Trinity Delta First Belgian order for Proxima confirmed

Sphere Medical

First Belgian order for Proxima confirmed

Update | 30 August 2016

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The first order from Belgium, to the 700-bed UniversitairZiekenhuis Brussel teaching hospital, has been confirmed. This sale follows a one-year evaluation procedure and means Sphere Medical’s direct sales team has now won contracts in the UK, Germany and Belgium. Meanwhile, Proxima 4’s CE Mark is still expected shortly and preparations remain on track for a first launch before year-end. We remind that 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 effect of 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.

First Belgian order for the Proxima system Sphere Medical has announced its first sale to the UniversitairZiekenhuis Brussel (UZ Brussel), a 700-bed teaching hospital with an excellent reputation for clinical research. The order marks the first win for Sphere Medical’s direct sales team in Belgium and follows a thorough one-year evaluation process. The initial order (for the Proxima 3 device) is likely to be modest, although we expect further orders will be transitioned to Proxima 4 systems once CE Mark has been received.
Grant of CE Mark is still expected soon We had expected the CE mark for the optimised Proxima 4 system to be received in mid-2016. We believe all the elements required (there are four individual sections that need to be examined and approved) have been addressed and it seems to now simply be a matter of the administration process.
Proxima 4 launch preparations continue A number of programmes to support a first European launch before end-16 are underway, including the recent appointment of a distributor for Italy. Meanwhile, we believe clinical evaluations of Proxima 3 in several teaching hospitals are progressing well, which should bode well for the early adoption of Proxima 4 in those areas.
The CE Mark should be an inflection point We remind that 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 this would result in a lower investment risk profile and implies a material uplift in our valuation. We intend to review our forecasts and valuation at that time.

Update

30 August 2016


Price (Sterling)	10.6p
Market Cap	£15.2m
Enterprise Value (est.)	£8.2m
Shares in issue	141.8m
12 month range	6.0-15.9p
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 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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