Nova Eye (EYE) Summary 31 Dec 2023

Decided to start a new thread for this, things often get lost in the discussion thread. Figured I would provide a quick company summary for the new investors here. I will be keeping a link to this thread for the inevitable “what does this company do” posts, which should appear quite often once this passes 50 cents (which I am sure is not far away now). I will try to come up with an updated one of these threads every few months as it will likely be quite a fast moving year for EYE. Keen for it!

Nova Eye Medical (ASX: EYE)

• Market Cap: only $45 million
• Revenue: $17m in FY23
• Cash: $8m
• Debt: none
• New best in class device just launched into the high growth Minimally Invasive Glaucoma Surgery (MIGS) market
• 75% revenue growth reported in the last quarter. Growth rate likely to increase significantly following the recent announcement
• 80%+ gross profit margins. Very lean business model, significant potential operating leverage
• Breakeven profit expected as early as this current financial year. Expected to be very profitable in the following financial year. Following the recent announcement I think it is unlikely they will need to raise capital, as the future growth and profit outlook would be significantly more clear now and all necessary investments have been made

Two business segments + R&D pipeline

Glaucoma

• Recently launched iTrack Advance as a minimally invasive solution to glaucoma treatment.
• Overcomes the significant non compliance issues and risks (ocular surface disease etc) associated with drops, as well as the high risk of traditional surgeries such as trabeculectomy.
• Develops on the original iTrack device which pioneered MIGS, however lacked the efficiency and ease associated with the new device. iTrack Advance significantly reduces the difficulty and time associated with the procedure through the incorporation of a handheld injector device which does most of the work for doctors, which will therefore drive significant demand.
• Benefits from a large number of patent protected features such as the illuminated tip (makes navigation easy - competitor products are difficult to see and procedures with them are akin to driving without headlights), pressurised OVD delivery system (makes it 10x more powerful than the closest competitor and significantly more controllable), full 360 degrees canaloplasty (closest competitor can only do 180 degrees at a time which significantly increase time procedure), only device that maintains the physiology of the eye and naturally restores the conventional outflow system (all other devices either tear the canal or involve the implantation of a stent)
• The most versatile MIGS procedure. Can be used for a number of different types of procedures (ab interno, ab externo etc) and is able to treat significantly more types of glaucoma, most notably, closed angle glaucoma (which no other device is able to treat). Also compliments almost all other types of procedures very well (e.g. can be combined with other MIGS, cataracts, implantable drug delivery devices etc.)
• Market leader globally. Most MIGS companies still are largely focused on the USA, whilst EYE has been actively leading the market in Europe and Asia. The original iTrack is one of only two devices approved in China, where it is experiencing strong growth, and will likely experience even greater growth following the approval of iTrack Advance.
• Seeking greater market access via several large multicenter randomised clinical trials (will enable increased reimbursement opportunities) as well as pursuing approval for use in several countries such as China. China presents a major opportunity as most people there have closed angle glaucoma, and iTrack Advance is the only MIGS device that can treat these patients (who are often more at risk of vision loss as well).

2RT

• Clinical stage product aimed at being the first ever FDA approved treatment for early to intermediate AMD, a leading cause of blindness in the developed world and the biggest healthcare related cost for the Australian government.
• Anti VEGF injections for advanced stage AMD exist however these are incredibly expensive (around $25,000 per year). They are also quite inconvenient for people who tend to have mobility issues, as they are often monthly. Injections in the eye are also quite uncomfortable for patients. Moreover, failure to comply with treatment regime can result in permanent and rapid vision loss, so there is little margin for error for patients. Still, these are some of the most profitable drugs globally, and fetch valuations in the 10s of billions of dollars. Significant amount of M&A in the space.
• Advanced AMD only accounts for about 15-20% of patients, the early to intermediate market is significantly larger therefore even more lucrative. Targeting AMD in the earlier stages before more serious symptoms appear is ideal for patients. Usually it is already too late for patients when Anti-VEGF drugs become available.
• Inventor of 2RT is Professor John Marshall, a pioneer of the use of lasers in ophthalmology and the inventor of the excimer laser technology for refractive surgery, acquired by Alcon in 2000. In excess of 50 million procedures have been undertaken.
• Post-hoc analysis of a 2RT study with over 200 patients found it significantly reduced disease progression by 77%. If this is confirmed in a pivotal clinical trial, it will be one of the biggest breakthroughs in ophthalmology, saving governments around the world hundreds of billions of dollars and significantly boosting quality of life for so many people.
• Seeking a major partnership deal very soon to fund immediate European commercialisation (already has approval in Europe), and pivotal clinical study in the US for FDA approval and reimbursement.

Additional R&D

• For competitive reasons the company does not disclose much info on its R&D, but they have confirmed that they are actively engaged in the development of new innovative products to drive future growth.

M&A
Very active M&A Market Two large acquisitions in 2022 for stent based procedures. Took place prior to reimbursement changes which now significant favour canaloplasty (e.g. iTrack Advance) as opposed to stents. Valuations indicate that Nova Eye Medical should be valued at least 15x higher than the current market capitalisation

Thesis:

• iTrack Advance is a best in class glaucoma treatment which will rapidly become the gold standard of treatment, and will therefore deliver significant near, medium and long term growth and profitability. iTrack Advance also benefits from recent changes to reimbursement in 2022, which provides it with significant greater reimbursement compared to other devices such as stents and will drive further adoption
• 2RT is a high potential device with minimal downside but significant upside. EYE’s valuation is so low that 2RT could be a complete failure and the share price would continue to rally solely due to iTrack Advance. This presents a free option to benefit from any upside associated with 2RT, whilst being protected from any downside risk. Partnership will be a major rerate catalyst.
• Cash flows from iTrack Advance will be reinvested into new product lines. EYE already has an active R&D program aimed at developing novel and highly innovative new products.

E&P pre-LCD estimates provided below. E&P analysts visited Nova Eye Medical factories and spent considerable time with doctors and management. Noted the significant expansion in factory space, lean business model and strong demand for products. I personally think the company will significantly outperform these estimates, the launch has been a massive success and the recent reimbursement news massively validates their product as having potential to be the gold standard of treatment, which should drive significant near term adoption. Also they are quite conservative on the gross margins, the company recently reported 80% gross margins... Good thing here is that they don't have the large one off impairment, which was a large non-cash expense that had the affect of making the net loss look very large (when in reality it has improved significantly as a percentage of sales if you remove the one off non-cash items)

Source: E&P Financial

Have a great new year's everyone!