to have to be patient and likely accept volatility in the share price along the way. 

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