Tissue Regenix
Written by
Tissue Regenix |
Progressing on multiple fronts |
Update on progress |
Medical technology & devices |
22 March 2016 |
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Business description
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Tissue Regenix’s (TRX’s) investment case is built on dCELL, a patented decellularised tissue scaffold. Wound care is a main driver for TRX’s growth and recent announcements demonstrate progress on many fronts. Most notably, the FDA has approved the first dCELL product as a medical device: SurgiPure XD for use in hernia repair. We have increased our sum-of-the-parts valuation to £380m (vs £346m previously).
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
01/14 |
0.0 |
(6.3) |
(0.9) |
0.0 |
N/A |
N/A |
01/15 |
0.1 |
(8.2) |
(1.2) |
0.0 |
N/A |
N/A |
01/16e |
0.5 |
(10.6) |
(1.4) |
0.0 |
N/A |
N/A |
01/17e |
3.5 |
(12.5) |
(1.6) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
US regulatory approval for SurgiPure XD
SurgiPure XD has been granted 510k market clearance from the FDA in the US. It is a porcine dermis xenograft, classified as a medical device, and is a thicker graft designed to target the more complex, high-value end of the hernia repair market. This is important progress for the company as it not only enables the launch of SurgiPure XD to the US market (expected H216) it also validates the dCELL safety and efficacy data, which are important for future development of the technology in the US market.
Commercialisation progress
TRX continues to drive forward commercialising its portfolio with progress toward the goal of 100% Medicare coverage. It has increased coverage from eight to nine out of 11 reimbursement agencies, bringing it to 74% coverage. We also note it has established a joint venture (JV) with a German tissue bank to commercialise its human dCELL heart valves and DermaPure in the EU. The JV will receive non-exclusive licences and will pursue regulatory submissions, potentially leading to a first product launch in 2017.
Valuation: Raised to £380m from £346m
Our sum-of-the-parts DCF valuation increases to £380m (vs £346m previously) or 50p per share (vs 45.6p per share) after increasing the probability of SurgiPure XD in the US to 100% (vs 60%) due to the 510k US market clearance by the FDA. We model net peak sales of c $62m and expect it will be commercialised via distributors. The overall Wound Care division valuation has increased to £220m (vs £188m), also boosted by improved Medicare coverage and JV. The rest of our key valuation assumptions (including the orthopaedic and cardiac divisions) are unchanged, although we have rebased the model to FY17, updated the $:£ exchange rate ($1.44 to $1.43) and now use estimated cash of £18.7m at end FY16 (vs £25m at 31 July 2015). Potential catalysts in 2016 include a CE mark grant, launch of OrthoPure XM and US launch of OrthoPure HM/HT.
Exhibit 1: Financial summary
|
£'000s |
2014 |
2015 |
2016e |
2017e |
|
Years ending 31 January |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||
Revenue |
|
|
6 |
100 |
476 |
3,484 |
Cost of Sales |
0 |
0 |
(105) |
(803) |
||
Gross Profit |
6 |
100 |
372 |
2,681 |
||
Operating expenses |
(6,459) |
(8,318) |
(11,183) |
(15,378) |
||
EBITDA |
|
|
(6,453) |
(8,218) |
(10,672) |
(12,413) |
Operating Profit (normalised) |
|
|
(6,577) |
(8,369) |
(10,812) |
(12,697) |
Exceptionals |
0 |
0 |
0 |
0 |
||
Other |
0 |
4 |
4 |
0 |
||
Operating Profit |
(6,577) |
(8,365) |
(10,808) |
(12,697) |
||
Exceptionals |
0 |
0 |
0 |
0 |
||
Net Interest |
274 |
168 |
209 |
140 |
||
Profit Before Tax (norm) |
|
|
(6,303) |
(8,201) |
(10,602) |
(12,557) |
Profit Before Tax (as reported) |
|
|
(6,303) |
(8,197) |
(10,598) |
(12,557) |
Tax |
710 |
620 |
685 |
628 |
||
Other |
0 |
0 |
0 |
0 |
||
Profit After Tax (norm) |
(5,593) |
(7,581) |
(9,917) |
(11,929) |
||
Profit After Tax (as reported) |
(5,590) |
(7,581) |
(9,913) |
(11,929) |
||
Average Number of Shares Outstanding (m) |
636 |
636 |
698 |
760 |
||
EPS - normalised (p) |
|
|
(0.88) |
(1.19) |
(1.42) |
(1.57) |
Dividend per share (p) |
0.0 |
0.0 |
0.0 |
0.0 |
||
Gross Margin (%) |
100.0 |
100.0 |
78.0 |
77.0 |
||
EBITDA Margin (%) |
N/A |
N/A |
N/A |
N/A |
||
Operating Margin (before GW and except.) (%) |
N/A |
N/A |
N/A |
N/A |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
472 |
435 |
948 |
942 |
Intangible Assets |
0 |
0 |
0 |
0 |
||
Tangible Assets |
472 |
435 |
948 |
942 |
||
Investments |
0 |
0 |
0 |
0 |
||
Current Assets |
|
|
19,610 |
12,238 |
20,596 |
8,830 |
Stocks |
0 |
34 |
109 |
396 |
||
Debtors |
1,127 |
1,947 |
1,801 |
1,909 |
||
Cash & equivalents |
18,483 |
10,257 |
18,686 |
6,526 |
||
Income taxes |
0 |
0 |
0 |
0 |
||
Other current assets |
0 |
0 |
0 |
0 |
||
Current Liabilities |
|
|
(1,104) |
(1,095) |
(621) |
(1,319) |
Creditors |
(1,104) |
(1,095) |
(621) |
(1,319) |
||
Short term borrowings |
0 |
0 |
0 |
0 |
||
Contingent consideration |
0 |
0 |
0 |
0 |
||
Long Term Liabilities |
|
|
0 |
0 |
0 |
0 |
Long term borrowings |
0 |
0 |
0 |
0 |
||
Contingent consideration |
0 |
0 |
0 |
0 |
||
Net Assets |
|
|
18,978 |
11,578 |
20,923 |
8,453 |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
(6,121) |
(8,285) |
(11,152) |
(12,022) |
Net Interest |
274 |
168 |
209 |
140 |
||
Tax |
474 |
0 |
1,095 |
0 |
||
Capex |
(358) |
(114) |
(696) |
(279) |
||
Acquisitions/disposals |
0 |
0 |
0 |
0 |
||
Financing |
8 |
5 |
18,972 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
||
Capitalised R&D |
0 |
0 |
0 |
0 |
||
Net Cash Flow |
(5,723) |
(8,226) |
8,429 |
(12,160) |
||
Opening net debt/(cash) |
|
|
(24,206) |
(18,483) |
(10,257) |
(18,686) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(18,483) |
(10,257) |
(18,686) |
(6,526) |
Source: Company accounts, Edison Investment Research
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Research: TMT
The Mission Marketing Group