Trinity Delta CE Mark expected shortly, launch preparations on track

Sphere Medical

CE Mark expected shortly, launch preparations on track

Update | 21 July 2016

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Today’s trading update confirms Proxima 4’s CE Mark is expected soon and that preparations are on track for a first launch before year-end. A distributor for Italy has been appointed and we expect the European regions not addressed by the in-house sales team to be next on the agenda. Other pre-launch activities are also progressing well, including improved connectivity with electronic patient records, further major hospitals undergoing evaluations, and the Welsh manufacturing facility coming on stream. Our three-phase DCF-based model yields a valuation of £14.4m, equivalent to 10.2p per share, but we expect this to rise materially to reflect the risk reduction when the CE Mark is received.

Year-end: December	2014	2015	2016E	2017E
Sales (£m)	0.0	0.0	0.1	0.7
Adj. PBT (£m)	(5.9)	(6.0)	(5.8)	(5.5)
Net Income (£m)	(5.3)	(5.5)	(5.4)	(5.1)
Adj. EPS (p)	(9.9)	(5.3)	(3.7)	(3.5)
Cash (£m)	3.7	10.0	2.8	6.7
EBITDA (£m)	(5.8)	(6.0)	(5.8)	(5.2)

Source: Trinity Delta Note: Adjusted numbers exclude share-based payments and exceptionals.

Proxima 4 launch preparations underway Sphere Medical has appointed Burke & Burke as exclusive distributors for Italy and has confirmed first European launches are on track for late-2016. We expect the next stage will be discussions with other potential distributors for regions that are lacking a direct sales presence (notably France, Spain, and the Nordic areas).
Grant of CE Mark is expected soon The CE mark certification of the optimised Proxima 4 system remains on track for mid-2016 (i.e. shortly). Revenues from Proxima 3 are expected to be small since this was essentially used to gain valuable insights to guide further product evolutions. Proxima 4’s improved features and benefits, including glucose measurements, should translate into improved market traction; with Proxima 4+, which includes lactate measurement, expected to be launched around 12 months later.
Proxima 4 progressing in other areas too Proxima 4’s connectivity with hospital data management systems, such as Conworx and Clinisys, now allow for the seamless transfer of test results into electronic patient records. A number of major hospitals are undergoing evaluations, which should highlight Proxima 4’s benefits to patient and staff. The manufacturing plant in North Wales is now fully operational and gearing up production volumes.
CE Mark represents an inflection point We currently value Sphere Medical at £14.4m, equivalent to 10.2p a share, but acknowledge the CE Mark grant represents an inflection point in our model. Once received, we would expect a material uplift in our valuation and we will review accordingly at that time.

Update

21 July 2016


Price (Sterling)	8.75p
Market Cap	£12.4m
Enterprise Value (est.)	£5.4m
Shares in issue	141.8m
12 month range	7-20p
Free float	100%
Primary exchange	AIM London
Other exchanges	N/A
Sector	Healthcare
Company Code	SPHR.L

Corporate client	Yes

Company description

Sphere Medical develops and commercialises medical monitoring and diagnostic equipment. Its lead product, Proxima, provides near real-time analysis of blood gases, electrolytes, and metabolites at the patient’s bedside within critical care.

Analysts

Franc Gregori
fgregori@trinitydelta.org
+44 (0) 20 3637 5041

Mick Cooper PhD
mcooper@trinitydelta.org
+44 (0) 20 3637 5042

Exhibit 1: Summary of financials

Source: Sphere Medical, Trinity Delta Note: Adjusted numbers exclude share-based payments and exceptionals.

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