Expert view on Creo's tech
Year end Dec 31 · 2021 · 2022
Revenue (GBP-mln) · 25.2 · 27.1
Gross Profit (£mln) · 12 · 13
EBITDA (£M) · (19.0) · (22.8)
The Creo Capital Markets Day provided a good overview of the strategic course of the business since the fundraising of £33.7mln (before expenses) in March 2023.
Creo management expects a positive adjusted EBITDA by FY25, Exhibit 1. The main sales growth is in the Creo core products of Speedboat, and from 2024 Speedboat UltraSlim, and we expect SpydrBlade once approved. The US is the main growth market with the UK as the home test market. Consumable sales linked to Speedboat procedures are expected to develop. We also expect a clearer picture of robotic royalty-based revenues to emerge over the next 12-18 months. Further robotic deals are possible.
Growth projections
Exhibit 1 - Creo Managment sales projection
Source: Creo Medical (March 2023)
Although Creo management still guides to a small pre-tax loss in 2025, this is offset by tax credits, so an overall adjusted positive EBITDA is expected. This is despite UK R&D tax credits becoming much less favourable to SMEs. Creo is not likely to pay tax before 2027 due to accumulated losses.
Margins, costs, tax and profits
The key to Speedboat sales growth is the training of specialists. At the Capital Markets Day, it was disclosed that about 600 doctors are either trained or due for training, of whom about 180 are active users; 80 in Europe and 60-70 in the US with the balance (about 30) in Asia-Pacific. We gained the impression that most use is likely from centres where all endoscopy rooms have a Kamaptive generator and there is both a steady stream of referrals and a stock of Speedboat products and accessories. One doctor remarked that at least 50 referrals a year are needed per doctor to maintain the relevant skills.
Drivers of growth
Creo's current revenues are largely due to the consumables business selling third-party products in Europe (incl. UK). FY22 revenues were £27.2mln with a loss of £25.4mln and Dec 22 of £13.1mln. In March 2023, Creo raised a total of £33.7mln gross (we estimate about £31.7mln net). The H1FY23 results showed revenues of £15.7mln of which £0.9mln was Creo own products. EDITDA loss was £9.2mln, a half-on-half improvement of 15%. Cash on 30 June 2023 was £26.5mln.
FY22 financials and FY23 interim results
Core products
The Creo product range is shown in Exhibit 2.
Exhibit 2 - Creo product range
Source: Creo Medical
User catagories
Creo models its expected sale development based on use rate per trained surgeon with three categories assumed.
Early: Still adapting to the technology. These are expected to run one procedure per month on average so each generate about $11k per year. However, most are expected to gain confidence and could progress to normal users.
Normal: The surgeon has the equipment but not using it to its full capacity perhaps because of the patient mix or limitations on reimbursement. These use on average one device per week or 52 each year generating about $45k a year in sales.
High: These do on average about two procedures a week, so each generates around $90k a year in sales. A proportion of specialists with dedicated clinics will run many more.
Chart 1 - Cumulative, active users
Source: Creo report and estimates
Not all early users are converted to normal or high users. The conversion rate from normal to high users was around 7% in 2021 according to Creo. As noted, we now expect the highest users to be in specialist centres.
Clinical overview 1 - North West England regional centre
Dr Khalid from the Northern Care alliance put the importance of Creo’s products into context. He cited the prevalence of bowel cancer in the UK, with 43,000 new diagnoses annually. Creo’s technology used for polyp and tumour resection of cancers in the bowel is especially important as healthcare systems improve their screening processes since it takes around 10 years for a polyp to develop into a tumour. With only a quarter of diagnosed patients currently considered viable for resection, this proportion will only rise with better screening. This means a rise in demand for minimally invasive and effective treatment options. The dual energy cutting and coagulating functions of Speedboat make resection more accessible and effective.
Dr Kahlid also highlighted the advantage that Speedboat offers in allowing the removal of polyps in one piece. The ‘scraping’ method in which polyps are normally removed involves slowly removing a section of polyps piece by piece. This is a painstaking process in which pieces of polyps are often missed, which can mean that they recur later on and requiring still further treatment. Removing in one piece allows a histological examination to check that a disease-free margin exists around the resected tumour. If so, the patient is cured.
Speedboat's extending needle allows clinicians to lift specific layers of the bowel away from the muscle wall according to the depth of the polyp. This is important because it allows practitioners to remove the polyp in one piece, and minimises the risk of damage to the muscle wall.
According to Dr Khalid, Speedboat potentially has the capacity to significantly lower the current 10-20% recurrence rate of polyps, reducing the need for further treatment and alleviating demand on the healthcare system. With a projected 44% increase in demand for endoscopies in the UK over 5 years, Creo’s technology could become crucial to dealing with the rise in treatments.
Clinical Overview 2: East Midland, bowel and oesophageal endoscopic surgery
Dr Parra Blanco emphasised the critical nature of perforation prevention in oesophageal treatments. Creo’s technology can help mitigate the strictures (narrowing of the oesophagus) which is seen in 84% of cases. He explained how this often leads to clinicians having to administer procedures such as balloon dilation which can require repeat treatments of many months. Speedboat’s ceramic hull makes it easier for clinicians to avoid damaging the muscle wall and reduce the incidence of strictures.
Clinical Overview 3: London based lung surgery
Tom Routledge gave a surgeon’s view on Creo’s technology and its robotics applications. He pointed out that 50% of oesophageal cancer procedures in the US are now robotic. Creo’s partnerships with Intuitive and CMR surgical speak to this growing sector, with a claimed CAGR of 15%.
Considering Mr Routledge’s citation that robotic surgeries exceeded 10mln in 2022, Creo’s integration of its products such as Microblate Flex into robotics applications, and its wider development of robotics partnerships show the company’s strategic positioning in the market.
On top of this, he emphasised the importance of surgical tools having multi-use capabilities.
Conclusion
The Creo Capital Markets Day provided a good overview of the strategic course of the business since the fundraising of £33.7mln (before expenses) in March 2023.