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Blog

ImpediMed

Scott Power

Key points

  • Following the release of third quarter results we have reset our timelines. In short, we push our expectations out by three to six months. The key regulatory approval of the CE Mark is now expected in 3QCY17 and FDA clearance is expected in 4QCY17.
  • Sales growth in 3QFY17 was modest, although management has consistently noted that the release of important study results in 2HCY17 is key to driving private payer adoption.
  • Although we are disappointed to be downgrading our forecasts again, the underlying fundamentals remain in place.

Third quarter results show only modest growth

Revenue growth in 3QFY17 for ImpediMed (IPD) was modest and below our expectations. Revenue was A$1.6m (vs A$1.2m in 2QFY17) which included A$1.1m in lymphedema sales. We had expected a greater lift given the higher reimbursement rates and additional hospitals (16 in the quarter) onboarding the technology. It is expected that over 140 hospitals will be trained and using the technology by the end of CY17. Management noted that the rapid acceleration of sales is only likely to come when the interim data is released from the post approval trial, which is scheduled for 2HCY17.

Net cash outflow for the quarter was A$7.0m and the overall cash position remains solid at A$62.2m.

Catalyst timelines reset

Following the quarterly conference call, we have adjusted our timelines for the announcement of the key catalysts and milestones:

  • The CE Mark (European) clearance rate for SOZO– now expected in 3QCY17 (was 1QCY17)
  • Commercial European launch – 2HCY17
  • Filing of a 510(k) application with the FDA – now expected in 3QCY17 (was mid-CY17)
  • FDA clearance – by 4QCY17
  • Pivotal heart failure study results – now expected in 4QCY17 (was 3QCY17)

Changes to forecasts

In FY17 sales have been revised down to A$9.7m (includes A$2.8m R&D tax incentive) from A$12.7m reflecting a more modest rate of growth. Offsetting the lower revenue is a lower cost base, and the net result is a 3.4% increase in the net loss to A$27.6m. In FY18 and FY19 we have delayed the contribution from the heart failure business by six months and lowered our pelvic cancer market share assumptions to 1% (from 2%) in FY18 and 2% (from 5%) in FY19. As a result, the FY18F net loss has increased to A$8.7m from A$2.9m and the FY19F net profit has reduced to A$16.2m from A$22.6m.

Investment view

Given the changes to our forecasts we have reduced our share price target and our DCF valuation. The key risk is a delay in recruiting for the heart failure trial. While we are disappointed to be downgrading our forecasts, we maintain our positive stance on ImpediMed and retain our Add recommendation.

More information

Morgans clients can login to view our detailed report and revised share price target for ImpediMed (IPD). Alternatively, please contact your nearest Morgans office for access.

Disclaimer(s): Analyst owns shares.

The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.