- 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.
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.
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Disclaimer(s): Analyst owns shares.
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