Company Overview: Imricor Medical Systems, Inc. (ASX: IMR) is engaged in developing advanced Magnetic Resonance Imaging (MRI)-similar medical devices, to carry out MRI-guided cardiac catheter removal procedures. The company has its headquarters in the US and was incorporated in the State of Delaware in 2006. In January 2016, IMR attained CE mark approval to commercialise its key product, MR EP Recorder/Stimulator System, in the European Union.

IMR Details

IMR Rides on Strong Product Adoption & Decent Cash Position: The company remains on track to make steady progress, delivering on a range of key objectives to support its growth and drive long-term value creation for investors. Despite challenges due to the impact of the COVID-19 pandemic, the company is well placed to leverage its accomplishment and improve its commercialisation and expansion strategies. Notably, IMR currently has ten sites signed and is in dynamic negotiations with 48 additional hospitals, of which nine are in the final two stages of the sales process.

Key Takeaways from 1HFY21 (Period Ending 30 June 2021):

• Rise in Top-Line: In 1HFY21, revenue stood at US$0.366 million, up from US$0.277 million reported in the year-ago period. Growth amplified on the heels of the number of iCMR labs, and the number of procedures completed utilising IMR’s consumables in each lab.
• The Signing of Agreements: During the period, the company signed one new purchase contract, totalling ten sites across Germany, the Netherlands and France. IMR also inked an exclusive distribution deal with Regional Health Care Group to help facilitate TGA approval for consumables and a non-exclusive supply deal for the sale of capital equipment in Australia and New Zealand.
• Increase in Losses: In 1HFY21, net loss after tax stood at US$9.96 million, up from US$5.79 million reported in the year-ago period, owing to foreign exchange losses, and an increase in operational expenses.
• Commencement of Procedures: Post the easing of a temporary halt due to COVID-19 restrictions, the company started its first case at the South Paris Cardiovascular Institute and re-began measures across various sites, which included Helios Leipzig Heart Centre, Dresden Heart Centre, and Maastricht University Medical Centre.
• Receival of Approval: The company remains on track to expand its global footprints, including FDA approval in the United States and TGA approval in Australia. Notably, the company obtained TGA approval for the Advantage-MR system in Australia and Medsafe approval for all IMR products in New Zealand.
• Completion of Security Purchase Plan: Recently, the company stated that through an oversubscribed security purchase plan (SPP) it has raised A$1 million, which is offered to eligible CHESS Depositary Interest (CDI) holders in Australia and New Zealand. The SPP tailed the latest positive institutional placement, which raised $A16.5 million. Both the SPP and recent placement will aid the company for future growth via the expansion of IMR’s geographical path.
• Balance Sheet & Liquidity Position:  At the end of 30 June 2021, the company’s cash balance stood at US$15.61 million. Total lease liability stood at US$2.18 million at the end of 1HFY21.

The decent cash position aids the company in the progress of its commercialisation plans and growth strategy.

The below picture depicts IMR’s strong top-line performance since 1HFY19.

Revenue Highlights; Analysis by Kalkine Group

Key Metrics: In 1HFY21, the current ratio of the company stood at 6.59x, higher than the industry median figure of 3.46x. Debt-to-equity ratio in 1HFY21 came in at 0.05x, lower than the industry median figure of 0.08x.

Leverage & Liquidity Profile; Analysis by Kalkine Group 

Top 10 Shareholders: The top 10 shareholders together form around 43.51% of the total shareholdings, while the top 4 constitutes the maximum holding. BlackRock Investment Management (Australia) Ltd. and Siemens Medical Solutions USA, Inc. are holding a maximum stake in the company at 10.79% and 5.85%, respectively, as also highlighted in the chart below: 

Top 10 Shareholders; Analysis by Kalkine Group 

Risk Analysis:  

• Any adverse movement in foreign exchange price may impact the financial performance of the company.
• IMR’s net loss is increasing on a year-over-year basis. Hence, these mounting losses may throw tough challenges at the company’s overall functioning and may dampen margins in the future.
• The clinical trial process is designed to assess the safety and efficacy of a medical device before commercialisation. A failure to achieve the desired results may hamper the company’s financial performance.
• The company is exposed to a complex regulatory landscape in the healthcare space. Further, worldwide sales and supply disruption might put some healthcare players’ businesses at stake.

Outlook: IMR is well placed with the strategies of expanding its geographic reach, owing to the commencement of higher sales in three import countries in Europe. Progress on regulatory approvals in key new markets including the US, Australia and New Zealand bodes well for the company’s long-term growth. It also remains on track to expand indications to ventricular tachycardia (VT) removals, with VT clinical trials commencing in 2022. Product development and line expansion are being implemented well, including the commercial release of the diagnostic catheter, pending CE mark approval, expected by early 2022. Also, the company is making steady progress in the ongoing development of site pipelines via its marketing activities and collaboration with Siemens.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative) 

Source: Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: The stock of the company has been corrected by ~36.35% in the past three months. Currently, the stock has a 52-week high and low level of A$2.94 and A$1.00, respectively. The stock of the company has been valued using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight premium compared to its peers, considering implementation of product development and line expansion, steady progress in the ongoing development of site pipeline, decent liquidity position, rising top-line, regulatory approvals, geographical expansion, etc. For this purpose of valuation, peers such as Cochlear Ltd (ASX: COH), Sonic Healthcare Ltd (ASX: SHL), and others have been considered. Taking into account the aforesaid fact, increase in top-line in 1HFY21, diversified portfolio, geographical expansion, receival of FDA approval, SPP and recent placement, encouraging long-term outlook, current trading levels, valuation, and key risks associated with the business, we recommend a “Speculative Buy” rating on the stock at the current market price of A$1.275 as on 20 October 2021, 1:30 PM (GMT+10), Sydney, Eastern Australia.

IMR Daily Technical Chart, Data Source: REFINITIV 

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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