Creo Medical — Growth momentum with core strength

Creo Medical (AIM: CREO)

Last close As at 28/02/2024

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Research: Healthcare

Creo Medical — Growth momentum with core strength

Creo Medical reported an active first half of the year in its trading update. Preliminary results showed improved adoption of its flagship offering, Speedboat Inject, driven by a growing user base expanding over new territories and its ability to address the full GI tract with its recent CE mark for upper GI procedures. Total revenue accelerated 15.4% y-o-y to £15.7m (from £13.6m in H122), largely in line on an annualised basis with our prior FY23 forecast of £32.8m. Operating expenses remained largely flat, resulting from reduced R&D expenses and improved cost control measures. While we expect further expansion of the Speedboat user base to remain a strategic priority, we anticipate several key catalysts, including advancement of the Intuitive partnership, extended use of Kamaptive technology, FDA approval for Speedboat Flush and NICE guidance on UK reimbursement. As we await full H123 results in September 2023, we have put our estimates and valuation under review.

Soo Romanoff

Written by

Soo Romanoff

Managing Director - Head of Content, Healthcare

Healthcare

Creo Medical

Growth momentum with core strength

H123 trading update

Healthcare equipment and services

4 August 2023

Price

33p

Market cap

£117m

Pro forma net cash (£m) at 31 December 2022 (includes £32m fund-raise in Q123)

33.4

Shares in issue

361.3m

Free float

87.8%

Code

CREO

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(5.1)

34.3

(54.1)

Rel (local)

(5.3)

38.8

(54.0)

52-week high/low

72p

18p

Business description

Creo Medical is a UK-based healthcare company focusing on the development and commercialisation of minimally invasive electrosurgical devices. It has six products in the flagship CROMA platform, all of which have been CE marked and four of which have been cleared by the FDA. In 2020 Creo acquired Albyn Medical, which provides it with profitable products and a direct salesforce in Europe.

Next events

Full H123 results

September 2023

Analysts

Soo Romanoff

+44 (0)20 3077 5700

Nidhi Singh

+44 (0)20 3077 5700

Creo Medical is a research client of Edison Investment Research Limited

Creo Medical reported an active first half of the year in its trading update. Preliminary results showed improved adoption of its flagship offering, Speedboat Inject, driven by a growing user base expanding over new territories and its ability to address the full GI tract with its recent CE mark for upper GI procedures. Total revenue accelerated 15.4% y-o-y to £15.7m (from £13.6m in H122), largely in line on an annualised basis with our prior FY23 forecast of £32.8m. Operating expenses remained largely flat, resulting from reduced R&D expenses and improved cost control measures. While we expect further expansion of the Speedboat user base to remain a strategic priority, we anticipate several key catalysts, including advancement of the Intuitive partnership, extended use of Kamaptive technology, FDA approval for Speedboat Flush and NICE guidance on UK reimbursement. As we await full H123 results in September 2023, we have put our estimates and valuation under review.

Year end

Revenue
(£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/21

25.2

(29.7)

(14.6)

0.0

N/A

N/A

12/22

27.2

(31.0)

(14.9)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

H123 sustaining growth in core technology

In H123, Creo recorded total revenue growth of 15.4% y-o-y to £15.7m, driven by its mature endotherapy consumables business and improved traction for its core technology products. Consumables grew 11.7% y-o-y to £14.3m, mainly led by its recent expansion into the US market (with first sales generated in H123). Revenue from core technology products (including flagship Speedboat) of £0.9m remain small but roughly doubled from £0.4m in H122, driven by an increased number of new users, expansion into new territories and the launch of the slimmer Speedboat Inject device in late 2022. While revenue from Kamaptive collaboration agreements remained flat at £0.5m in H123, management expects the growth momentum shown in H123 across the overall business to continue into H223.

Kamaptive technology holds key for potential upside

While Creo continues to progress on its existing Kamaptive licensing partnerships with Intuitive and CMR, upside potential lies in the commercialisation of CROMA technology through its usage in robotic procedures. While we await details on the development status of these collaborations, the Intuitive agreement remains the key growth catalyst, in our view, given the wide reach of its robotic systems.

Valuation

We have placed our valuation and estimates under review pending the full H123 results, expected in September 2023. We continue to anticipate the pro forma net cash balance at end December 2022 of £33.4m (which incorporates the £32m fund raise completed in Q123) should see the company to net profitability in H126.

FY23 focus on Speedboat Inject commercialisation

Pioneer programme paves way for improved adoption

During the first half of the year, Creo witnessed improved traction for the Speedboat Inject device, which was reflected in an increased number of Speedboat Inject-assisted procedures and a growing pipeline of clinicians under its Pioneer training programme. Proliferating from its ongoing multinational training events, the total number of confirmed Speedboat users increased 43.8% to 115 at end-June 2023, compared to 80 users at end FY22 (26.4% growth from 91 users at end Q123). In terms of procedures, Speedboat Inject cases in both Q123 and Q223 were 50% higher than the quarterly average of FY22. The uptake in the Speedboat user base was also supported by its expansion into new territories like Croatia, Slovenia, Malaysia and the United Arab Emirates in H123. In an encouraging development, the company observed a fast-paced adoption of Speedboat Inject in the Asia-Pacific region, with AIG Hyderabad Hospital in India being the first site in the region to reach 50 patients treated using Speedboat Inject. With COVID-19 restrictions withdrawn in the Asia-Pacific region and Creo’s regional hub in operation, the company foresees strong growth opportunities with the launch of new products in the region during H223.

Demonstrating the effectiveness of Creo’s training programme, Royal Oldham Hospital (UK), an NHS facility, signed up for Creo’s CROMA technology platform, Speedboat Inject and related endotherapy products (in May 2023) after three doctors at the hospital enrolled in Creo’s Pioneer training programme and successfully performed their first inhospital Speedboat Submucosal Dissection procedures using Speedboat Inject in April 2023. This was followed by over a dozen additional procedures and the hospital shared its weekly list of planned Speedboat-assisted dissection cases to indicate the quantum of upcoming orders for the device and associated equipment to support the medical procedures. Based on the hospital’s initial response, Creo expects it be a high usage site for its products. The Royal Oldham Hospital is the 23rd NHS England healthcare unit to adopt Speedboat Inject in its procedures and the company has a target base of more than 350 hospitals for the Speedboat range of products in the UK. A further validation for the device could be the upcoming reimbursement ruling by the National Institute for Health and Care Excellence (NICE), which selected Speedboat Inject for assessment in June 2023.

CE mark for upper GI expands the addressable market

In June 2023, Creo Medical received a CE mark for Speedboat Inject for upper gastrointestinal (GI) procedures. This CE mark extension nearly doubles the device’s scope across all GI tract procedures in Europe and will likely create new surgical opportunities for additional indications (upper GI) as well as increasing the total user base in the near to medium term. According to management, upper GI procedures in the US account for more than 40% of global Speedboat Inject procedures to date. As the Speedboat Inject device is already in use for full GI tract procedures for cutting and coagulation of soft tissue using radiofrequency and microwave energy across the US and Asia-Pacific, we expect a quick turnaround into regular users for upper GI procedures in Europe.

Product line expansion to access broader user base

Following positive response for Speedboat Slim, a slimmer version of Speedboat Inject (launched in November 2022) in H123, management expects Speedboat Flush (the slimmest version of Speedboat and currently under FDA review) to sustain the growth momentum in H223 and beyond. As a reminder, Speedboat Flush is compatible with endoscopes with a 2.8mm working channel, targeting GI lesions (including bowel and upper GI cancer) and swallowing disorders. We note that standard upper endoscopes have an external diameter in the range of 8.0–9.8mm with a 2.4–2.8mm channel. Creo expects that the device, after successful regulatory clearance, will be ready for clinical use in Q423.

In addition, the company announced a multicentre observational study in April 2023 to assess the safety and efficacy of MicroBlate Flex, a soft tissue microwave ablation device for both liver and pancreas. We note that the device has been CE marked in Europe and received FDA clearance in January 2021. The primary completion of the study is anticipated in March 2024, while full study completion is expected in March 2025. The user data, if positive, might lead to enhanced adoption of the device.

Valuation: Under review as we await H123 full results

We have placed our valuation and estimates under review pending the full H123 results expected in September 2023. Nonetheless, we continue to anticipate the pro forma net cash balance at end December 2022 of £33.4m (which incorporates the £32m fund raise completed in Q123) should see the company to net profitability in H126.

As a reminder, in February 2023, Creo raised £28.5m in gross proceeds (£26.8m net) through institutional investors by placing 142.5m new ordinary shares at 20p/share. The fund-raise was oversubscribed against the minimum target of £25m, indicating strong shareholder support. In addition, the company had an open offer to existing eligible shareholders to raise another £5.2m in funds via the conditional issue of c 26m ordinary shares, which was fully subscribed in March 2023.

Exhibit 1: Financial summary

£000s

2021

2022

Year end 31 December

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

25,161

27,169

Cost of Sales

(13,576)

(14,047)

Gross Profit

11,585

13,122

Research & Development Expenses

(12,869)

(13,492)

Sales, General & Administrative expenses

(25,490)

(27,325)

EBITDA

 

 

(19,982)

(20,805)

Underlying EBITDA (Adjusted for R&D tax credit)

 

 

(14,238)

(16,764)

Operating profit (before amort. and excepts.)

 

 

(29,284)

(30,756)

Intangible Amortisation

0

0

Other

52

51

Exceptionals

(623)

0

Operating Profit

(29,907)

(30,756)

Net Interest

(432)

(221)

Other

0

0

Profit Before Tax (norm)

 

 

(29,716)

(30,977)

Profit Before Tax (reported)

 

 

(30,339)

(30,977)

Tax

5,744

4,041

Deferred tax

0

0

Profit After Tax (norm)

(23,972)

(26,936)

Profit After Tax (reported)

(24,595)

(26,936)

Average Number of Shares Outstanding (m)

164.4

181.3

EPS - normalised (p)

 

 

(14.58)

(14.85)

EPS - Reported (£)

 

 

(0.15)

(0.15)

Dividend per share (£)

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

39,442

41,650

Intangible Assets

27,255

27,643

Tangible Assets

8,603

10,184

Other

3,584

3,823

Current Assets

 

 

61,167

33,687

Stocks

8,504

9,325

Debtors

4,830

6,765

Cash

43,534

13,097

Other

4,299

4,500

Current Liabilities

 

 

19,737

17,483

Creditors

9,921

9,000

Short term borrowings

5,381

5,616

Other short-term liabilities

4,435

2,867

Long Term Liabilities

 

 

7,554

8,451

Long term borrowings

5,175

6,067

Other long term liabilities

2,379

2,384

Net Assets

 

 

73,318

49,403

CASH FLOW

Operating Cash Flow

 

 

(23,199)

(24,955)

Net Interest

(463)

(287)

Tax

(2,349)

258

Capex

(6,122)

(3,274)

Acquisitions/disposals

(1,752)

(2,753)

Financing

34,208

0

Dividends

0

0

Other

0

0

Net Cash Flow

323

(31,011)

Opening net debt/(cash)

 

 

(32,737)

(32,978)

HP finance leases initiated

0

0

Exchange rate movements

(303)

(56)

Other

221

(497)

Closing net debt/(cash)

 

 

(32,978)

(1,414)

Source: Company reports, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by Creo Medical and prepared and issued by Edison, in consideration of a fee payable by Creo Medical. Edison Investment Research standard fees are £60,000 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 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

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.

United States

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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

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London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by Creo Medical and prepared and issued by Edison, in consideration of a fee payable by Creo Medical. Edison Investment Research standard fees are £60,000 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 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

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.

United States

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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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