nova eye medical (eye)...2020/12/22 · fy15 to $14.3m in fy19. while itrack sales faltered in fy20...

TAYLOR COLLISON LTD. www.taylorcollison.com.au

ABN 53008172450 AFSL 247083 1

Dr DENNIS HULME

[email protected]

+612 9377 1500

www.taylorcollison.com.au

Nova Eye Medical (EYE)

Renewed iTrack sales growth points to a strong future

Our View

Nova Eye Medical (Nova) is focused on its high-growth glaucoma franchise

following the sale of the Ellex laser and ultrasound business in June. The

disposable iTrack catheter used in minimally invasive glaucoma surgery (MIGS)

has been a key driver of revenue growth, delivering a sales CAGR of 31.4%

from FY15 to FY19. While iTrack sales faltered in FY20, it has returned to its

growth path in recent months, with sales in the 4 months ending 31 October

2020 13% higher than the previous corresponding period. Nova has expanded

its glaucoma product range with the acquisition in July of the highly regarded but

under-promoted Molteno3 glaucoma drainage implant, which will benefit from

Nova’s sales and marketing infrastructure. Nova will seek a partner to support

further development of its 2RT laser for treating intermediate age-related

macular degeneration (iAMD). It has a strong balance sheet, retaining $26.5m in

cash from the sale of the laser and ultrasound business, so it is well positioned

to capitalise on organic and inorganic growth opportunities. We initiate coverage

with an Outperform recommendation and a valuation of $0.42/share.

Key Points

iTrack has returned to growth in FY21

The iTrack single use catheter for MIGS has delivered strong revenue growth

since its acquisition in January 2014, with sales CAGR of 31.4% from $4.8m in

FY15 to $14.3m in FY19. While iTrack sales faltered in FY20 due to increased

competition in the US, a change in distributor in Germany and the Covid-19

pandemic, it has since returned to growth with sales up 13% in the first 4 months

of FY21. While we expect strong growth in iTrack sales in the medium term as

the uptake of MIGS as an adjunct to or alternative to pharmaceutical treatments

in mild to moderate glaucoma continues to increase and the aging population

drives growth in the overall glaucoma market, the resurgent Covid-19 pandemic

in the US may impact FY21 sales.

Molteno3 expands the glaucoma portfolio

Nova took a first step towards expanding its glaucoma portfolio with the

acquisition of Dunedin (NZ) based Molteno, which manufactures and markets

the Molteno3 drainage implant for late stage glaucoma. While the acquisition is

modest (FY20 sales ~$0.8m) it is highly synergistic, making use of Nova’s sales

and marketing infrastructure to support sales of the Molteno3 device.

2RT growth opportunity dependent on external funding

The 2RT laser is in development as a treatment for iAMD, which represents a

large addressable market for which there are no approved therapies. The 292-

patient LEAD trial reported encouraging efficacy in a large subgroup of patients

with iAMD but did not meet its primary endpoint. Nova, via its AlphaRET

subsidiary, will seek a partner to support further clinical trials in iAMD.

Strong balance sheet after laser and ultrasound sale

Nova closed the $100m sale of the Ellex laser and ultrasound business to

Lumibird in June. It returned $61m to shareholders in July, retaining $26.5m in

cash after costs, giving it a strong balance sheet to pursue growth opportunities.

Valuation and Outlook

We value Nova at $60m or $0.42/share based on a 2.6x EV/sales multiple, after

applying a 30% liquidity discount to listed peers. We model iTrack sales of

$12.4m in FY20, 7% above FY20 but 13% below FY19 levels, with sales

growing by a further 16% in FY22. We forecast the company to break even at

the EBITDA level in FY22.

23 December 2020

Speculative Investment

Recommendation: Outperform

Summary (AUD)

Market Capitalisation $49M

Share price $0.34

52 week low $0.285

52 week high $0.465

Pro forma cash after capital return $26.5m

Share price graph (AUD)

Key Financials (AUD)

FY20A FY21E FY22E

iTrack sales ($m) 11.6 12.4 14.4

Revenue ($m) 12.9 14.1 16.1

COGS ($M) (3.0) (3.4) (3.5)

EBITDA ($m) (5.6) (1.9) (0.0)

NPAT (10.3) (2.4) (1.2)

NPAT Adj. (10.3) (2.4) (1.2)

EPS Adj. (c) (7.2) (1.7) (0.8)

PE Ratio (x) n/a n/a n/a

DPS (c) 0.0 13.5 0.0

EV/Sales ($M) 2.0 1.8 1.7

EV/EBITDA (x) (4.6) (13.4) (758.9)

EV/EBIT (x) (3.6) (7.7) (18.5)

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

0.45

0.50EYE ASX Small Ords


ABN 53008172450 AFSL 247083 2


23 December 2020

Nova Eye Medical - Summary of Forecasts EYE 0.34$

PROFIT & LOSS SUMMARY (US$ m) BALANCE SHEET SUMMARY

Ye a r e nd June FY2 0 A FY2 1F FY2 2 F FY2 3 F Ye a r e nd June FY2 0 A FY2 1F FY2 2 F FY2 3 F

iTrack sales 11.6 12.4 14.4 15.7 Cash 95.6 26.5 25.5 25.0

Total Sales 12.8 14.1 16.1 17.4 Receivables 3.8 3.1 3.5 3.8

Other 0.1 0.0 0.0 0.0 Inventories 2.9 0.7 0.7 0.7

Tota l Re ve nue 12 .9 14 .1 16 .1 17 .4 Other 0.5 0.5 0.5 0.5

Growth (pcp) - 21.5% 9.1% 14.5% 8.2% Total Current Assets 102.9 30.8 30.2 30.1

Cost of goods sold (3.0) (3.4) (3.5) (3.7) Inventories 0.0 0.0 0.0 0.0

Operating expenses (15.5) (12.6) (12.6) (13.2) Property Plant & Equip 1.2 0.9 0.7 0.5

EBITDA (5 .6 ) (1.9 ) (0 .0 ) 0 .5 Intangibles 12.6 12.6 12.6 12.6

Dep'n/Other Amort'n (1.4) (1.4) (1.4) (1.4) Other 0.0 0.0 0.0 0.0

EBIT (7.0) (3.4) (1.4) (0.8) Total Non- Current Assets 13.8 13.6 13.4 13.2

Net Interest (0.1) 1.0 0.3 0.3 TOTAL ASSETS 116 .7 4 4 .4 4 3 .6 4 3 .3

Pre- Tax Profit Adj. (7.2) (2.4) (1.2) (0.6) Accounts Payable 3.8 2.8 3.2 3.5

Tax Expense (3.1) 0.0 0.0 0.0 Borrowings 1.9 1.9 1.9 1.9

Minorities 0.0 0.0 0.0 0.0 Provisions 0.5 0.5 0.5 0.5

NPAT Adj. (10 .3 ) (2 .4 ) (1.2 ) (0 .6 ) Other 8.2 0.2 0.2 0.2

Growth (pcp) n/a n/a n/a n/a Total Current Liab 14.4 5.4 5.8 6.0

Adjustments 0.0 0.0 0.0 0.0 Borrowings 1.4 1.4 1.4 1.4

NPAT Reported (10.3) (2.4) (1.2) (0.6) Provisions 0.1 0.1 0.1 0.1

Other 3.3 3.3 3.3 3.3

PER SHARE DATA Total Non- Current Liab 1.8 1.8 1.8 1.8

Ye a r e nd June FY2 0 A FY2 1F FY2 2 F FY2 3 F TOTAL LIABILITIES 16 .2 7 .2 7 .6 7 .8

EPS (c ) - Re porte d (7 .2 ) (1.7 ) (0 .8 ) (0 .4 ) TOTAL EQUITY 10 0 .6 3 7 .2 3 6 .0 3 5 .4

Growth (pcp) n/a n/a n/a n/a

EPS (c) - Adjusted (7.2) (1.7) (0.8) (0.4) CASH FLOW SUMMARY

Growth (pcp) n/a n/a n/a n/a Ye a r e nd June FY2 0 A FY2 1F FY2 2 F FY2 3 F

Dividend (c) 0.0 13.5 0.0 0.0 EBIT (e xc l Abs/Extr) (7 .0 ) (3 .4 ) (1.4 ) (0 .8 )

Franking 0.0 0.0 0.0 0.0 Add: Dep'n & Amort'n 1.4 1.4 1.4 1.4

Gross CF per share (c) 3.8 (4.8) 0.1 0.5 Other non- cash items (48.8) (9.8) (2.8) (2.9)

NTA per share (c) 61.3 22.7 21.9 21.4 Less: Tax paid 0.4 8.0 0.0 0.0

Net Interest (0.4) 1.0 0.3 0.3

KEY RATIOS Change in Rec. 11.7 0.7 (0.4) (0.3)

Ye a r e nd June FY2 0 A FY2 1F FY2 2 F FY2 3 F Change in Inv. 23.2 2.3 (0.0) (0.0)

Net Debt : Equity (%) - 91.8% - 51.3% - 50.3% - 49.9% Gross Cashflows 5.4 (6.9) 0.2 0.7

Net Debt: EBITDA (x) 16.5 12.1 629.1 (40.5) Capex 88.3 (1.2) (1.2) (1.2)

Current ratio (x) 7.2 5.7 5.2 5.0 Free Cashflows 5.1 (8.1) (1.0) (0.5)

ROE (%) - 12.2% - 3.3% - 2.6% - 1.4% Share Issue Proceeds 0.0 0.0 0.0 0.0

ROIC (%) n/a n/a n/a n/a Other 75.3 (41.6) 0.0 0.0

Dividend Payout Ratio (%) n/a n/a n/a n/a Dividends Paid 0.0 (19.4) 0.0 0.0

Ne t Ca shflows 8 0 .5 (6 9 .1) (1.0 ) (0 .5 )

VALUATION MULTIPLES FX Effect on Cash 0.0 0.0 0.0 0.0

Ye a r e nd June FY2 0 A FY2 1F FY2 2 F FY2 3 F

PE Ra tio (x) n/a n/a n/a n/a EYE va lua tion summa ry

Divide nd Y ie ld (%) 0 .0 % n/a 0 .0 % 0 .0 % Applied Valuation Valuation

EV/Sales (x) 2.0x 1.8x 1.7x 1.6x Multiple (A$m) (A$/share)

EV/EBITDA (x) - 4.6x - 13.4x - 758.9x 50.8x EV/Sales (30% discount to peers) 2.6x 36.8 0.26

EV/EBIT (x) - 3.6x - 7.7x - 18.5x - 32.0x Net Cash (end FY21e) 23.2 0.16

Total Valuation 60.0 0.42


ABN 53008172450 AFSL 247083 3


23 December 2020

Investment Overview

Nova Eye Medical Limited (Nova; ASX:EYE) is an Australian-based medical device company that designs, manufactures and

markets devices used by ophthalmologists to treat eye disease. The company was previously known as Ellex Medical Lasers

Limited (ASX:ELX) but was renamed after it sold its lasers and diagnostic ultrasound business to Lumibird for ~$100m this year.

After the transaction completed on 30 June 2020 the company returned $61m to shareholders via a return of capital and a fully

franked dividend. Nova Eye Medical retained $26.5m in cash after tax and transaction costs, giving it a very strong balance

sheet to capitalise on organic and inorganic growth opportunities.

Nova manufactures and markets two devices, iTrack and Molteno3, for treating glaucoma, an eye disease characterised by

increased intraocular pressure which can result in blindness if left untreated. Its third product, 2RT, has an initial approval for a

niche application and is in development for use in treating intermediate age-related macular degeneration (iAMD), which

represents a much larger market opportunity.

Its lead product, iTrack, allows ophthalmic surgeons to clear and flush the eye’s natural drainage system, thereby reducing the

elevated intraocular pressure associated with glaucoma. It can be used in patients with early, moderate and severe disease, as

shown below. The main growth opportunity for iTrack is in patients with mild to moderate disease where it is used in the

minimally invasive glaucoma surgery (MIGS) technique referred to as ab interno canaloplasty (ABiC). As at 30 June 2020, more

than 117,000 iTrack consumable devices have been sold to treat glaucoma. The manufacturing facility for the iTrack system is

based in California, USA.

The recently acquired Molteno3 glaucoma drainage implant provides a treatment option for severe glaucoma with a faster and

simpler surgical profile compared to other devices. The manufacturing facility for Molteno3 is based in Dunedin, NZ.

Nova’s glaucoma treatment portfolio addresses the cycle of glaucoma disease progression

Source: Company presentation

The company’s third product is the 2RT minimally invasive nano-pulse ophthalmic laser technology for intermediate age-related

macular degeneration. Nova recorded sales of A$1.2 million in FY20; sales in FY19 were mainly concentrated in the US where

2RT is FDA approved for clinically significant macular oedema (CSME) but not for AMD1. The device has CE Mark and TGA

clearance for both CSME and AMD.

In October 2020 Nova established AlphaRET Pty Ltd as a wholly owned subsidiary to facilitate the commercial development of

2RT in iAMD. Nova is working to establish a regulatory pathway for 2RT in iAMD with the FDA; expansion of the 2RT indication

to include iAMD will require an additional pivotal study. AlphaRET will seek a partner to fund the 2RT iAMD pivotal study.

1 See Notice of EGM released 24 March 2020, p62.

https://www.asx.com.au/asx/statistics/displayAnnouncement.do?display=pdf&idsId=02217824


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23 December 2020

iTrack sales history and forecasts

Sales of the single use iTrack device comprised 90% of sales from Nova’s continuing business in FY20, and 85% of sales on a

pro forma basis, including the revenue from the recent Molteno3 acquisition. iTrack revenue grew consistently from FY15 to

FY19, as shown below. However, increased competition in the US market, including from Sight Sciences’ OMNI device which

was FDA-approved in 2018, saw iTrack revenue growth stall in 1HFY20, with revenue of A$6.6m only 2% higher than the

previous corresponding period (A$6.5m in 1HFY19), and 16% below 2HFY19. The disruption due to Covid-19 saw iTrack

revenue fall a further 25% to A$5.0m in 2HFY20.

However, the company’s recent market update showed that it has been able to reverse the sales decline and return to revenue

growth in the first part of FY21, although the threat of Covid-related disruptions to sales remains. Global glaucoma surgical

device sales (iTrack and Molteno3) were A$4.4m for the four months to October 2020, which is 13% higher than the A$3.9m for

the 4 months to October 2019, and 63% higher than the A$2.6m sales in the last 4 months of FY20, which corresponded to the

first wave of the Covid-19 pandemic.

Given the uncertainty due to the resurgence of the Covid-19 pandemic in the US and Europe we model iTrack and Molteno

sales remaining flat for the reminder of FY21 at the current run rate of A$1.1m per month, before rebounding to grow by 16% in

FY22. We conservatively model iTrack sales growth moderating in future years, from 10% growth in FY23 to 8% growth in

FY25.

iTrack gross margins fell from 82% in FY19 to 76% in FY20 as sales declined. We model gross margins remaining flat at 76% in

FY21 and improving to 78% in FY22.

Historical and forecast half-yearly iTrack sales FY15-FY22

Source: Taylor Collison estimates

Earnings forecasts and valuation

Nova’s continuing operations traded at a loss in FY20, impacted by the Covid-19 pandemic and increased competition in the

MIGS market in the US. With the company reporting a return to revenue growth in the first 4 months of FY21, we forecast total

revenue to grow by 10% to $14.1m in FY21 (including $0.8m of revenue from the Molteno acquisition). We forecast Nova to

break even at the EBITDA level in FY22.

A financial summary from FY19 to FY25 is shown below.


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23 December 2020


Peer Multiples – EYE Trades at an EV/Sales discount

On a peer comparison basis, we note Nova’s gross margins are higher than the industry median/mean; however, the company’s

EV to sales multiple is heavily discounted vs peers (earnings multiples are not meaningful for EYE at this stage). The analysis is

shown below.

Source: FactSet, Company reports, Taylor Collison estimates

Valuation

We have utilised a relative valuation approach based on Nova’s global peers (above) to derive our valuation. We have applied

a 2.6x EV/Sales multiple (30% discount to median EV/Sales multiple of peers to reflect market cap and liquidity discount). On

this basis, we set our valuation at $60m or $0.42/share, as shown below.

EYE - Valuation

Valuation Applied Multiple

Valuation (A$m)

Valuation (A$/sh)

EV/Sales (30% discount to peers) 2.6x $36.8 $0.26

Net Cash (end FY21e) $23.2 $0.16

EYE valuation $60.0 $0.42


Financial summary - continuing operations FY19A-FY25E

FY19A FY20A FY21E FY22E FY23E FY24E FY25E

iTrack Revenue (A$m) 14.3 11.6 12.4 14.4 15.7 17.0 18.2

growth (%) 29% -19% 7% 16% 9% 8% 7%

Total Revenue (A$m) 16.1 12.8 14.1 16.1 17.4 18.7 19.9

growth (%) -21% 10% 15% 8% 7% 6%

Gross Margin (%) 82% 76% 76% 78% 79% 80% 80%

EBITDA (A$m) (6.9) (5.8) (1.9) (0.0) 0.5 1.1 1.3

EBITDA Margin (%) -43% -46% -14% 0% 3% 6% 7%

Adjusted NPAT (A$m) (6.7) (10.3) (2.4) (1.2) (0.6) (0.0) 0.3

Adjusted eps (cps) (4.6) (7.2) (1.7) (0.8) (0.4) (0.0) 0.2

EV/EBITDA (X) (7.0) (4.6) (13.4) (758.9) 50.8 25.3 19.9

Adjusted PE (x) n/a n/a n/a n/a n/a n/a 181.8

Comparable Companies

Company Location Currency

Market

Capitalisation

(A$m)

Consensus

Sales forecast

(local currency,

m)

Gross

Margin (%)

EV/Sales

(x)

EV/EBITDA

(x)

P/E

(x)

Revenio Group Oyj Finland EUR 2,057 60 - 21.5 61.9 94.3

Carl Zeiss Meditec Germany EUR 15,448 1,482 57 6.6 34.5 59.4

Glaukos CA, USA USD 4,441 219 84 14.8 - -

Iridex CA, USA USD 30 34 41 0.4 - -

Alcon Swizterland CHF 41,983 6,113 47 5.1 32.1 60.6

Lumibird SA France EUR 479 127 65 2.4 13.1 63.7

Huvitz Co South Korea KRW 96 67,200 41 1.9 10.4 -

Topcon Japan YEN 1,696 127,083 53 1.4 16.1 345.5

Mean 51 6.7 28.0 124.7

Median 50 3.7 24.1 63.7

Nova Australia AUD 48.8 14.1 76 1.8

Nova (discount)/premium - Mean 51% -73%

Nova (discount)/premium - Median 53% -51%


ABN 53008172450 AFSL 247083 6


23 December 2020

Glaucoma overview

Glaucoma identifies a group of eye diseases where vision is lost due to damage to the optic nerve. While the exact cause of

optic nerve damage from glaucoma is not fully understood, it usually happens when fluid (aqueous humour) builds up in the

front part of the eye generating elevated or unstable intraocular pressure (IOP) that damages the optic nerve. If high IOP is left

untreated it can cause irreversible damage to the optic nerve, that can ultimately lead to blindness.

The aqueous humour, which is produced in the ciliary body, drains from the eye via the trabecular meshwork, Schlemm’s canal

and collector channels. The diagram below shows the main components of the aqueous drainage system, which become

compromised in glaucoma.

Schlemm’s canal and the trabecular meshwork are key components of the ocular drainage system

Source: Company presentation

The two main types of glaucoma are open-angle glaucoma and angle-closure glaucoma.

In angle-closure glaucoma, the drainage angle between the iris and the cornea becomes closed/narrow which blocks fluid from

exiting the eye and results in a significant rise in IOP.

In contrast, in open-angle glaucoma (OAG), the angle between the iris and the cornea is as wide and open as it should be, but

the aqueous drainage system can become compromised over time, causing an increase in IOP.

OAG is the most common type of glaucoma, affecting approximately 61 million people worldwide in 2018. The graph below sets

out the number of people affected by glaucoma by region and type in 2018 and 2023. Glaucoma is projected to affect more than

110 million people by 2040.2

The global glaucoma market is valued at US$5.1bn annually.

2 Tham Y-C, Li X, Wong TY, et al. Global prevalence of glaucoma and projections of glaucoma burden through 2040. Ophthalmology. 2014;121:2081-2090.

Schlemm Canal

Trabecular meshwork

Collector channels

Anterior chamber

http://refhub.elsevier.com/S2589-4196(19)30304-7/sref1


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23 December 2020

Global forecast for the number of glaucoma and ocular hypertension patients

Source: Market Scope 2018 Ophthalmic Laser Report

iTRACK is a versatile treatment for glaucoma

iTrack is a disposable device used to treat OAG, restoring the eye’s natural outflow pathway to reduce IOP. The iTrack system

comprises a 250-micron microcatheter with a fibre optic light to allow for visualization of the catheter while in Schlemm’s canal.

In the minimally invasive glaucoma surgery (MIGS) procedure known as ab interno canaloplasty (ABiC) the catheter is inserted

via a small incision in the clear cornea and advanced 360 degrees into Schlemm’s canal. It is then slowly withdrawn while

viscoelastic fluid is injected to dilate the canal and the distal outflow system. This approach reduces outflow resistance by

dilating the Schlemm’s canal and the collector channels, without tissue destruction. It can help many patients with OAG to

reduce their intraocular pressure and dependence on medications with fewer complications compared to other traditional

procedures.

The iTrack catheter system is shown below.

Source: Nova Eye Medical

Surgery with iTrack results in substantial reductions in IOP and in the number of eyedrop medications required, both when

conducted as a standalone procedure or when done at the same time as phacoemulsification cataract surgery. The exhibit

below shows that these benefits are maintained for at least 3 years after the procedure is performed.


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23 December 2020

Summary of iTrack efficacy outcome at 36 months

Source: Gallardo, M. ASCRS 2020 Virtual Meeting, company presentation. Note Phaco refers to phacoemulsification cataract surgery; *includes only patients who completed 36-month follow-up.

Where does iTrack ABiC sit in the glaucoma treatment paradigm?

Initial therapy for mild glaucoma typically consists of topical eye drops or selective laser trabeculoplasty (SLT), both of which aim

to lower intraocular pressure. However, as the condition progresses the number of eyedrop medications needed to control IOP

increases. Eventually these treatments may no longer be sufficient to adequately control IOP, or patients may be unable to

tolerate the regimen of multiple eye drop medications required.

Minimally invasive glaucoma surgery (MIGS) procedures comprise a group of surgical interventions that aim to improve

drainage across the trabecular meshwork and Schlemm’s canal via an ab interno approach through the clear cornea. It is often

used in patients with mild to moderate OAG who are unable to adequately control IOP with eye drops or SLT. It can also be

used in patients with adequately controlled OAG who are undergoing cataract surgery, as it may reduce or eliminate the need

for eyedrops to control IOP.

Advanced glaucoma can be treated by more invasive trabeculectomy surgery or by implantation of a glaucoma drainage device

such as the Molteno3 tubeshunt.

The two main MIGS techniques are:

• Enhancing aqueous outflow through dilation of Schlemm’s canal; iTrack and OMNI (Sight Sciences) are the only two devices

in this category

• Bypassing the trabecular meshwork by stent placement; iStent (Glaukos) is the dominant player in this category

We describe the OMNI and iStent devices below. The iStent is the market leader, but in the US it can only be implanted as part

of a cataract surgery procedure. The OMNI device which gained FDA approval in January 2018 relies on a similar technique to

that used with iTrack and can be considered to be its closest competitor.

iStent (Glaukos)

The Glaukos device aims to enhance aqueous outflow by implanting small stents to bypass the trabecular meshwork. The

original iStent trabecular bypass stent received FDA approval in 2012 and the second-generation iStent Inject received FDA

approval in June 2018. The iStent inject consists of a single-use injector that comes pre-loaded with two devices, which are to

be placed 2-3 clock hours apart in the nasal angle at the time of cataract surgery. The Exhibit below shows the placement of the

iStent implants in Schlemm’s canal.

The iStent is only approved for use in conjunction with cataract surgery.


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23 December 2020

Placement within the eye of some MIGS devices

Source: Glaucoma Research Foundation https://www.glaucoma.org/treatment/what-is-migs.php

MIGS procedures are often performed in patients with OAG who require cataract surgery, even if their IOP is well controlled with

eyedrops, because it gives the chance for them to control their IOP without the need for eyedrops. Although the reimbursement

for the iStent implant is lower than for the iTrack procedure, the iStent is popular in this setting because the implant procedure is

very quick, allowing the surgeon to charge for an additional procedure without extending the time taken to complete the lens-

replacement cataract surgery. Glaukos reported glaucoma sales of US$231m (~A$310m) in 2019, primarily from iStent and

iStent inject.

OMNI (Sight Sciences)

The OMNI device is marketed by privately held Sight Sciences, which is based in California. Like the iTrack, the OMNI device is

used to cannulate and viscodilate Schlemm’s canal.

iTrack has two key advantages over the OMNI device, thanks to Nova’s extensive patent portfolio. The first advantage of iTrack

is that it has a light at the end of the catheter that makes it easier to track the catheter as it is passed through the canal of

Schlemm. The second advantage is that iTrack is able to deliver a large volume of viscoelastic fluid via a proprietary pressurised

mechanism to thoroughly flush Schlemm’s canal and the collecting channels, and the volume of fluid can be adjusted for each

patient; in contrast the OMNI device delivers a fixed low volume of viscoelastic fluid. Nova’s IP position prevents Sight Sciences

from incorporating either of these features in the OMNI device.

On the other hand, the OMNI device has a handheld device that propels the catheter around the canal, whereas the iTrack is

inserted by the surgeon using a pair of forceps.

Nova has disclosed that it is investing in product development to improve surgical efficiency and physician take up. We

understand that this includes development of a device driver that can be used to insert the iTrack catheter, which would

strengthen its competitive position relative to the OMNI device. The more thorough flushing of the ocular drainage system due to

the larger volume of viscoelastic fluid delivered using the iTrack system is also expected to support iTrack’s market share.

The OMNI Glaucoma Treatment device

Source: Sight Sciences


ABN 53008172450 AFSL 247083 10


23 December 2020

Molteno3 treatment for glaucoma

Molteno3 was acquired on 3 August 2020 for NZ$1.05m (A$0.99m) cash, representing an acquisition multiple of 1.2x FY20

revenues. The Molteno3 is a non-valved glaucoma drainage device used to treat refractory glaucoma in patients likely to be

poorly responsive to less aggressive therapies. The Molteno3 range is significantly underpenetrated, with


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23 December 2020

A sub-study reported that a positive effect of 2RT on retinal function was observed with multifocal electroretinography from 24

months onwards and improved further at the 36-month mark

The LEAD trial results indicate that 2RT offers the potential to intervene earlier in the disease process to improve retinal function

and slow the rate of progression of iAMD. Nova is working to establish a regulatory pathway in the USA with the FDA, which will

require further clinical studies.

Nova has established the AlphaRET subsidiary to hold the 2RT assets and continue the development program. AlphaRET is

seeking a partner to fund the additional clinical trial of 2RT that will be required to support an application for FDA approval as a

treatment for iAMD.

Manufacturing for the 2RT division is carried out at the Adelaide plant which was sold to Lumibird together with the laser and

ultrasound business. Nova and Lumibird have negotiated a Transitional Services Agreement (TSA) which allows the 2RT device

to be manufactured in the Lumibird Adelaide plant.

Nova recorded 2RT sales of A$1.8m in FY19 and A$1.2m in FY20, with sales mainly concentrated in the US where 2RT is FDA

approved for clinically significant macular oedema but not for iAMD. As the further development of 2RT in iAMD is contingent

on partnering, we do not currently include potential additional sales of 2RT for the iAMD indication in our forecasts or valuation.

Board and Management

Victor Previn, Executive Chairman

Victor Previn is a professional engineer and one of the original founders of the company. His career spans more than 31 years

in the ophthalmic laser industry travelling widely throughout Asia, Europe and the USA in a business development capacity. Mr.

Previn held the position of Managing Director from 2003 to 2005. In July of 2005, Mr. Previn was elected Chairman of the Board

of Directors.

Tom Spurling, Executive Director

Tom Spurling held the position of CEO of the company between 2011 and 2019 when it was known as Ellex Medical Lasers

(ASX:ELX) and was appointed an Executive Director in 2020. Tom has over 30 years’ experience in international business

development across the ophthalmic, defence and commercial markets both in Australia and internationally and is well versed in

the management of complex products in highly regulated markets. He previously served as Managing Director and General

Manager of Tenix LADS Corporation and holds a Degree in Economics and is a chartered accountant.

Alex Sundich, Non-Executive Director

Alex Sundich was appointed in July 2005. Alex is currently a Director of Bridge Street Capital Partners, a corporate advisory and

principal investment firm. From 2002 to 2008, Alex was a senior executive in the funds management industry. Prior to this, he

was an investment banker with Goldman Sachs and CSFB, involved in mergers and acquisitions and capital raisings. Alex is

currently the Chairman of Petrel Energy Limited and Cleveland Mining Industry. He is currently Chairman of the Audit & Risk

Committee and Chairman of the Nomination Committee.

Rahmon Coupe, Independent Director

Rahmon Coupe was appointed an Independent Director on 15 May 2013. Mr Coupe is Chief Executive Officer and Director of

YourAmigo Limited, an organic search engine solutions company. Mr Coupe has more than 32 years’ experience in the areas of

corporate management, intellectual property management, contract negotiation, business development and engineering and

has worked across a diverse range of industries, including information technology and the internet, life sciences and public

broadcasting. Mr Coupe has held various project and engineering management roles for government research-based

organisations, including the Defence Science and Technology Organisation (DSTO). Mr Coupe holds an Honours Degree in

Electrical and Electronic Engineering from the University of Adelaide and was awarded the Ernst & Young Entrepreneur of the

Year in Technology and Emerging Industries for the Central Region of Australia in 2009. He is currently a member of the

Remuneration Committee and the Audit & Risk Committee.

Mike Southard, Non-executive Director

Mr Southard was appointed as an Executive Director in July 2018 and completed his Executive role in December 2019. Mike

Southard spent 26 years with the world’s largest ophthalmology company, Alcon Laboratories of Fort Worth Texas, as Vice

President of the Global Surgical business. During Mike’s tenure, the Alcon business grew dramatically from US$85 million to

US$2.4 billion of sales per year. Prior to this, he was an Executive with Beecham Laboratories (now SmithKline Beecham), and

Cooper-Vision, which was acquired by Alcon Laboratories. Mike is currently actively involved in Ophthalmology, Dermatology

and Orthopaedics through his consulting company and has vast experience in both the international and US markets. Mike

holds a Bachelor of Science Degree from Oregon State University, in Business, and also an Executive MBA degree from

Stanford University.


ABN 53008172450 AFSL 247083 12


23 December 2020

Risks

We consider key risks facing Nova to be:

• Strong Competition – Nova faces significant competition in the glaucoma market. Some of these competitors have

substantially greater financial, engineering, product development, manufacturing, marketing and technical resources than

Nova. Sight Sciences is competing directly with Nova in the MIGS canaloplasty market, with a novel delivery device that

Nova cannot currently match.

• Reimbursement changes – Nova is exposed to changes in the healthcare system globally for its products and services.

Changes to reimbursement may result in reduced sales volumes or a reduction in gross margins and therefore financial

performance.

• Currency – Over 99% of Nov’s FY20 revenues were from sales outside of Australia, so it is exposed to currency movements

on profits earned in overseas markets. The company’s iTrack manufacturing plant is based in California and 65% of revenue

is earned in the US, providing a partial natural hedge to sales-based currency exposure.

• Patents – For new and existing products Nova relies significantly on its ability to establish, maintain and prosecute its

patents to protect them from competition. Companies in the medical device industry have employed intellectual property

litigation to gain a competitive advantage. Patent litigation is costly, and Nova may lack the financial resources to defend

any actions brought against it or to take against others who infringe its intellectual property.

• 2RT Clinical Trials – Nova requires one or more additional clinical trials to be conducted to show the efficacy of 2RT in

treating iAMD before it can commence commercial sales for this indication in the US. AlphRET may be unable to attract

external sources of funding on acceptable terms to fund the trials, or the trials may not produce an efficacious result, thereby

impairing the commercial prospects for this indication.

• Covid-19 disruption – The Covid-19 pandemic reduced the number of MIGS procedures performed and therefore reduced

iTrack sales significantly in 2HFY20. While Nova reported strong sales growth in the first 4 months of FY21, with Covid-19

case numbers increasing in the US and Europe, Nova may experience further disruption to sales volumes during the

remainder of FY21.


ABN 53008172450 AFSL 247083 13


23 December 2020

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Date Prepared: December 2020

Analyst: Dr Dennis Hulme

Release Authorised by: Mark Pittman

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nova eye medical (eye)...2020/12/22 · fy15 to $14.3m in fy19. while itrack sales faltered in fy20...

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