DNB Markets - Episurf Medical: Moving forward despite Covid-19
The company’s overall Q4 report (19 February) was strong, given the headwind among almost all elective procedures in Q4. However, underlying sales still increased YOY in 2020, a good sign. During the year, the amount of published clinical data increased (and should continue to rise in 2021) and this strengthens the company’s competitive position. Focus going forward will be on the EPIC-knee trial and the patellofemoral implant aimed to be filed in the US this year. We have lifted our fair value for the shares to SEK2.5–8 (previously SEK1.9–6.5).
Q4 earnings hurt by the pandemic. Sales of implants were below our forecast, but included a one-off revenue from a license sale of its software system, leading to higher revenues than expected. Operating costs were somewhat higher than forecast but lower than Q4 last year. Sales of implants were hurt by the Covid-19 pandemic and the second wave of infections spiking in Q4. The type of surgical procedures where Episurf Medical’s implants are used are the typical elective surgeries that have been cancelled and postponed due to the pandemic.
US PMA trial moving forward but pandemic affecting the pace. The trial started in Q3, with only a few patients included as of now. The pandemic has hurt patient recruitment, although we believe the company is attempting to speed up recruitment. It is discussing the inclusion/exclusion criteria with the FDA, looking for ways to increase the proportion of screened patients recruited for the trial. We hope changes will be implemented during the spring. Having the trial fully recruited in 2021 (180 patients) might be a challenge, given the pandemic impact in Q4 and also in Q1 2021.
New implant for patella injuries developed. The company announced a new implant product developed for focal cartilage injuries of the patella for which it plans to file in the US (for a 510(k) clearance) during 2021. Such a product could be approved and available in the US market in 2022. Focal cartilage damages in the patella are a problem and a potential contraindication to the ordinary Episealer implant. This could become an interesting addition to the overall implant portfolio, we believe.
New fair value of SEK2.5–8/share. We believe the company is moving in the right direction with the growth in clinical documentation set to continue into 2022. The new patella implant product could add revenues earlier than previously forecast and allow entry into the US market sooner than with the Episealer implant system. Its financial position improved solidly in 2020 and is stable, and its cash should take it into 2023.
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Best regards
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Patrik Ling | DNB Markets | Equity Research | Senior Analyst Healthcare
DNB Bank ASA
Regeringsgatan 59 | Stockholm | Sweden