Devastated: Why Resapp Health Ltd shares just plunged 80%

Here's why the Resapp Health Ltd (ASX:RAP) share price plunged 81% this morning.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Resapp Health Ltd (ASX: RAP) share price fell 81% to $0.06 this morning, after the company's announcement of its Smartcough C study results. The findings speak for themselves:

  • 'Analysis of the SMARTCOUGH-C study data revealed many issues in the quality of cough recordings and that many patients were treated before their coughs were recorded'
  • '…predefined endpoints for positive percent agreement and negative percent agreement with clinical diagnosis are unlikely to be met'

It is difficult to know where to start. ResApp blames the failure of its trial on the failure of clinical research staff to record cough sounds before treating the patient. Additionally, background noise was thought to have interfered in at least some cases.

In my opinion, this reflects an abysmal level of study quality. If you are recording a sick person's cough for use in diagnostic software, obviously you need to record them when they are sick and not after they have been treated. Understandably, the diagnostics will probably prove useless if the sounds of two people coughing are recording at once. This suggests lax supervision on behalf of ResApp and/or the trained ('trained') research staff.

In December 2016, executive director and VP of corporate affairs, Brian Leedman, dumped 6.8 million shares on the market.

On top of that, the company was valued at $200 million, had no sales, and its value hinged on the outcome of an unknowable variable – the results released this morning.

We have written previously warning about ResApp:

July 2016

September 2016

July 2017

In my view, ResApp is still significantly overvalued, as it is burning cash at a prodigious rate and has no sales. Given the trial issues mentioned above, an investor has to ask, 'is this the kind of research & development process that could make this company a fantastic healthcare business?' Things may improve in the future, but the answer for now is a resounding 'no'. I would still avoid ResApp at all costs.

Unfortunately, ResApp is just the latest example of how buying into overpriced biotech stocks can lead to huge losses if unsuccessful. Innate Immunotherapeutics Ltd (ASX: IIL) was another one which crashed 91% in June after a similarly bad set of results.

Motley Fool contributor Sean O'Neill has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »