As part of reviewing the position with NAN, I learnt more about the US FDA De Novo submission, which is the submission category NAN has done for Coris. Thought it might be helpful, not only for NAN, but for other medical device companies.

An FDA De Novo submission is an application submitted to the FDA for creating a new device product classification, of which Coris is.

The link below provides a 13 or so minute video and written explanation of what a De Novo submission is and how long it takes to get one. This is from a company which helps companies submit FDA approvals, Medical Device Academy.

De Novo Submission Timeline

The stats below was interesting in terms of number of De Novo approvals granted per calendar year and the average submission duration in calendar days. The "150 day %" refers to "FDA days" which is calendar days minus the days the submission was placed on hold - that is the FDA's KPI for funding request to Congress.

In summary, based on actual history, my expectations for Coris FDA approval is a minimum 12-18M away, closer to 18M, at the absolute fastest, so Coris earnings will realistically only kick in deep into FY26, possibly FY27 if there are delays.

Discl: Held IRL, not in SM

Finally got round to taking stock of my NAN position.

The TLDR view is (1) softness to continue (2) stay invested (3) stuck in trading range with no clear immediate catalyst to re-rate (4) too early to top up!

SUMMARY OF P&L

KEY TAKEAWAYS

• Capital sales and Trophon 2 upgrades have slowed and are taking longer to convert - tight budgets are seeing hospitals stretch out use of Trophon 1 devices vs upgrading
• 1HFY24 revenue has fallen 2% vs PCP and 2HFY23 - sharp drop in capital revenue of 15% on PCP, partially offset by increase in consumable sales, up 4% from PCP
• 1HFY24 gross margins was 79.7%, up about 1% from FY23, driven by revenue mix and positive forex impact
• Expenses have increased $5m in 2HFY23 from 1HFY23, increased by a further ~$1.2m in 1HFY24 vs 2HFY23 (up 12% on PCP, up 2% HoH), includes Coris expenses
• 1HFY24 PBT halved from 2HFY23 $10.2m down to $4.9m
• Global installed base up 1,100 units to 33,550, up 3% last 6M, up 8% last 12M
• Trophon 2 upgrades of 620 units, down 23% from PCP with customers extending use of their existing Trophon 1 devices due to budgetary constraints
• Coris De Novo submission to the FDA occurred in Q3FY24, slightly delayed

Positives

• Margins have been sustained
• Some 9,000+ Tophon 1 units are >7 years old, and are ripe for an upgrade - immediate focus, ~26% of current installed base
• FCF 1HFY24 was $7.9m, Cash & Cash equivalents at 31 Dec 2023 of $118.3m, no debt - no funding or cash generation concerns
• TAM to chase for both Trophon and Coris is still very large - Trophon installed base ~140,000 units vs 33,550 installed, only 24% market penetration thus far
• Coris will be the next growth driver
• Significant medical benefits of reprocessing technology and first mover advantage in Coris enables NAN to define the clinical standard in the endoscope reprocessing space which creates and strengthens the overall moat
• Coris FDA Approval is a De Novo submission - to create a device product classification

Main Short-Medium Term Concerns

• Soft market conditions in 1HFY24 are expected to continue in 2HFY24, leading to a very soft FY24 result
• Coris is still at least 12-18M away to compensate for this softness, investment in Coris commercialisation and R&D will increase operating expenses in the interim
• Favourable forex gains are baked into revised expectations eg. reduced growth in FY24 expenses

What Will Drive Prices Upwards

• Continued progress and positive news on Coris FDA submission - medium to long term
• Signs of increased momentum in the growth of Trophon 2 upgrades in the US and the overall Trophon installed base - at least 6-12M
• Actual implementation of country guidelines requiring high-level disinfection
• Growth in capital sales in EMEA and APAC - this has been patchy
• Stronger growth momentum in consumables revenue to compensate for slower capital sales - at least 6-12M

Action To Take

• Will continue to stay invested as (1) the technology benefit is a strong moat (2) the TAM is still a big one (3) the outlook will brighten in 12-18M time once current Trophon upgrade hurdles are overcome and Coris gets close to FDA approval
• No immediate clear catalyst for re-rating as 2HFY24 and FY24 is being guided to be soft
• Chart shows NAN stuck between a $2.44 - $2.74 long term support zone but with a strong resistance zone between $3.22 to $3.48 and the 200 SMA, limiting immediate term upside - this broadly aligns with the fundamental position of the business ahead of the FY24 results
• Will need a stellar FY24 result above guidance to create upward price momentum - no clear evidence to suggest this will occur
• Current 1.72% allocation is appropriate for the immediate to medium term outlook and does not warrant adding until at least the release of the FY24 results

Discl: Held IRL, not in SM

Finally, some positive movement. Time to revisit NAN and have a closer look again ..

Discl: Held IRL

Pre-results confession, not a pretty sight unfortunately ...