Trinity Delta Funding to support Proxima 4 roll-out being finalised

Sphere Medical

Funding to support Proxima 4 roll-out being finalised

Update | 14 July 2017

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Sphere Medical has announced that plans for a fund raise are being finalised. Soundings from both existing and prospective new investors suggest there is support for an equity issue. We remind that the current use of cash is around £7-8m per annum. An operating update shows that interest in Proxima 4 continues to build and the number of product demonstrations and evaluations is rising. The three distributors have received their initial supplies and started their marketing campaigns. Our valuation is placed under review until details of the financing plan are announced.

Year-end: December	2015	2016	2017E	2018E
Sales (£m)	0.0	0.0	0.4	1.7
Adj. PBT (£m)	(6.0)	(5.1)	(6.2)	(5.7)
Net Income (£m)	(5.5)	(4.5)	(5.7)	(5.3)
Adj. EPS (p)	(5.3)	(3.2)	(3.9)	(3.6)
Cash (£m)	10.0	3.2	7.0	0.7
EBITDA (£m)	(6.0)	(5.0)	(5.4)	(4.7)

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

Funds to be raised to support Proxima 4 Sphere Medical has conducted market soundings with existing and prospective institutional investors that suggest an appetite for an equity raise. The lengthy sales cycles, coupled with continuing development expenditure, means we forecast cash out-flows for the coming years. To remind, we estimate the current use of cash is around £7-8m per annum and that a £3m loan facility from Silicon Valley Bank is in place.
Hospital evaluations continue to build The interest in Proxima 4 is rising, with the number of hospitals requesting evaluations now up to 55, of which 38 have had product demonstrations. This compares with 40 and 30 respectively at the update in May. Six hospitals, across three countries, have placed orders since Proxima 4 was first launched in December 2016. The distributors for the Italian, Spanish, and Austrian markets have taken their initial supplies and have started performing patient evaluations.
Supply issues resolved and yields back on track The operational issues in production that were mentioned in the May trading update have been addressed. Sensor yields have been improved and supply is now restored. The Welsh manufacturing site should have sufficient capacity to manufacture all of Proxima’s forecast needs for the near- and medium-term.
Valuation placed under review until details are known Whilst the confirmation that an equity fund raise is being finalised does remove a major concern, we have placed our valuation under review until the details have been disclosed (presumably within a matter of weeks). For reference, our previous valuation was £30.2m, equivalent to 21.3p a share.

Update

14 July 2017


Price (Sterling)	7.88p
Market Cap	£11.2m
Enterprise Value	£11.8m
Shares in issue	141.8m
12 month range	5.0-14.5p
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; the short-term debt is illustrative of the company’s funding requirements.

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