The 20-Year Search for Product-Market Fit

Good morning, Armchair Army,

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

In 2007, legendary venture capitalist Marc Andreessen famously said…

“All that matters in business is product-market fit”.

The holy grail.

Does the product satisfy a genuine market need?

AND

(this is the important part) 

Will a customer pay for it?

There have been countless ways to measure product-market fit.

Net Promoter Score, customer retention, repeat purchases, etc.

But I have a better measure.

(an Armchair measure)

It’s called the “up and to the right” framework.

You can feel it, as a business. 

Customers are clamouring for products… and revenue is accelerating fast.

Someone once described it to me like this.

Finding product-market fit is like scratching around a giant warehouse in the dark for the light switch.

Tapping the walls, hoping to find something.

(sometimes for decades)

THEN, all of a sudden, you find the light, and everything falls into place. 

Everything is “up and to the right”.

This is happening right now for Resonance Health (ASX: RHT).

Here is the revenue chart for the last 20 years…

20 years!

(See if you can pinpoint where they start to find “product-market fit”)

For 20 years, it developed MRI technology for diagnostics.

Iron in the liver. Fat in the liver.

For 20 years… no one really noticed.

It wasn’t until the advent of GLP-1s, weight loss drugs like Ozempic and Wegovy, that this MRI technology found “product-market fit”.

Big Pharma suddenly wanted to measure everything.

Not just how much weight patients lost, but WHAT they lost as well.

Resonance knew how to measure some of it.

… but suddenly customers started asking for more.

(a good sign of product-market fit)

Specifically, the fat in the muscle.

Today, Resonance Health (ASX: RHT) took a big step forward to answer the customer cry for “MORE”…

Completing design and testing of its MRI muscle volume and quality endpoint for use in GLP-1 trials.

Now Resonance can measure…

Liver fat.

Liver iron.

Visceral fat (the deep fat wrapped around your organs).

Subcutaneous fat (the fat under the skin).

… and muscle volume and quality.

All in one scan.

Here is how it works

Resonance takes MRI images of the thigh and uses a proprietary AI algorithm to measure muscle volume, fat between muscles, fat hidden inside the muscle, and fat under the skin.

All in one scan:

Why the thigh?

The thigh is the preferred anatomical site for muscle measurements in obesity trials because of its large muscle volume, imaging reproducibility, and functional relevance.

Basically, it’s a big muscle region, easy to measure consistently, and important for physical function.

This is NOT a diagnostic tool.

Rather, it is a way for Big Pharma companies to measure biological endpoints in clinical trials for weight-loss drugs.

… think GLP-1s like Ozempic and Wegovy.

Right now, the current "standard" for muscle measurement in GLP-1 trials is dual-energy X-ray absorptiometry, or DXA for short.

Basically, it’s a bone density scanner.

The problem?

Bone density scanners can’t measure muscle composition or directly quantify intramuscular and intermuscular fat.

They measure lean mass… but that isn’t the same as measuring muscle itself.

That’s where MRI comes in.

MRI provides a MUCH better solution, directly measuring both muscle volume and fat infiltration in one examination.

Resonances have been “experts” at MRI for over 20 years.

They've developed many products that use MRI sequencing (combined with AI and machine-learning interpretation) to accurately measure and read iron in the liver, fat in the liver, and more.

But now, with “muscle mass” as one of the key differentiators of GLP-1 products, this is the next evolution.

Here is a mock-up of the report:

Last week, I listened to 10+ hours of earnings calls from the six biggest GLP-1 drug developers in the US.

Eli Lilly, Novo, Regeneron, AstraZeneca, Roche and Pfizer.

Read the full take here:

To get a sense of the industry's scale, Lilly and Novo are set to do US$85 billion in GLP-1 sales this year alone.

That is more than CSL's ENTIRE market cap.

(In one year of sales)

… and it's only getting bigger.

Eli Lilly UPGRADED its full-year guidance by US$10 billion… and other companies are coming chasing.

But what I learned from these presentations is that the battle is NOT just about the topline weight loss.

(that’s only 32% of the story)

… It's about all of the other stuff.

Quality. Speed. Tolerability. Comorbidities. Affordability. Convineince.

Lilly has set the benchmark on topline weight loss… 

28% for Retatrutide…

Which means that other pharma companies have to compete elsewhere…

Just last week, a bidding war emerged for another weight-loss drugmaker.

The opening bid?

US$10 billion from AstraZeneca:

What is clear to me is that the GLP-1 market is BY FAR the most hotly contested prize in big pharma right now.

But the winners and losers will be determined by the QUALITY of the weight loss… not just the topline number.

This is what Resonance measures.

… and they just added “muscle” to their arsenal.

Resonance has three arms to the business.

Own the sites.

Run the trials.

Own the tech that measures the results.

This news today fits squarely into the measure-the-results vertical.

IMPORTANTLY, Resonance doesn't need FDA approval to start selling this product.

Because the product is used only as “investigational endpoints”.

So it can sell this tech right away.

(After some final software verification and validation activities and associated documentation for the endpoint)

BOTH to current customers (through its core lab, CRO, and TrialsWest businesses), but also through the alliance with Image Analysis Group as orderable endpoints.

Image Analysis Group is a CRO with around 100 live clinical trials worldwide.

Resonance signed a Master Services Agreement with them about 8 weeks ago to roll out all of Resonance’s trial endpoints to their customers:

I expect this new MuscleScan product to start generating revenue for Resonance very soon, and help the company achieve forecast guidance of $17 to $22 million in revenue for the next financial year.

Remember…

Resonance is already a PROFITABLE and CASH FLOW POSITIVE business.

(which in this environment for small-cap stocks… is a VERY good thing)

This new technology, MuscleScan, is further validation that their MRI product has found product-market fit, and their customers are asking for more. 

MORE technology.

MORE measurements from the same MRI session.

MORE opportunities to sell into the same clinical trial.

NEXT, the company will be developing the same system for different muscle groups.

Quads, hamstrings, adductors, etc…

The holy grail is a single MRI neck-to-knee scan for all of the key biomarkers needed in a GLP-1 clinical trial.

This is a big step towards that.

Let’s dive in…

It’s been a couple of days, so here are the things that I noticed since Monday…

Resonance Health Ltd (ASX: RHT) announces the development and testing completion of its MRI muscle volume and quality endpoint. (RHT, Armchair Pick, Held)

🪑 💪

Tetratherix (ASX: TTX) upgraded its royalty agreement with the University of Sydney, implementing a 2.5% flat royalty on net product revenue. (TTX, Armchair Pick, Held)

🪑 Analysts covering TTX breathed a collective sigh of relief.

Much easier to do a DCF model with just one flat rate.

I looked back at the Royalty structure in the Prospectus, and it gave me a headache.

Performance milestones, different royalty amounts for different sales, etc…

This is a much better (and easier) to understand deal.

Clarity Pharmaceuticals (ASX: CU6) enters trading halt pending FDA response on Copper-64 SAR bisPSMA. (CU6)

🪑 🍿

Immutep (ASX: IMM) announces statistically significant results from its Phase I study of IMP761. (IMM)

🪑 Stock popped on this news.

I think it was because it was trading SO below cash backing ($25 million market cap compared to a cash balance of $50 million) that this was more of a reminder… hey, Immutep exists.

EVE Health Group (ASX: EVE) signs an exclusive Master Compounding and Profit Share Agreement in Australia for its sexual health product. (EVE)

🪑 Eve keeps 75% of the profits. Could actually start making some revenue from this one.

Will be interesting.

Syntara Limited (ASX: SNT) pauses recruitment for Phase 1b study of SNT-9465 due to skin irritation in participants, pending data review. (SNT)

🪑 Not good.

The company JUST increased recruitment for the trial.

Immuron (ASX: IMC) engages LifeSci Capital to explore strategic initiatives such as mergers or acquisitions. (IMC)

🪑 Up for sale or doing the buying?

LifeSci has been on some big deals in the US. Serious player.

Lumos Diagnostics (ASX: LDX) expands FebriDx® adoption in WellStreet Urgent Care, reaching 141 locations. (LDX)

🪑 Another one the market oversold. This news looks to have turned things around… still a long way back from peak price of 30 cents in March. But heading in the right direction.

TrivarX (ASX: TRI) engages Emeritus Research for a Phase 1 study of Stabl-Im, scheduled for Q1 CY2027. (TRI)

🪑 Milestone ticked.

Memphasys (ASX: MEM) secures a two-year agreement with Health New Zealand to supply 1,200 sperm separation cartridges to Fertility Plus. (MEM)

🪑 Nice deal. I think I still have some options here.

BlinkLab (ASX: BB1) reports positive early results in a genetic autism detection study. (BB1)

🪑 Very nice.

Biome Australia (ASX: BIO) signs a master distribution agreement with H&S Global for the exclusive cross-border e-commerce distribution of Activated Probiotics in China. (BIO)

See you all again soon.

The Armchair Analyst.

What is an armchair pick?

An Armchair Pick is an invite-only spot I reserve for my highest-conviction investment ideas.

It's a paid arrangement, but to align myself, I only take my fee in shares - half escrowed for 6 months, half for 12.

It is general commentary only, not personal financial advice or a recommendation to buy, sell, or hold. Always see the disclosure at the top of the article and do your own research.