Ellex Medical Lasers — Capitalizing on age-related eye diseases

Ellex Medical Lasers — Capitalizing on age-related eye diseases

Ellex’s products target diseases associated with growing ageing populations such as glaucoma and age-related macular degeneration (AMD). FY19 revenue was up 3% to A$81.6m, as robust growth in iTrack, SLT lasers and 2RT was offset by declines in laser devices for other indications and in diagnostic equipment. iTrack, SLT lasers and 2RT appear well-positioned to continue their growth trajectory in FY20 and there may be some recovery in Ellex’s remaining product lines.

Written by

Pooya Hemami

Analyst - Healthcare

Ellex Medical Lasers

Capitalizing on age-related eye diseases

Healthcare equipment

QuickView

25 September 2019

Price

A$0.56

Market cap

A$80m

Share price graph

Share details

Code

ELX

Listing

ASX

Shares in issue

143.6m

Business description

Based in Australia, Ellex Medical Lasers markets laser surgical and medical devices for the ophthalmic sector. Its SLT and iTrack Ab-Interno Canaloplasty (ABiC) devices aim to treat glaucoma, and 2RT is being developed for intermediate AMD, an area of large unmet need as no current treatment exists.

Bull

Leading market share among selective laser trabeculoplasty (SLT) providers.

Significant opportunity for 2RT in age-related macular degeneration (AMD), which affects over 11 million people in the US (170m worldwide).

iTrack minimally invasive glaucoma surgical (MIGS) device showing robust growth and differentiated from other MIGS products.

Bear

Not expected to be profitable in FY20 and further fund-raising may be needed in FY20.

Increasing competition in early- to moderate-stage glaucoma space from newer topical drugs (Rho-kinase inhibitors) and extended-dose drug treatment platforms.

Dry AMD market very challenging as many treatment approaches failed to decelerate disease progression and atrophy.

Analysts

Pooya Hemami, CFA

+1 (646) 653 7026

Maxim Jacobs, CFA

+1 (646) 653 7027

Ellex’s products target diseases associated with growing ageing populations such as glaucoma and age-related macular degeneration (AMD). FY19 revenue was up 3% to A$81.6m, as robust growth in iTrack, SLT lasers and 2RT was offset by declines in laser devices for other indications and in diagnostic equipment. iTrack, SLT lasers and 2RT appear well-positioned to continue their growth trajectory in FY20 and there may be some recovery in Ellex’s remaining product lines.

SLT laser and iTrack showing growth in glaucoma

Ellex’s SLT laser effectively lowers intraocular pressure (IOP), and SLT laser revenue grew 10% in FY19 to A$32.4m. Sales could further benefit from the H219 publication in Lancet of the LiGHT study (n=718), which compared SLT to hypotensive eye drop use in treatment-naïve patients, and found that at three years, SLT-treated patients were within their target IOP at 93% of visits vs 91.3% in the eye drops arm. The study stated that SLT should be offered as a first-line treatment (and not only for those failing eye drop therapy). Ellex also reported a 29% sales increase (to A$14.3m) of its iTrack MIGS system, positioned for cases where further IOP control is needed, with unit volumes up 17% (30% in US). Compared to other MIGS devices such as Glaukos’s iStent, the iTrack ABiC procedure does not need to be performed in conjunction with cataract surgery and does not involve permanent device implantation. SLT and iTrack should benefit from favourable demographics and increasing adoption of non-topical treatment methods.

2RT provides a huge opportunity in iAMD

AMD is a leading cause of vision loss among persons over age 55 and Ellex’s 2RT intends to treat intermediate AMD (iAMD) by applying a nanosecond nonthermal pulse laser targeting selected macular retinal pigment epithelium (RPE) cells to promote extracellular repair. 36-month data from the LEAD study (n=292) reported in 2018 showed that in patients without coexistent baseline reticular pseudodrusen (RPD), 2RT treatment led to a 77% reduction in the rate of progression. This data sparked interest in 2RT, as FY19 sales rose 260% to A$1.8m. Recently reported 48-month data revealed similar trends, and Ellex expects to establish a regulatory pathway (including a new study) with the FDA by YE19. If US approval is eventually received, 2RT could potentially become Ellex’s best-selling product given the wide unmet need for iAMD treatment (as no treatment has been approved by the FDA).

Valuation: EV of A$80m

Ellex FY19 net loss was A$5.8m, and it expects a lower loss in FY20 as it seeks to contain costs. Ellex had A$0.3m net cash at 30 June 2019 (gross debt of $15.1m vs $15.4m gross cash), although most of its debt is due within 12 months.

Historical financials

Year
end

Revenue
(A$m)

PBT
(A$m)

EPS
(A$)

DPS
(A$)

P/E
(x)

Yield
(%)

06/18

79.3

(5.2)

(3.78)

0.0

N/A

N/A

06/19

81.6

(5.8)

(4.02)

0.0

N/A

N/A

Source: Bloomberg

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Disclaimer

General disclaimer and copyright

This report has been prepared and issued by Edison. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

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The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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