Tissue Regenix — Update 22 March 2016

Tissue Regenix — Update 22 March 2016

Tissue Regenix

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Tissue Regenix

Progressing on multiple fronts

Update on progress

Medical technology & devices

22 March 2016

Price

21.13p

Market cap

£161m

£/$1.42

Net cash (£m) at end of July 2015

25

Shares in issue

760.1m

Free float

65%

Code

TRX

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

32.0

44.4

19.0

Rel (local)

26.9

42.0

32.7

52-week high/low

21.6p

13.2p

Business description

Tissue Regenix is a UK-based company developing and commercialising medical devices for the regeneration of soft tissue. It has three divisions including a US-based wound care subsidiary, orthopaedics/sports medicine and a cardiac division.

Next events

Expansion of wound care sales channels

2016

Completion of chronic wound care study

H116

Initiation of OrthoPure XT study/CE mark grant/launch of OrthoPure XM

2016

HCT pathway/OrthoPure HM/HT US launch

2016

Analyst

Dr Linda Pomeroy

+44 (0)20 3077 5738

Tissue Regenix is a research client of Edison Investment Research Limited

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*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

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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Germany

London +44 (0)20 3077 5700

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London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

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NSW 2000, Australia

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Level 15, 171 Featherston St

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New Zealand

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Research: TMT

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