Nova Eye Medical looks to sell stake in AlphaRET to finance US clinical trials

09 December 2020

Nova Eye Medical [ASX:EYE], an Australian ophthalmology company, is looking to sell an interest in its AlphaRET subsidiary to finance a clinical study in the US to gain FDA approval for AlphaRET’s therapy to treat age related macular degeneration (AMD), Executive Director Tom Spurling said.

  • Seeks acquisitions for glaucoma business
  • Regards itself undervalued; could be target
  • Has considered US listing

 

Nova Eye Medical [ASX:EYE], an Australian ophthalmology company, is looking to sell an interest in its AlphaRET subsidiary to finance a clinical study in the US to gain FDA approval for AlphaRET’s therapy to treat age related macular degeneration (AMD), Executive Director Tom Spurling said.

 

Meanwhile, Nova Eye Medical is seeking acquisitions for its glaucoma business, Spurling said.

 

The AUD 49m (USD 36m) market cap company considers itself undervalued, and could be a potential takeover target, the director added.

 

Nova Eye Medical, previously known as Ellex Medical Lasers with the ASX ticker of ELX, was renamed in July this year after the company sold the Ellex Lasers & Ultrasound business to France-based Lumibird Group SA [EPA: LBIRD].

 

AlphaRET stake sale 

 

AlphaRET has developed a nano-pulse laser therapy, 2RT, which has been shown to slow AMD progression by 77% in a clinical study, Spurling said. 2RT can meet a substantial unmet need, as the current AMD therapy only treats symptoms and is only available for the late stage of the disease, using expensive pharmaceuticals delivered via regular invasive ocular injection, according to a company presentation.

 

The market for pharmaceutical treatment of last stage AMD is worth USD 5.25bn per year, while the estimated global market for 2RT is 55 million patients annually, according to the presentation.

 

If Nova Eye Medical were to finance the US clinical study itself, it would have to use a material part of its AUD 26.5m cash reserves, Spurling said. Instead, the company is hoping to find a partner to acquire a stake in AlphaRET and help finance the study, he said. He did not specify how much in AlphaRET Nova Eye Medical is willing to give up, only noting that it would not be a full sale.

 

A buyer could be a medical device company, but more likely a “connected financial partner” based in the US, Spurling said.

 

The company’s previous divestment of Ellex Lasers & Ultrasound for AUD 100m was the consequence of an unsolicited offer in December 2019, as reported. Nova Eye Medical saw the sale as an opportunity to finance its yet unprofitable but growing glaucoma business, Spurling explained.

 

The company distributed AUD 61m of the proceeds as dividends to shareholders, but still has AUD 26.5m in cash, which can be used partially for acquisitions, he said.

 

Glaucoma acquisitions 

 

Nova Eye Medical wants to add more products to its other business area, i.e. consumable surgical devices for glaucoma disease management, Spurling said. New technologies could be developed internally, or acquired, he said.

 

Its current glaucoma treatments are iTrack, a tissue-sparing, minimally invasive glaucoma surgery, and Molteno3, a glaucoma drainage device platform Nova Eye Medical acquired in July for NZD 1.05m (AUD 1m). Molteno3 is used in severe or late-stage glaucoma, while iTrack is used both in early to moderate stage and in severe/late-stage.

 

Nova Eye Medical is now seeking therapies for use in early stage (before iTrack) and in moderate stage, to complete its set of therapies, Spurling explained.

 

The company has a pipeline of potential targets, Spurling continued. It often gets approached by potential targets or their owners, especially following the Ellex Lasers & Ultrasound sale, which put the company on the M&A map, he said.

 

Targets can be based anywhere, but the US is Nova Eye Medical’s main market, Spurling said. The company is headquartered in Adelaide, with offices in California, Germany, and New Zealand, the latter as a result of the Molteno3 acquisition.

 

Takeover target

 

Considering market sizes of USD 5bn each for Nova Eye Medical’s glaucoma and AMD products, the company regards itself as seriously undervalued, Spurling said.

 

The company had a market cap of AUD 85m the day it received the offer for the Lasers & Ultrasound business, which was sold for AUD 100m, he pointed out. It is in the same market as Glaukos [NYSE:GKOS], which has a USD 3.1bn market cap, in spite of being loss-making, he added.

 

Hence, Nova Eye Medical could potentially be a takeover target, Spurling said. In terms of logical buyers, Lumibird might be the primary one, but it already bought the Lasers & Ultrasound business, Spurling pointed out. Glaukos might also want to expand its product offering, he said.

 

Ophthalmology is a “hot market”, but Australian investors “don’t understand the story”, he said. Nova Eye Medical has considered a listing in the US to raise the valuation, but that would be a too expensive exercise for the company at this point, he said. Instead, it aims to drive valuation by growing sales for the glaucoma business and financing the AlphaRET business, he said.

 

Nova Eye Medical reported revenue of AUD 12.8m with negative EBITDA of AUD 5.8m for FY20, excluding the Ellex Lasers & Ultrasound operations. It has 50 employees.

 

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