Creo powers robotic innovation
Creo Medical Group PLC (AIM:CREO) develops and sells surgical devices for minimally invasive endoscopic surgery (flexible tubes mostly used in bowel procedures). In recent developments, Creo's devices and technologies are also increasingly being licensed to robotic surgery companies. These use rigid (laparoscopic) tubes mostly for abdominal and chest procedures. Robotic surgery is more precise and uses small, single-use cutting tools.
Creo's Kamaptive technology offers both bipolar cutting (electrical localised heating) and microwave coagulation to stop bleeding. Whilst the latest robotic systems do have some bipolar tools to cut and seal blood vessels, Creo's technologies will enhance robotic surgery.
Two deals have been announced. The first, in May 2022, was with the largest robotic surgery company, Intuitive. The second Kamaptive technology agreement, announced in October 2022, is with CMR Surgical Ltd, a growing UK-based medical robotics company. Its Versius robots can be moved easily between operating rooms within a hospital and between hospitals. The deal will add to revenue in future years.
Robotic precison
Creo released interim FY22 results in early September following the August trading update. Sales in H1 were £13.6mln. Creo's core technology, like the Speedboat device, rose to £900k from £200k in the preceding half (H2 FY21) with a doubling of devices used in procedures. This includes Kamaptive power source sales. Albyn distributed third-party products in Europe and the UK had level sales at £12.7mln. As a result of the improving product mix, the gross margin increased from 46% to 48%.
Costs are expected to decline in H2 as R&D projects (£7.5mlm in H1 FY22) are completed. These will give an expected £2.6mln cash H1 tax credit, paid in FY23. Due to the better sales mix and tighter cost management, cash is expected to be about £16mln at the year-end; it was £26.1mln on 30 June. The underlying loss EBITDA (excluding tax credits) was £11.7mln.
We have restated our FY23 forecast. We expect excellent growth in Creo core products building on steady Albyn distribution sales to reach a total of £32mln revenue in FY23. R&D costs and expected margins are being reviewed by management, and we expect EBITDA to be better at a reduced loss. Medical device growth tends to be linear as use is tied to surgical procedures run and training of surgeons. The doubling since January 2022 of Speedboat trained surgeons is very indicative of near-term growth. Creo also has a range of versatile other devices some of which, like SpydrBlade, are not yet launched in the US. Creo will need further funding in 2023. We do not see this as an urgent need but its is important that the company can continue to invest in and develop its sales capabilities.
Positive growth prospect
Year end Dec 31 · 2020 · 2021 · 2022 · 2023
Revenue (GBP-mln) · 9.0 · 25.2 · 28.0 · 32.0
Gross Profit (£mln) · 4.0 · 11.6 · 13.5 · 16.0
Adj. Earnings (£mln) · (18.7) · (19.0) · (21.0) · (17.5)
Creo has grown its licensing revenue stream. Its Kamaptive Technology licensing program allows clinicians to utilise the novel Kamaptive energy integrator which can switch between energy types to select either cutting or coagulating.
Powering innovation and development
Creo has signed a new agreement with CMR Surgical Ltd. CMR's core system, Versius, facilitates laparoscopic (keyhole) surgery through surgical tools attached to modular and portable robotic arms.
CMR, founded in 2014, has an innovative approach using flexible, modular systems. Exhibit 1 shows the flagship Versius system in action.
Exhibit 1 - Versius Robotic surgery
Source: CMR Medical
CMR targets non-USA markets and had revenues of about £27mln in 2021. Sales are robots, usually over £1mln each, and the revenue stream form single-use tools, Exhibit 2.
The robotic arms' movement and functions are manipulated by surgeons through a separate console. This enhances the precision of procedures and reduces the physical burden on surgeons.
Exhibit 2 - Versius tools
Source: CMR Medical
The first licensing agreement announced in May 2022 allows Intuitive, a clinical robotics company, to integrate Creo’s products with their own technology, the leading da Vinci robotic system. Having a powerful marketing partner as a second channel into the core USA market is a massive benefit and should develop into a major future market. Creo will receive commercial royalties of an undisclosed sum.
Management is working to license Kamaptive further.
Intuitive deal
We restate the unchanged financials from our last note pending. Revenues in 2021 were £25.2mln for 2021 (year-end 31 Dec) Albyn Medical (the European distribution company) contributed £24.8mln in FY21 with £312k of Speedboat (Creos' flagship product for endoscopic bowel surgery) and other device sales. In H1, Creo core products grew 186% with Albyn sales 2.5% higher. The cash flow, Table 2, shows an FY21 operational cash use of £26mln plus £7.8mln spent on acquiring of electronic supplier Aber and the freehold of the Creo site. In H1 FY22, cash outflow was £17.5mln due to a higher operational cash use: £15.8mln in H1 FY22 vs £26.0mln overall for FY21. Cash use is forecast by us to fall to about £24mln in FY23. The H1 FY22 Balance sheet position was similar to the end of FY21 on working capital and liabilities. We expect 31 December cash to be about £16mln. Creo will need further funding in 2023. We assume a 'loan' of £5mln in our forecast but expect more substantial funding.
Financials
Table 1 - Creo H1 FY22 Profit and Loss
Source: Creo reports, ProActive estimates
Table 2 - Creo H1 FY22 Cash Flow
Source: Creo reports, ProActive estimates
Table 3 - Creo H1 FY22 Balance Sheet
Source: Creo reports, ProActive estimates