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Last close As at 09/06/2023
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▲ 2.00 (8.60%)
Market capitalisation
GBP89m
Research: Healthcare
Creo Medical’s H122 results highlighted its progress in developing and commercialising its minimally invasive electrosurgical devices. Creo’s core asset, Speedboat Inject, continued to gain traction in H122, supported by an initial licensing payment from Intuitive Surgical (signed in May 2022) and complemented by the mature European consumables business, which remains a stable revenue stream. We see upside potential from the multi-year collaboration with Intuitive Surgical but await further details before reflecting this in our estimates. Creo’s outlook remains focused on wider adoption of its six products in the flagship CROMA platform. In reflecting the H122 results and rolling our model, we have increased our valuation to £489m or 269p/share, from £434m previously.
Creo Medical |
Building momentum in 2022 |
H122 results |
Healthcare equipment |
14 September 2022 |
Share price performance
Business description
Next events
Analysts
Creo Medical is a research client of Edison Investment Research Limited |
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Creo Medical’s H122 results highlighted its progress in developing and commercialising its minimally invasive electrosurgical devices. Creo’s core asset, Speedboat Inject, continued to gain traction in H122, supported by an initial licensing payment from Intuitive Surgical (signed in May 2022) and complemented by the mature European consumables business, which remains a stable revenue stream. We see upside potential from the multi-year collaboration with Intuitive Surgical but await further details before reflecting this in our estimates. Creo's outlook remains focused on wider adoption of its six products in the flagship CROMA platform. In reflecting the H122 results and rolling our model, we have increased our valuation to £489m or 269p/share, from £434m previously.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/20 |
9.4 |
(23.0) |
(12.8) |
0.0 |
N/A |
N/A |
12/21 |
25.2 |
(29.7) |
(14.6) |
0.0 |
N/A |
N/A |
12/22e |
28.7 |
(25.8) |
(12.1) |
0.0 |
N/A |
N/A |
12/23e |
33.8 |
(23.7) |
(11.1) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
H122 results reflect improved Speedboat traction
Creo recorded 5.7% y-o-y revenue growth in H122 to £13.6m, supported by improving traction from the core Speedboat Inject device (driven by a 2x increase in procedure volumes) and initial revenues from the robotics deal. The consumables business recorded sales of £12.8m (H121: £12.8m). The operating loss of £15.9m was above H121’s £11.1m, largely due to the increased scale of the business. Sequentially however, the performance improved due to lower product development and clinicals costs, which is anticipated to continue. We have reinstated FY22 estimates, largely in line with previous figures, and introduced FY23 estimates.
Robotics deal with Intuitive offers upside
In May 2022 Creo entered into a long-term agreement with Intuitive Surgical (a US-based medical robotics developer for minimally invasive surgeries) to optimise certain Creo products to be compatible with Intuitive’s robotic technology. The agreement entails joint regulatory studies prior to approval, which can take up to 18 months. The first ‘upfront’ payment was recorded in this update although the specifics were not disclosed. While we await further details on deal terms, we believe this agreement reinforces the company’s differentiated offering and Creo could be entitled to potential royalties and milestones.
Valuation: £489m or 269p per share
Our valuation has increased to £489m or 269p/share, from £434m or 240p/share, mainly due to rolling forward our NPV and revised foreign exchange rates, offset partially by a lower net cash balance. We estimate that the company will need to raise a total £30m before the end of FY24 and profitability in 2025, pending any impact from the announced deal with Intuitive.
Speedboat traction
Creo Medical reported 5.7% y-o-y revenue growth in H122, growing momentum in the adoption of its core CROMA technology platform and the flagship Speedboat Inject device. Core products generated £0.9m in H122 revenues (versus £0.1m in H121 and £0.3m in FY21), which included an undisclosed upfront payment from the Intuitive deal. However, consumables (Albyn Medical and Boucart Medical, acquired in H220 and Aber Electronics, acquired in H221) remains the key revenue contributor, recording sales of £12.8m during the period, in-line with the H121 figure.
In H122, Creo’s continued focus on the commercialisation of its Speedboat Inject device and CROMA platform resulted in increased orders during the period, which were in line with management’s expectations both in terms of volume and price. During the period Speedboat Inject was also used to treat multiple per‐oral endoscopic myotomy oesophagus and stomach procedures on patients in the US, along with additional indications treated in Europe, the Middle East and Africa including a gastrointestinal stromal tumour (GIST), reflecting the expanded scope of the device.
Under its clinical education programme, Pioneer, the number of clinicians equipped to provide training on Creo’s technology doubled in H122 (versus H221) which, according to management, has resulted in a 100% increase in both procedure volumes and regular users globally. As a reminder, Creo’s training programme is an important driver for sales growth as these trainees typically convert into long-term customers. As COVID-19 headwinds subsided, Creo was able to develop its training programme by organising several regional and multinational events and expanding its access to new territories, notably in the Asia-Pacific region (in particular, Singapore and Thailand). The company has opened a regional hub in Singapore to support the near-term product launch plan. As a result, the expansion efforts have led to an increase in the pipeline of clinicians to-be-trained and the company remains ‘in line’ to achieve management's target growth in the number of regular users by end-FY22.
Another key development during the period was the US launch of several consumable GI products (currently marketed in Europe), which the company plans to offer as bundled products with its core technology/asset portfolio to potentially generate incremental revenues per procedure. Creo opened a new office in the United States in July 2021, to act as a learning centre and training laboratory to support its US roll-out plan.
Deal with Intuitive is a major step forward
In May 2022, Creo announced a long-term robotics collaboration with category leader, Intuitive Surgical (a US-based medical robotics developer for minimally invasive procedures). The agreement aims to combine Intuitive’s robotics platform and Creo’s Kamaptive technology. The agreement will entail co-development for undisclosed Creo product(s) for compatibility and for FDA regulatory studies, which we understand will likely require c 18 months to complete. While the exact deal terms have not been disclosed, the terms of the agreement include joint clinical studies and the potential for royalty and milestone payments to be received by Creo. We believe this agreement reinforces the Creo’s differentiated offering in an evolving subsegment and holds significant upside potential on successful development. We await further details on the collaboration before incorporating it in our valuation.
Intuitive Surgical (Nasdaq: ISRG) is a world-leading developer of robotic-assisted surgery platforms with its da Vinci and Ion endoluminal robotic systems. It had an installed base of 6,859 systems at the end of December 2021 (including 6,730 da Vinci surgical systems) and recorded revenue in excess of $5.7bn in 2021.
In addition to the aforementioned deal, Creo has entered into non-binding heads of terms with a number of parties to provide third-party access via potential licensing deals to its advanced energy Kamaptive technology (specifically for SpydrBlade, Cool Plasma and MicroBlate). These agreements are an effort to develop a potential market in additional surgical areas, such as laparoscopic surgery, robotically assisted surgery and non-thermal plasma sterilisation, where Creo does not currently have operational presence.
Financials
Creo’s H122 revenue growth was driven by an improved contribution from Creo’s core products and nearly stable revenues from its mature consumables business. Revenue from consumables (consisting of the Albyn Medical, Boucart Medical and Aber Electronics businesses) stood at £12.8m in H122, broadly in line with H121. The acquisitions have enhanced Creo’s product reach and sales network across European markets (Creo also acquired Albyn’s 70-person sales and marketing team as part of the July 2020 deal) and added a continuous revenue stream to its business operations. The company continues to explore other agreements and options to strengthen its distribution network in the United States and Asia-Pacific and aid in the launch of Albyn’s product portfolio in the United States. Most of the company’s revenue in H122 (94%) was generated by the Creo Europe Consumables business and only 7% by its core products.
Revenue from Creo’s core products grew to £0.9m in H122 versus £0.1m in H121; the growth was led by improved sales from Speedboat Inject and the upfront payment received from Intuitive for the Kamaptive licensing agreement. While not material at this stage, we expect the Kamaptive technology to be a key value driver for the company in the medium term.
Gross margin slightly improved to 48.1% in H122 versus 47.5% in H121. However, the reported operating loss increased to £15.9m in H122 (H121: £11.1m due to higher operating expenses, largely attributable to increased personnel costs for the larger direct salesforce, along with additional infrastructure costs related to investments in infrastructure in the United States, UK and Asia-Pacific). On a sequential basis, however, the operating performance improved (operating loss of £18.8m in H221) due to lower product development and clinical costs, with management expecting this declining trend to continue. We have reflected these lower infrastructure costs in our FY22–23 forecasts based on the H122 performance and directional guidance from management.
In H122, cash flow used in operating activities increased to £15.7m (H121: £12.3m) due to higher R&D expenses and the expansion of the US commercial operations. With net cash of £14.0m at end H122, we estimate that Creo will need to raise a further £30m (FY23: £20m and FY24: £10m), which we model as illustrative debt, to support its growth plan before reaching profitability in FY25. These estimates may change when we have more information about the announced deal with Intuitive.
Valuation
We have adjusted our valuation upwards to £489m or 269p per basic share, from £435m or 240p per basic share, mainly due to rolling forward our NPV and revised foreign exchange rates. This has been partially offset by a lower net cash position (£14m vs £56m in our October 2021 calculation). We note that the recent Intuitive agreement has upside potential on successful commercialisation, and we plan to incorporate the deal into our valuation once we have more clarity on deal terms.
Exhibit 1: Creo Medical valuation
Product |
Main Indication |
Status |
Probability of successful commercialisation (%) |
2026e sales (£m) |
rNPV |
CROMA Platform |
GI, soft tissues and pulmonology |
Market/registration |
70 |
383 |
432.0 |
Albyn Medical |
Urology, gynaecology and GI |
Market |
100 |
30 |
43.1 |
Total |
|
|
|
|
475.1 |
Net cash (30 June 2022) |
14.0 |
||||
Total firm value |
489.2 |
||||
Total basic shares (m) |
181.5 |
||||
Value per basic share (p) |
269 |
||||
Options (m) |
7.5 |
||||
Total number of shares (m) |
189.0 |
||||
Diluted value per share (p) |
259 |
||||
Source: Edison Investment Research
Exhibit 2: Financial summary
£'000s |
2020 |
2021 |
2022e |
2023e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||
Revenue |
|
|
9,429 |
25,161 |
28,679 |
33,769 |
Cost of Sales |
(5,394) |
(13,576) |
(14,535) |
(16,312) |
||
Gross Profit |
4,035 |
11,585 |
14,144 |
17,457 |
||
Sales, General & Administrative and Research & Development Expenses |
(25,525) |
(38,359) |
(37,327) |
(38,454) |
||
EBITDA |
|
|
(21,441) |
(26,722) |
(23,135) |
(20,948) |
Underlying EBITDA (Adjusted for R&D tax credit) |
|
|
(18,295) |
(20,978) |
(19,258) |
(17,398) |
Operating Profit (before amort. and except.) |
|
|
(23,037) |
(29,284) |
(25,697) |
(23,510) |
Intangible Amortisation |
0 |
0 |
0 |
0 |
||
Other |
49 |
52 |
48 |
49 |
||
Exceptionals |
(447) |
(623) |
0 |
0 |
||
Operating Profit |
(23,484) |
(29,907) |
(25,697) |
(23,510) |
||
Net Interest |
22 |
(432) |
(152) |
(158) |
||
Other |
0 |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
(23,015) |
(29,716) |
(25,849) |
(23,668) |
Profit Before Tax (reported) |
|
|
(23,462) |
(30,339) |
(25,849) |
(23,668) |
Tax |
3,146 |
5,744 |
3,877 |
3,550 |
||
Deferred tax |
(0) |
0 |
0 |
0 |
||
Profit After Tax (norm) |
(19,869) |
(23,972) |
(21,972) |
(20,118) |
||
Profit After Tax (reported) |
(20,316) |
(24,595) |
(21,972) |
(20,118) |
||
Average Number of Shares Outstanding (m) |
155.8 |
164.4 |
181.3 |
181.3 |
||
EPS - normalised (£) |
|
|
(0.128) |
(0.146) |
(0.121) |
(0.111) |
EPS - Reported (£) |
|
|
(0.13) |
(0.15) |
(0.12) |
(0.11) |
Dividend per share (£) |
0.0 |
0.0 |
0.0 |
0.0 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
32,994 |
39,442 |
39,222 |
39,091 |
Intangible Assets |
28,529 |
27,255 |
26,572 |
25,889 |
||
Tangible Assets |
3,378 |
8,603 |
9,066 |
9,618 |
||
Other |
1,086 |
3,584 |
3,584 |
3,584 |
||
Current Assets |
|
|
60,510 |
61,167 |
36,289 |
38,342 |
Stocks |
6,812 |
8,504 |
9,105 |
9,469 |
||
Debtors |
5,633 |
4,830 |
5,505 |
5,726 |
||
Cash |
45,092 |
43,534 |
17,380 |
18,849 |
||
Other |
2,973 |
4,299 |
4,299 |
4,299 |
||
Current Liabilities |
|
|
(21,837) |
(19,737) |
(15,057) |
(15,481) |
Creditors |
(16,024) |
(14,356) |
(15,057) |
(15,481) |
||
Short term borrowings |
(5,813) |
(5,381) |
0 |
0 |
||
Long Term Liabilities |
|
|
(8,861) |
(7,554) |
(7,554) |
(27,554) |
Long term borrowings |
(6,542) |
(5,175) |
(5,175) |
(25,175) |
||
Other long term liabilities |
(2,319) |
(2,379) |
(2,379) |
(2,379) |
||
Net Assets |
|
|
62,806 |
73,318 |
52,900 |
34,398 |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
(15,815) |
(23,199) |
(18,431) |
(16,099) |
Net Interest |
(173) |
(463) |
0 |
0 |
||
Tax |
(291) |
(2,349) |
0 |
0 |
||
Capex |
(576) |
(6,122) |
(2,342) |
(2,432) |
||
Acquisitions/disposals |
(20,586) |
(1,752) |
0 |
0 |
||
Financing |
159 |
34,208 |
0 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
||
Net Cash Flow |
(37,282) |
323 |
(20,772) |
(18,531) |
||
Opening net debt/(cash) |
|
|
(80,331) |
(32,737) |
(32,978) |
(12,205) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
||
Exchange rate movements |
36 |
(303) |
0 |
0 |
||
Other |
(10,348) |
221 |
(1) |
0 |
||
Closing net debt/(cash) |
|
|
(32,737) |
(32,978) |
(12,205) |
6,326 |
Source: Company reports, Edison Investment Research
|
|
Research: Investment Companies
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