Regenerative medicine company Orthcell ($OCC) today announced their FDA approval for Remplir - its flagship nerve product.

ASX Announcement

There are a couple of good posts on this business by @PabloEskyBruh and @laoshi - so refer to those for some background, and also an illustration of what this might become in terms of valuation. (I'm rather less bullish than @PabloEskyBruh on the valuation today, simply because I think adoption will be slower as there are well-established, albeit earlier generation technologies in the market. See below.)

There is also the following research report on the business posted on the company website.

Some quick points I like about the business:

• Mutli-product based on the underlying, proprietary technology platform
• Striate: approved in US, EU/UK, ANZ, Canada, Singapore
• Remplir: ANZ, Singapore - and as of today, US
• Other products in development
• Striate is an established dental product manufactured under licence to BioHorizons Implant Systems, in a multi-year deal
• Already revenue generating for two products in multiple markets (1H FY25 Product Sales were $2.4m of total revenue of $4.3m, growing at a rapid clip). Total revenue in FY2 was $6.76m
• $31m cash on the balance sheet at 31-Dec-24; annualised burn rate of $12m at 31-Dec-24. (CEO believes that they will avoid further dilution, and with Remplir approval this now seems likely)
• A notable board (incl. Prof. Fiona Wood and Hon. Kim Beazely) - interestingly Fiona Wood the inventor of ReCell ($AVH) could probably be on any medical devices company board she chose, but this is (I think) her first.
• Individual Insider Ownership of 20% (according to Simply Wall Street)
• US Commercial and Educational leadership established, aiming to sign mutliple distributorships
• Owns a manufacturing with GMP-approved facility in WA, will need to expand as Remplir sales take off.

Because of the multi-product mix, licencing deal and early days for Remplir, I don't have a clear sight on operating economics, but the CEO has said in interviews that:

a) Remplir will achieve Gross MArgins of c. 90% and

b) that across the portfolio, they achieved 75-80%, which makes sense because Striate will be lower marking due to the licencing deal. More work required here.

Valuation

One covering analyst has a PT of $0.97 (although that pre-dates today's announcement, so we should see an upwards revision) and the research report mentioned above from Septmber-24 has a PT of $1.28, which is clearly also stale based on the 1H result and FDA approval.

At time of writing, market cap is about $350m, so let's say an EV of $330. So, if we believe they might hit $8m sales in FY25, then there is a lot of success baked into the price.

However, this is an early stage company, with a strong proprietary technology platform, and existing sales from two products in multiple markets.

So let's consider Remplir in the US alone, where the nerve repair market is estimated to be US$1.6bn of $2.5bn.

Assume Remplir can gain a 5% hold of this market in 5 years at a Gross Margin of 90%, giving FY30 GM of $113m.

Let's then assume a further 50% of Revenue for Operating expense, no debt, and 30%Tax, giving NPAT of $35m

(Note: Under my assumptions 2030 operating expense would be $63m, compared with $8.5m in 2024 - which I think is do-able, as this is quite a capital-light business and, by following a distributor model, they'll not need to build a massive sales force. We'll see! This is critically important in medical devices. $AVH is a business that shows just how long profitability can keep getting pushed out as the sales and marketing organisation is scaled ahead of revenue growth, and $PNV then shows what happens if the rapid growth slows. Lots of execution risk ahead, so beware!!)

Assume SOI rise by 20% over the period to 290m, gives EPS of $0.12.

Apply P/E scenarios of 30, 40 and 50 (because EPS growth in 5 year will be >30% p.a.) and discount back to 2025 gives a range of valuations of ($2.25, $3.00, $3.75).

(Note @PabloEskyBruh has $3,52 - used another approach but, as I said, I am much less aggressive on market penetration.)

Of course, I have not considered global sales, but then again I have also been optimistic (IMO) in assuming that 5% of the US market is captured in 5 years, and there are pre-existing treatments. However, this isn't a fantasy, because the product is proving to have traction in ANZ and Singapore. So, there is a degree of de-risking.

Investment Decision

$OCC has been on my watchlist for about 4 months (thanks StrawPeople) and only yesterday I commented that I was looking to add new early stage biotech positions this year. Little did I realise that the FDA approval would be announced today! (Now that's an announcement I can live with,)

Although Remplir looked pretty low risk for an FDA approval, I decided to hold off until this milestone was achieved, partly because I don't have a high conviction that US market traction will be rapid, and as the SP sailed away from about $0.40 (where it clearly represented good value on a risked basis) to over $1.50 (where I considered it to be well-valued, pre-FDA approval), I have lurked on the sidelines.

It is early days, but today I have taken an initial 1% position in RL, with a a view to adding more on progress and as I deepen my knowledge of this business.

My back-of-the-envelope valuation above tells me that there is no need to rush in on this one. I'd like to see the first decent sales report from the US at 1H FY26.

Disc: Held in RL and SM (order going through, hopefully)

@Strawman any chance of getting Paul Anderson (MD) or John Van Der Wielen (Chair) along. They've done several interviews at the usual outlets, but I think we'd get a lot of value about discussing the product and how they see market traction in the US given the exisiting treatments and the experiences they are getting in ANZ and Singapore. It would be great to get these deeper insights before the US sales reports start coming in, and I think there is a real opportunity here now. (Be forewarned ... I'll be putting a lot on Slido!)