Could the Resapp Health Ltd share price rocket higher?

The Resapp Health Ltd (ASX: RAP) share price is falling today after the respiratory health diagnostic business updated the market as to the progress of its clinical trials in diagnosing pneumonia in children via coughing sounds made into smartphones.

ResApp has now completed its targeted recruitment numbers for all the endpoints of its SMARTCOUGH-C study, with the “top line” results of the study expected by July 2017.

If the trial results are positive the company expects to make a de novo submission to the U.S. commercial healthcare market regulator the FDA in Q3 2017. The application would be for its ResAppDx test and management tool to be the first regulatory-cleared smartphone application for the diagnosis of respiratory disease.

This all sounds exciting as if approved the tool could cut down on the need for doctors visits where pneumonia is generally diagnosed with a stethoscope, X-ray imaging, and blood tests among other things.

The company also claims its smartphone technology can assist in the diagnosis of other respiratory infections including asthma, reactive airways disease and brochiolitis when compared with a clinical diagnosis.

ResApp’s potential has certainly caught the imagination of investors as it has a market valuation of more than $200 million, despite posting just $66,500 in (interest) revenue for the half-year period ending December 31 2016.

Its total loss for the period came in at $7.5 million including $4.9 million in share options (exercisable at future dates) issued to its senior management team that were accounted for as share based payment expenses. Operating cash losses were $1.89 million for the period with cash on hand of $12.17 million.

For the company and its investors almost everything is riding on the success of its clinical trials and the company’s subsequent ability to gain commercial approval to sell its technology.

Investors then can expect a wild ride as its shares could rocket or sink depending on unknown factors, which means although ResApp could turn into a runaway success I’m not a buyer of shares.

In the medical device or digital health space I would prefer to look for companies growing operating revenues and profits already, such as Pro Medicus Limited (ASX: PME) or even Somnomed Limited (ASX: SOM).

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Motley Fool contributor Tom Richardson has no position in any stocks mentioned.

You can find Tom on Twitter @tommyr345

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.

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