2 February 2017
Ellex Trading Update for the Six Months Ended 31 December 2016
Adelaide, Australia, 2 February 2017 – Ellex Medical Lasers Limited (ASX:ELX), a global leader in medical devices for the diagnosis and treatment of eye disease, today announced that its sales revenue for the six months ended 31 December 2016 will be similar to the prior corresponding period (PCP). The primary cause of the lack of sales growth during the last half year period was the shift of management focus to the establishment of Ellex’s new manufacturing facility at Mawson Lakes, Adelaide at the expense of meeting production challenges resulting in production capacity limitations and a consequent inability to deliver core Laser and Ultrasound product against targets. This resulted in a significant customer order backlog as at 31 December 2016, which we expect to deliver against in the half year ending 30 June 2017 as production at Mawson Lakes ramps up.
The iTrack product, which is manufactured at Ellex’s Fremont California facility, was unaffected and iTrack sales increased significantly over PCP in the half year to 31 December 2016.
Recap on Strategy
Ellex is a participant in the global market for devices that treat the 4 major causes of blindness. Annual spend on pharmaceuticals and devices in this market is greater than US$10bn and growing with an aging population, obesity and improving health care in developing countries. Ellex has a strong brand and global distribution channel for its core ophthalmic treatment lasers and diagnostic ultrasounds. Ellex is currently investing in leveraging that brand into the fast growing minimally invasive glaucoma surgery (MIGS) device market with its iTrack product, and the emerging market for early age related macular degeneration (AMD) treatment with its 2RT laser product.
Summary of Results for Half Year to 31 December 2016
- Total revenue of $34.3m (H1 FY16, $34.8m);
- Ellex iTrack sales of $3.6m, being growth of 37% on PCP in constant currency;
- Core laser and ultrasound sales of $30.4m, being growth of 1% on PCP after adjustment for foreign currency movements and sales order backlog caused by production capacity limitations described above;
- Sales to early adopters of 2RT of $0.2m (H1 FY16, $0.6m), our emerging treatment for early stage age related macular degeneration expected to grow materially followed conclusion of ongoing clinical trial in 2018.
- EBITDA of $3.1m (H1 FY16, $3.5m), with the decrease over PCP due to planned Ellex iTrack sales expansion investment.
Total group revenue across the different market segments for the six months ended 31 December 2016 is expected to be approximately $34.3m (H1 FY16, $34.8m). Revenue for the half year period was impacted by the following:
- Positive impact from a $1m increase (37% in constant currency) in revenue from the Ellex iTrack minimally invasive glaucoma surgery (MIGS) device. The increase was driven by sales in the USA, China and Europe. The appointment late in the period of new USA sales representatives, the impact of the doubling of insurance reimbursement effective 1 January 2017 in the USA and the continued roll out in China is expected to drive an acceleration of sales in the second half.
- Strong sales late in the period in the USA for new Tango Reflex following release in November. Tango Reflex allows doctors to treat glaucoma and vitreous floaters. This lifted our glaucoma treatment revenues.
- Production limitations during the half year to 31 December 2016 meant that a sales order backlog was on hand for this product as of 31 December 2016. Sales in the second half are expected to be strong as this backlog is cleared and will be supported by the expanded production capacity associated with the move of production facilities from Gilbert Street, Adelaide to Mawson Lakes.
The estimated EBITDA of $3.1m for the half year to 31st December 2016 (H1 FY16, $3.5m) was reduced compared with the prior corresponding period by planned continued investment in iTrack growth initiatives including appointment of a senior sales manager and additional sales representatives ($0.4m).
Production capacity expansion update
The fit out of our new corporate headquarters and manufacturing plant located at Second Avenue, Mawson Lakes, South Australia (about 14km north of the existing manufacturing site) has taken considerable management effort during the last half year. Completed in December 2016, trial production runs and an audit by the Therapeutic Goods Administration were successfully conducted. The new facility is expected to be progressively commissioned from mid-February 2017 significantly increasing Ellex’s production capacity.
Global market trends in glaucoma treatment
The global market for the diagnosis and treatment of glaucoma is currently valued at approximately US$4.7bn per annum of which approximately 84% is attributable to pharmaceuticals. Pharmaceuticals are an effective treatment for glaucoma but rely on patients to systematically self-administer. This is problematic and with technology improvements device treatments that remove the problems of patient compliance are gaining favour with physicians. Such devices for glaucoma treatment (of which Ellex SLT and Ellex iTrack are two) currently account for approximately US$0.2bn per year of the global glaucoma spend. Marketscope estimates that the global market for device treatment will grow to US$1bn by 2021, an average CAGR of 39%. Ellex revenues in glaucoma are growing commensurate with this trend. Accordingly, management and the directors continue to actively focus and invest in maximising shareholder value in this area.
“We are very pleased with the continued strong growth in our iTrack business and expect sales to accelerate in the second half. We are also pleased with sales late in the period of our new Tango Reflex product. Demand for the product after release late in November 2016, exceeded our production capacity which dampened the half year sales. We are looking forward to having the unencumbered ability to meet demand at the new manufacturing plant.
“Ellex is entering an exciting phase of its evolution with a suite of world class products, strong demand from our customers and the commissioning of an enlarged and state-of-the-art manufacturing facility that will allow us to capitalise on the growing recognition of our brand around the world,” commented Mr Tom Spurling CEO.
Based on current global economic environment, trading conditions, foreign exchange rates and sales pipeline data, Ellex advises that it has a reasonable basis to expect the following results for the balance of the 2017 financial year:
- Total revenue in the second half of FY17 to be substantially higher that the first half of FY17 and the PCP, which would result in total revenue for FY17 being materially higher than FY16.
- EBITDA in the second half of FY17 will leverage off higher sales. However, due to the planned investments in the iTrack business, growth of EBITDA relative to H1FY17 and the PCP is expected to be modest.
- iTrack sales to accelerate as a result of the recently announced doubling of the insurance reimbursement in the USA for iTrack surgery, effective 1 January 2017 and continued penetration of MIGS devices as a treatment for glaucoma in all major markets.
The results disclosed herein are a preliminary estimate and subject to finalisation of the half year review by the Company’s auditors. Ellex expects to release its half-year results for the year ended 31 December 2016 during the week beginning 20 February, 2017.
Ellex designs, develops, manufactures and sells innovative products that help eye surgeons around the world to effectively and efficiently treat eye disease. Ellex is a world leader in this field. Headquartered in Adelaide, Australia, Ellex has ophthalmic lasers and devices that treat glaucoma, retinal disease primarily caused by diabetes, secondary cataract and vitreous opacities, as well as age-related macular degeneration. Manufacturing is carried out in Adelaide, Australia and Fremont, California. Sales and service directly to eye surgeons is conducted via subsidiary offices in Minneapolis, Lyon, Berlin and Tokyo. A network of more than 50 distribution partners around the world services other markets.
For additional information about Ellex and its products, please visit www.ellex.com
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