What is happening with EIQ?

Good morning, Armchair Army,

Welcome to today's edition of The Armchair Analyst, a 5-minute daily update on the ASX life-sciences sector.

A trading halt is always ominous.

Particularly when investors are waiting on a binary regulatory decision

… and that decision is already running late.

I’m talking about EchoIQ (ASX: EIQ), which has entered a trading halt pending the announcement of 510(k) approval for its AI-based heart failure detection system.

Is the result good? 

Is the result a disaster?

Wording matters.

Here is what EIQ said in the trading halt where it secured approval in 2024:

“Trading halt with regard to… US FDA Clearance and the appointment of a US-based CEO”

Here was the one from yesterday…

“Trading halt with regard to… its regulatory pathway for EchoSolve HF.”

On the second one, the wording is more matter-of-fact and NO reference to “FDA Clearance"

Well…

I could have just clicked on the AFR website where someone had leaked the result.

Result = FDA 510(k) rejected.

Disaster.

EIQ was a personal favourite of mine.

Back when I was at Next Investors, I went with the EIQ team to the world’s largest cardiology conference in London.

I’ve watched the stock grow from a minnow into a $1B-capped company in the last 12 months… 

So I was paying very close attention to this result.

Quick background…

EchoIQ has built AI software that helps doctors identify structural heart disease from echocardiograms.

An Echo is a grainy black-and-white ultrasound image that cardiologists use to visualise a person’s heart.

EIQ has a commercial Heads of Agreement with Pro Medicus.

… and the company just raised $110 million at $1.45.

This 510(k) approval was the major catalyst ahead for the company, and the final stage before it could commercialise its AI-based heart detection software in the US.

I want everyone to say this with me.

Getting a medical device approved isn't the same as getting a drug approved.

Let me say that one more time…

Getting a medical device approved is NOT the same as a drug.

Medical devices can be changed.

Adjusted.

Retested.

Resubmitted.

A drug that fails a pivotal Phase 3 is much harder to fix.

That is why high-profile Phase 3 failures, like what happened with Opthea, can be company killers.

For medical-device companies, a failed 510(k) application can cause major delays…

But it is not necessarily the end of the product.

In 2022, ASX-listed Artrya (ASX: AYA) failed to secure clearance for its initial FDA 510(k) application.

So did Lumos Diagnostics (ASX: LDX).

Both companies went back to the FDA.

Both later secured 510(k) clearance.

And both have now entered the commercialisation stage.

It is a setback for sure.

But it is not necessarily the equivalent of a failed Phase 3 drug trial.

(Like the AFR might have you think in the “Echoes of Opthea” section of that same article)

Alright… one more time.

Getting a medical device cleared is NOT the same as getting a drug approved.

All we know from the AFR article is that EchoSolv HF failed to secure FDA clearance in its current form.

We don't know why, or what work remains.

Assuming the AFR article is reporting correctly, this is what EIQ will need to answer…

Until then… It is all speculation.

But expect a red day tomorrow.

One interesting thing about the timing is that EIQ has just been announced for inclusion in the ASX 300.

This means index funds will soon be mandated to buy the stock.

I wrote about this yesterday…

But, as I wrote yesterday, this should also make more stock available to borrow for short sellers.

EIQ’s reported short position has never climbed above 0.35%.

I expect that to change off the back of this news.

There may also be a second index-related risk.

If the share price falls far enough, EIQ could eventually lose its place in the ASX 300.

That would reverse the passive flow.

The index funds mandated to buy the stock would become mandated sellers.

Another potential negative catalyst at a future rebalance.

(If it happens.)

EIQ has one major advantage.

Cash.

The company recently raised $110 million at $1.45 per share, meaning it has the capital to respond to the FDA.

EIQ was valued on the expectation that FDA clearance was close.

That expectation has now been broken.

BUT..

This is not necessarily the end of EchoSolv HF.

The company has an FDA-cleared first product.

A strategic relationship with Pro Medicus.

Mayo Clinic validation.

And $110 million to fund the pathway forward.

But tomorrow will be painful.

Let’s dive in…

Emyria (ASX: EMD) is set to open its first mental health clinic for psychedelic therapy for PTSD and Treatment Resistant Depression in Sydney. Staff trained, drugs secured and fit-out finalised. (EMD, Held, Armchair Pick) 

🪑 Very good update; this will mark the fourth active clinic for EMD.

It will take about 9 to 12 months for the Sydney clinic to ramp up to break-even… then everything from there is profit.

Emyria is hosting its End of Financial Year investor call at 11:30 am today (AEST).

I’ll be tuning in.

REPORT: New Zealand regulator approves use of MDMA to treat severe PTSD. (The Guardian)

🪑  Emyria goes international? Could be on the cards.

BlinkLab Limited (ASX: BB1) appoints former Apple Health Clinical Lead Dr Raphael Bernier as a Non-Executive Director. (BB1)

🪑  Nice get.

REPORT: Bioshore Ventures has closed and deployed $27 million in investments from its first early-stage Medical Device fund. (AFR)

🪑 The company is set to launch a $50 million fund next year - all medical devices.

Love this.

Bioshore Ventures was an early backer of Tetratherix (ASX: TTX, Held, Armchair Pick). 

OncoSil Medical (ASX: OSL) secures $5.6M from its three largest shareholders, Pengana, Aus Ethical and Regal, through a placement at $1.00 and the early exercise of options. (OSL)

OncoSil Medical (ASX: OSL) announces that it has treated its 100th patient with the OncoSil™ device in Spain. (OSL)

🪑 More of a safety signal rather than a commercialisation milestone. 

CLINUVEL (ASX: CUV) unveils the ZEROKIN™ device. A single-use device for controlled-release of drugs subcutaneously. (CUV)

🪑 Will still need to go through the 510(k) approval pathway. But its good to see some of CUV’s product pipeline emerging.

Vitura Health (ASX: VIT) reports a projected $6M revenue loss in FY2027 as BUPA redirects international-member telehealth referrals from Doctors on Demand to an alternative provider. (VIT)

🪑 From bad to worse for Vitura. Not good.

Arovella Therapeutics (ASX: ALA) has successfully manufactured and released the first clinical batch of its ALA-101 cell therapy for dosing. (ALA)

🪑 I had a great call with ALA Interim CEO Nicole van der Weerden last week. The trial is very much on track, and the company is set for a period of high activity over the next couple of months.

Neurotech International (ASX: NTI) appoints Andrew Chapman as Non-Executive Director and announces CEO Dr Anthony Filippis's resignation. (NTI)

See you all tomorrow,

The Armchair Analyst