EBR Valuations, page-14

In an earlier post on this EBR thread I've given a very "order of magnitude" valuation for EBR, based on the first three full years after WISE initial commercialisation, with a gradual rolling out of the WISE device from an initial 45 clinics (that have already been involved in the SOLVE-CRT trial), with what I'd say is a fairly conservative (and discounted) set of variables :-
Those price targets are:
1st year: $1.41;
2nd year: $2.55;
3rd year: $5.53.

Yes that first full year of commercialisation is still a couple of years off, and yes it assumes the FDA approves the submitted PMA, which in this first instance covers Cardiac Resynchronisation Therapy (CRT) only. Just the CRT market alone is estimated to be worth US$2.5 billion in the US.

In view of the fairly significant jump in share price today I thought it worthwhile to consider the potential EBR price beyond the first few years, which obviously requires a bit of day dreaming, and assuming things develop successfully beyond the initial FDA approval.

Thus, if we consider the current pacemaker market as a whole. Medtronic is the largest manufacturer of pacemakers, having around 60% of that market globally. Medtronic has a market cap of just under US$120 billion, and of course its business extends far beyond pacemakers. But the significance of that 60% share of the global market is that its possible to be a dominant player over time if you have the 'right' device.

In the case of WISE, and assuming it is approved for CRT, then it becomes the ONLY wireless device available that enables implant within the left ventricle. That market, estimated at US$2.5 billion, is currently unmet by any device! So to suggest that WISE could ultimately service even 50% of that market is not unreasonable ie US$1.25 billion, and possibly much more. If we assume that the margin on revenue is just 50% (EBR has a longer term target margin of 70%), then annual profit before tax is around US$600 million! If we assume a 30% tax rate and exchange rate A$/US$=0.70 then NPAT = US$420 million = A$600 million.

What P/E to use? At a P/E of 15 (I suggest this is very conservative), and assuming future CDI equity doubling in coming years ie 268 x 2 = 536 million CDI's, thus:
(600 x 15 ÷ 536 ) million
= $16.79 / CDI!

But that just covers the current estimate market, for an unmet CRT demand (in the US only, not globally).

Then we can consider a comment by EBR's recently appointed Consultant Chief Scientific Officer, Dr Rick Kuntz, formerly the Chief Scientific Officer of Medtronic, who stated:
“EBR Systems is a clear leader in innovation within the cardiac rhythm management space and it has a device that can potentially takeover conventional methods as the first-in-line pacing device for heart failure patients. I look forward to helping further the Company’s goals and am excited to work with a passionate team dedicated to improving the lives of many patients.”

That opens up the potential for EBR to the entire pacemaker market, that currently is estimated to total US$7.1 billion!

Thus today's share price, closing at $0.80, whilst a significant step up (and beyond that resistance band at 70 - 71 cents), really is just a reminder of the longer term potential for EBR IMO.

I welcome any views, comments, criticisms of this post.