Why is the ResApp share price crashing 29% today?

ResApp shares have been hammered on Tuesday…

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Key points

  • ResApp shares have returned from their trading halt and crashed deep into the red
  • This morning the company revealed disappointing study results for its COVID-19 algorithm
  • This has reduced the takeover offer from Pfizer Australia

The ResApp Health Ltd (ASX: RAP) share price has returned from its trading halt and taken a tumble.

In morning trade, the digital health company’s shares are down 29% to 12.5 cents.

Why is the ResApp share price crashing?

Last week, as we reported here, ResApp received an improved takeover offer from pharmaceutical giant Pfizer Australia.

Originally, Pfizer Australia was offering to acquire the company for 11.5 cents per share in cash. However, this fell short of the independent expert’s valuation of 14.6 cents to 27.7 cents, with a preferred value of 20.7 cents per share.

In response to this, Pfizer agreed to increase its offer to either 14.6 cents or 20.7 cents per share.

The ultimate price would depend on the results of a clinical validation study of ResApp’s COVID-19 algorithm. If the study was close to matching the results of its previous study, Pfizer would pay 20.7 cents per share. If the results fell short of the previous study, Pfizer would pay 14.6 cents per share.

What’s the latest?

As you might have guessed from the ResApp share price performance today, the clinical validation study wasn’t overly successful.

According to the release, the data confirmation study showed that ResApp’s COVID-19 algorithm achieved a sensitivity of 84% and a specificity of 58%. This is significantly lower than the results of ResApp’s pilot study and falls short of the minimum sensitivity of 86% and a minimum specificity of 71%.

These results were both calculated by ResApp and independently analysed and verified by a highly qualified and respected independent third-party statistician.

ResApp’s CEO and Managing Director, Tony Keating, appeared disappointed with the study but remains positive on the future. He said:

While we remain confident that our algorithms can detect COVID-19 using cough sounds, they will require further refinement, testing and validation to ensure that they perform to the level needed. This work will continue with the benefit of now having over 1,300 additional cough sound recordings with gold standard PCR test results to use to train and improve the algorithms. Notwithstanding, the results underscore the considerable work, challenge and cost of bringing our technology to market.

What now?

As the confirmatory data readout condition under the revised scheme was not satisfied, the scheme consideration will be 14.6 cents per share in cash. This represents an equity value of $127 million.

The ResApp board continues to recommend that shareholders vote in favour of the offer. That’s if the deal still goes ahead. They will no doubt be hoping Pfizer doesn’t pull the plug on the deal following this disappointing study.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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