DNB Markets – Episurf Medical: Covid-19 hit in Q2, as expected

As we expected, Covid-19 had a clear impact on the number of implant procedures in Q2. As these are elective procedures, they can easily be postponed (as seen in Q2). Despite this, we believe the company had a strong quarter with a good cost control. Over the coming quarters, we believe sales should gradually return. Our new fair value is SEK1.3–3.9 (1.4–4.1).

The pandemic affected Q2, as we expected. Sales of cSEK0.6m were clearly below our estimate of cSEK1m. However, as the company is in the early phase of its product introduction, it has few high-volume users and local restrictions can have a disproportionately high impact on a company at its stage of development. The signs are positive that the important European market is starting to come back.

Tight cost control in Q2. Despite lower than expected sales, the company reduced its operating costs, giving an operating loss cSEK4m smaller than we forecast. On the other hand, we expect costs to increase again in H2 as costs for the US IDE trial grow as surgical procedures in the trial commences.

At least two publications should come in H2. We expect clinical documentation to increase in H2, as several important articles highlighting the longer-term outcomes for the Episealer implant system are on their way. Remember that the company has basically come this far with very limited clinical documentation, and from our point of view it is key to strengthening its competitive situation.

Forecasts adjusted for Q2 report. We have lowered our forecasts due to the impact of Covid-19 in Q2 and the impact we expect for H2. At the same time as we have lowered our 2020–2022e top-line and our operating costs, leading to a relatively small bottom-line impact. We still see high demand for its implant system in patients too old for any biological treatment to have an effect and too young for total knee replacements. Our new fair value is SEK1.3–3.9 (previously SEK1.4–4.1).

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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

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