Creo Medical growing revenue, products, and training
Creo Medical Group PLC (AIM:CREO) develops and sells surgical devices for minimally invasive endoscopic surgery, mainly to remove suspected early-stage bowel cancers and to expand cases of a narrowed oesophagus.
In August, Creo released an H1 trading update ahead of the release of the full unaudited H1FY22 results due in September. Creo expects to report a half-on-half increase in revenue of over 10%, from £12.2mln in H2FY21 to around £13.5mln in H1FY22.
Management expects a reduction in the EBITDA loss of around 20% from an H2FY21 £11.3mln loss to about an H1FY22 £9mln loss, a £2.3mln improvement. Creo notes that this gain is due to increasing Creo core sales including Kamaptive sales relating to the licence agreement signed in January 2022. Creo has also reduced core Creo product costs further boosting margins.
Importantly, Creo doubled the number of clinicians receiving training in the use of their products in H1FY22, also doubling the number of procedures involving Speedboat Inject (Speedboat). These training courses are crucial for the commercialisation of Creo’s products in new regions and the uptake of Speedboat as a viable tool for procedures.
Its flagship multifunctional product, Speedboat, uses dual-energy: electrical bipolar radio frequency energy for precise cutting and super high-frequency microwave energy for controlled coagulation (to stop bleeds). It also uses an integrated needle to lift the tumour before cutting. A unique ceramic hull allows Speedboat to cut close to underlying tissues. These features boost tumour resection success rates.
This means that interventional endoscopists can carry out entire resections faster with Speedboat. Competing technologies require multiple tools and exchanges which increases time and cost.
Trading update
These devices are single-use and fit onto standard flexible endoscopes. Robotic use is being added. Around 50 top-tier medical centres and 100 key opinion leaders around the world use Creo’s products. Creo sells directly to hospitals in North America, the UK and Europe through expert sales and clinical teams and training programmes. It now has a regional hub in Singapore for Southeast Asia.
Creo continues to expand its complementary product offering for Speedboat in the UK and the rest of Europe, and management hopes this expanded offering will greatly increase revenue in the US.
No change has been made to our previously announced forecasts. We will revise forecasts in light of the full H1FY22 results in September.
Year end Dec 31 · 2020 · 2021 · 2022
Revenue (GBP-mln) · 9.0 · 25.2 · 27.3
Gross Profit (£mln) · 4.0 · 11.6 · 12.8
EBIT £ min · (23.5) · (29.9) · (29.7)
A key factor in the rapid increase in trained clinicians is Creo’s Pioneer Clinical Education Programme. With the global relaxation of COVID-19 restrictions, Creo can host multiple multinational training events. In June, Creo ran three multi-national courses across three continents, training clinicians from France, the US, South Africa, Chile, and India, just to name a few. This expands awareness and boosts the number of regular users of Creo’s products. This is important in commercialising Creo's technologies and in developing new geographic markets.
In April 2022, Creo opened its regional hub in Singapore. This has helped it set up centres, as in Thailand, where clinicians are supported in training to use Speedboat in a variety of various clinical situations.
Training key to fast growth
Speedboat is used to perform a procedure known as endoscopic submucosal dissection (ESD). Because of the way Speedboat improves on traditional ESD, Creo and the NHS refer to it as Speedboat submucosal dissection (SSD). As a general guide, Creo expects to sell two Speedboat devices per account per week at a UK list price of about £900. SSD is used in two main procedures:
- For the removal of complex but early-stage colon cancers that have not spread beyond the colon wall
- For oesophagus dilation, which is surgery that opens up a constricted oesophagus, a condition known as achalasia
One breakthrough in recent months was the use of Creo's Speedboat Inject device at the Assaf Harofeh Medical Centre to remove a gastrointestinal stromal tumour for the first time. These are soft tissue bowel cancers and relatively rare, for example, about 900 people a year in the UK are diagnosed. The procedure was undertaken in July by Dr Sergei Vosko who was trained in the use of Speedboat only in May. This shows both the efficacy of Creo’s technology and also the effectiveness of the training program.
Novel, multi-functional surgical tools
Figure 1 - Speedboat Inject
Source: Creo Medical
Creo has also grown its licensing revenue stream. Its Kamaptive Technology licensing program allows clinicians to utilise the Kamaptive energy integrator which can switch between energy types for cutting and coagulating functions of Speedboat. The first licensing agreement announced in May 2022 allows Intuitive, a clinical robotics company, to integrate Creo’s products with their own technology. Management is working to license the technology further.
Licensing revenue stream
Profit and Loss
The company reported revenue of £25.2mln for 2021 (year-end 31 Dec), Table 1. Albyn Medical contributed £24.8mln with £312k of Speedboat and other device sales and a £50k research grant. Albyn was 90% acquired in July FY20. Our 2022 revenue expectation of £27.3mln is based on Creo growing the number of 'power accounts' from 30 to 80. This should generate an extra £1mln worth of Speedboat and CROMA revenue. We also expect growth of about £1mln in Albyn revenues and some minor initial Intuitive payments. We expect gross margins to be stable over 2022.
Table 1 - P&L
Source: Creo reports, ProActive estimates
Cash flow
The cash flow, Table 2, shows an FY21 operational cash use of £26mln. Capital expenditure in FY21 was £7.8mln due to the acquisition of electronic supplier Aber (£1.8mln net of cash) and the purchase of the freehold of the Creo site in Chepstow for £6mln.
Table 2 - Cash flow
Source: Creo reports, ProActive estimates.
Balance Sheet
The balance sheet, Table 3, shows a rise in PPE (property, plant and equipment) fixed assets as a result of 2021 investments. FY21 Inventories and other working capital are high as Ablyn is a distributor of third-party products, so requires stock for immediate dispatch, and has multiple customer accounts with long payment periods. In 2021, Creo raised net cash of £34.3mln in new equity. After the net cash outflow of £1.9mln, there was £43.5mln cash at FY21 year-end. We expect this to fall to just over £16mln by December 2022.
Table 3 - Balance Sheet
Source: Creo reports, ProActive estimates