Trinity Delta Commercialisation now begins

Sphere Medical

Commercialisation now begins

Update | 15 December 2016

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Sphere Medical has launched Proxima 4, a closed system for analysing a patient’s blood gases, across the key European markets. The direct sales team will address the UK, Germany, the Netherlands and Belgium, with their distributor marketing in Italy. A new distribution partner has been announced for Spain, with launch there expected in Q217. Further regional partnerships are expected during the coming year. This represents a landmark as Sphere Medical transitions towards commercialisation. We maintain our valuation, based on our DCF-based model, at £30.2m, equivalent to 21.3p per share.

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)	(5.6)
Net Income (£m)	(5.3)	(5.5)	(4.7)	(5.2)
Adj. EPS (p)	(9.9)	(5.3)	(3.2)	(3.5)
Cash (£m)	3.7	10.0	3.0	6.6
EBITDA (£m)	(5.8)	(6.0)	(5.7)	(5.4)

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

Proxima 4 launch marks transition to commercialisation Sphere Medical has launched its optimised Proxima 4 system in Europe. It is being marketed by the in-house sales team in the UK, Germany, the Netherlands, and Belgium. In Italy the local distributor, Burke & Burke, is also primed for launch. A new distributor, Proyectos Hospitalarios Internacional (Prhoinsa), has been appointed for Spain, with the launch there planned for Q217. Additional regional partners are expected to be confirmed during the coming year.
Addressing a wider patient population Proxima 4 is the latest generation of a proprietary micro-analyser technology platform that accurately and rapidly measures a variety of different blood parameters (including pH, pCO2, pO2, electrolytes and glucose) at the point of care (POC) in near-real time. Proxima 4 represents a major upgrade, with additional functionality and direct connectivity with hospital information systems, as well as simpler set-up. The target population for Proxima 4 is ~50% of patients in intensive care units, compared to ~12% for the earlier “beta” version (Proxima 3).
Commercial scale manufacture in place A dedicated full scale production site has been established in St. Asaph, Wales, and is now fully approved and operational. Launch stocks are ready for shipment, although timings suggest little revenue will fall in FY16. The site should have sufficient capacity to manufacture all of Proxima’s forecast needs for the near- and medium-term.
Gaining sales traction is the next major sensitivity We employ a three-phase DCF model; with appropriate adjustments for factors such as execution and regulatory risks. The granting of the CE Mark, in September, effectively removed regulatory risk from our investment case, shifting the focus onto management’s success in the execution of the marketing plans. Our valuation remains £30.2m (21.3p a share), with no changes to estimates.

Update

14 July 2017


Price (Sterling)	10.1p
Market Cap	£14.3m
Enterprise Value	£7.7m
Shares in issue	141.8m
12 month range	6.2-15.9p
Free float	100%
Primary exchange	AIM London
Other exchanges	NA
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 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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