Consensus community valuation
Coming to America
It has been a long time coming, and it now looks like Anteris’ American story is going to be one of some quite humble beginnings indeed – no matter how the ending unfolds.
The plans for Anteris’ re-domiciliation have been released and – if the board’s plan is supported at the EGM in October 2024 – Anteris will start 2025 as a US public company listed on the NASDAQ.
There have been a series of ASX announcements:
- Scheme Booklet Dispatched [ASX 04/09/2024]
- Court approval to hold scheme meetings & booklet registered [ASX 02/09/2024]
- Plan to Pursue Re-domicilation, NASDAQ listing and US IPO [ASX 13/08/2024]
Essentially, the scheme proposes that current Australian shareholders and options holders will continue to hold their equitable interest by means of an ASX-listed CDI (NB hopefully one which Strawman will track so I can continue my Anteris investment journey on this forum). The board’s argument – and in my opinion it is far from a facetious one – is that easy access to uncomplicated US capital is needed for Anteris to realize its potential. It will start with a large and diluting IPO.
It's dilution that I argue is baked into my unchanged valuation. That’s not because my valuation is impressive or sophisticated, but rather because it is simple. Through its many (and admittedly chameleon-like) iterations there has been a consistent theme. My starting point, in recent years, has always been that a company with Anteris’ product approved for US domestic TAVR use is a USD multi-billion dollar company – and this scheme would take Anteris a step closer to being that company. Also, especially with the unfortunate share price retrace of recent months, it looks like the needed injection of US capital is going to be pumped into a company that will be landing on US shores worth approximately USD 125 million or less.
Fortunately for any US promoter of the IPO the narrative will be a simple one: that this is an Australian minnow offering a multi-bagger opportunity in the event its imminent FDA trial delivers. The need, and intended use, for the capital will be easy for any US investor to understand. An uncomplicated and far from ground-breaking concept – no matter how unique the technology promises to be.
Understandably, there is no patience left in Australian investors for this latest instalment in a tired saga — and what is to be the company’s 4th ticker code change in about a decade, with about as many different business models pitched along the way. If I’d followed less closely I’d been in the same boat as the average ASX investor when thinking about this company. However, whether you are a bull or bear it’s hard to argue that this is not an inflection point. One where just holding is not really a sensible option. You should be getting out or getting in, depending on what you think this is. And it turned out that I wasn’t selling.
Which of course has left me buying. I’ve made some otherwise uncomfortable capital allocation decisions in recent weeks to take advantage of what I’m convinced is the best valuation proposition Anteris has presented in recent years – increasing my exposure some 25% at prices almost half those of Anteris’ most recent capital raises. I’ve been selling actual winners to make this happen. And I will now watch the price continue to drop as I’m cash-strapped on the sidlelines. I will probably watch, with my head shaking, as NASDAQ Anteris IPOs at prices less than $10 AUD. I will then watch as the hype dies and the price continues to drop post-IPO, shuddering with the additional volatility imposed by it all being in US dollars now. Then I will just become disillusioned and stop watching for a while. Possibly for a long while.
That’s because I’m ultimately doing it for that moment in the future when DurAVR is one of only two or three sensible options for any interventional cardiologist in a developed nation when they are operating on a patient requiring a TAVR. There’s obviously a non-zero chance I’m wrong, but I really don’t think I am. I think I am calling this risk in the right way. I’m just backing my view on this, and I can’t back up the truck any further. Maybe it’s wise, or maybe I don’t really understand the road rules here. Time will tell.
Alternatives
The first of the EFS data for Anteris has now been announced at the TCT conference in San Francisco [ASX announcement]. Anteris claims the results are both very positive and paradigm-shifting. I lack the expertise to tell, yet I’m confident they are correct in both assertions.
A few hours earlier, Anteris had tweeted this about Dr Meduri’s update [powerpoint slides here] for the separate First-In-Human data:
In reading it I had an involuntary flashback to a now seemingly ancient January 2017 controversy:
This was of course the saga about whose Presidential inauguration crowd numbers were larger: Obama’s or Trumps’s. It was this press conference by then Whitehouse Press Secretary Sean Spicer that led to the Trump Administration’s now infamous coining of the phrase ‘Alternative Facts’. When looking back on what came since then it is now a moment that seems both trivial and utterly prescient of the shift in paradigm that had occurred — the world was different now, and attempting to measure it by previous standards wasn’t going to make it more predictable.
In zooming into Anteris’ X photos to try and verify how crowded the room was it dawned on me that I was looking for the wrong thing. Some numbers matter and some numbers don’t. Arguably, presidential inauguration crowd numbers have never mattered — certainly not when compared to those same crowds at polling day.
Anteris now claims DurAVR has numbers that beat Sapien (Edwards) and Evolut (Medtronic) clinically. Both in the FIH:
And the EFS:
Time will tell if this is, in fact, true.
Tweet from the company and CEO indicative of the EFS progressing well and probably over halfway. Confirmation now that at least 7 of the 15 patients in 3 of the 7 centres are completed to the point they are happy to post about it on social media. Which also means the bulk of the 30 day data should be available to be presented at TCT conference in San Franciso in about a month.
Also, less than 48 hours now before we can expect some announcement (probably on ASX too) about the Cantor Fitzgerald Annual Global Healthcare Conference in New York, which — due to its late addition to Anteris’ calendar — I still suspect is about Valve-in-Valve (in Canada’s Special Access Program) rather than our ongoing EFS in the United States.
*** Edit 11/09/2023 — I’m rebooting this one (from mid Feb 2023) to show that things have, in fact, gone largely better than planned. There was a 3rd FIH cohort in Georgia (extra 8 patients) and valve-in-valve operations in Canada (extra 2 patients). Some slightly slower progress on 30 day data for the EFS, but at least some of that data to still be announced at TCT conference in San Francisco in late October 2023. So, so far, it has only been exciting in the right ways. Some context for newcomers, the business end of Anteris is in Minneapolis, Minnesota USA, and they use the US financial year for their quarters***
Best laid plans…
Screenwriters and novelists know that if you tell the audience or reader the plan beforehand it means either: a) it ain’t going to happen that way; or b) you are writing a boring show or book [1]. Oh, how I long for Anteris to be boring!
Anteris has updated the market of its TAVR roadmap for the next 12 months [ASX announcement].
Incidentally, the announcement also confirmed that the non-binding agreement with US-based Yorkville would not be bound — Anteris appears to be satisfied with the sufficiency of the capital raise brokered by Evolution Capital last week.
Further, Anteris confirmed CEO Wayne Paterson’s purchase (pending shareholder approval) of shares and options as part of the capital raise [ASX announcement].
What I like most about the planned TAVR milestones is the apparent interfacing of both sets of data in the ongoing FDA process. That is, the utilisation of the first-in-human data (from the 13 patients implanted in Georgia) as well as the imminent EFS, apparently working in tandem. One thing CEO Wayne Paterson is consistent about in his presentations and addresses is that this is med-tech, not pharma. Trials are shorter, sample sizes are smaller.
My own thoughts on Anteris’ prospects of hitting these milestones? I’m very high conviction on this, whether it be this roadmap or just something close enough to justify my valuation. One of the tropes around plans is that ‘they don’t survive first contact with the enemy ‘ or Mike Tyson’s blunter “Everybody has plans until they get hit for the first time”. It sounds clever and wise largely because it is negative and cynical. In exploring this one I came across quotes from President Eisenhower and Winston Churchill which I like better [2]. Churchill’s more nuanced thinking I like in particular:
In this respect, Anteris is in very capable hands with CEO Wayne Paterson. He’s had a consistent vision of a path for Anteris for a long time. It’s never been without obstacles. And yet he has still steered Anteris to this juncture. Flawless plan or not, I think the chances are high that he executes regardless.
Of course, my favourite quote on preparedness from any military man or master tactician is that of Private Baldrick: “I have a cunning plan…”
No official announcement from Anteris yet, but Chief Medical Officer Dr Chris Meduri has tweeted (‘Xeded’ now I guess?) about a further two successful patients in the EFS. That is at least for 4 US patients so far now (2 in New York, 2 in Arizona) with DurAVR implanted. I’m unsure of the delay between the operations and these type of postings, but I am guessing it would have to be after at least 24 hours.
The Current Situation
I have been thinking about the biggest risks for Anteris in the coming months, before the release of its data from the FDA Early Feasibility Study (EFS) by the end of October. I tend to agree with Anteris CEO Wayne Paterson that the clinical risk is as near to nil as you can get. I think the risk for Anteris is not clinical failure. The greatest risk to Anteris is the appearance of clinical failure.
The nature of this type of medical device is that sample sizes at this early stage are small. Also, human beings, by their nature, are frail. If a patient dies or suffers a stroke following an ‘experimental’ surgery — in Anteris’ case, their implantation with DurAVR — it does not necessarily follow that DuAVR was the cause of that tragic event. Correlation is not causation. But such an outcome could still be a short-term disaster for Anteris, even if subsequent analysis, investigation, and further testing proved out Anteris’ clinical superiority and exonerated DurAVR’s involvement in that negative outcome.
This is because our human minds are frail too. We are governed by many more motivations than just rational thought and the spirit of unbiased scientific inquiry.
If this weren’t the case then the path of Alternating Current’s natural dominance over Direct Current would have been a smoother one. Instead we had the rather fascinating ‘War of the Currents’ of the late 1800s [1]. At their most bizarre this involved the Edison-backed Professor Harold Brown publicly electrocuting animals to demonstrate the dangers of AC to the assembled crowds [2].
Now I am not suggesting that the incumbent TAVR players (Edwards and Medtronic) are about to — or even need to — launch a damaging smear campaign against Anteris. They are, however, deeply incentivised to foster scepticism of the proposed merit of DurAVR. They are also well-positioned to capitalise on any EFS set-backs which could befall Anteris, especially if such set-backs lower Anteris’ price.
Money is a powerful driving force behind any narrative. Of course, as an investor, I’m reliant on the other side of that same coin to realise my valuation of Anteris. Capitalism is its own beast — and one that is motivated by neither altruism or science. I know my audience on this forum, and that I’m preaching to the choir when I say although I believe in the science of Anteris — and I’m happy about the good I think it will do — that’s not why I am invested in it. I am invested in it to become wealthy.
If credit were to always fall where it was due Nikola Tesla would have perhaps led a wealthier and more financially secure life [3]. However, that is not the nature of things. The risk is that sometimes having the best product or idea is not enough. It’s a form of execution risk. You can have all the treasures of a new world in your possession, but you still have to ship them home safely — and there is always a degree of good luck involved in achieving that.
Good news from Canada, first successful valve-in-valve patient. Health Canada accepting that there was no safe alternative for the patient. Big development for TAVR.
Some further details — which were also covered in Monday’s AGM — announced today [ASX Announcement] about the additional 8 patients implanted ahead of the EFS. These are the most recent patients implanted in Tbilisi, Georgia.
CEO Wayne Paterson has confirmed that the read-out for the EFS is planned to be by end of September. By then that will be an additional 15 human patients, implanted at facilities in the United States. First of these patients are to be implanted by end of June 2023.
Another key TAVR milestone for Anteris’ journey — which will hopefully ultimately terminate with FDA approval for commercial use after next year’s pivotal study.
Patent Pended
This was never unregistered garage chiropractory, but it’s still good to see Anteris continuing to de-risk with the ASX announcement today that DurAVR has been granted a 20 year patent.
Less important than FDA approval, but dispels any doubt that mere imitation is still an option for the bigger players.
Hedge Dimensions
So Hedge Funds have now joined the growing list of things that I have realised — as I age — that I simultaneously: know too little about to understand properly; and, accept that life is just far too short to dedicate much time to rectifying this.
L1 Capital is a Hedge Fund. They are sometimes Long. They are sometimes Short. Anteris has just published an announcement on some data that gives insight into L1 Capital’s AVR Volume [ASX announcement]. Now I think that means — while I rack my brain for some year 8 algebra and trigonometry — if I can just go about rooting this whole thing cubicly I could then work out the Height and Depth. Then, whatever else I had, I would have some more numbers. One thing I do know is that getting rich involves numbers, Mamma didn’t raise no fools.
Now, some parts of Investopedia have just informed me that Long/Short Funds may actually be different to Hedge Funds. Too late of course. I’ve already found a picture I like for this post and we won’t be changing that I’m afraid. All knowing that information would achieve is that it would make me feel slightly less clever. Which, let’s face it, is what always happens when we are out here Dunning-Krugering ourselves silly.
L1 Capital first arrived on the Anteris scene in October 2021 when we were still getting over some of our more desperate days, finance-wise. We were still a bit crazy back then. Personally, I think the fact they are still hanging around is kinda sweet. Many others didn’t. Sure, they might get some pretty sick unlisted options occasionally but at least part of their strategy appears to be one of long-term accumulation. They currently comprise about 10% of Anteris’ share register.
Both that August to October 2021 capital raise I’ve referred to above — and last week’s placement (February 2023) — were brokered by Evolution Capital. I expect there may be another analyst report soon, but here is the link to Evolution Capital’s latest research on Anteris (November 2022).
There’s never harm in just that little bit more research …
** Edit 26/11/2021: Partly for balance, perspective, and a little bit just for fun, I am rebooting this Bear Case from circa February 2019.
But more importantly because it both explains some of the genesis of the tightness of Anteris’ share registry (a Phoenix rising from the burned ruins of the dreams of some ASX baggies like yours truly scooped up by sophisticated investors on the cheap) AND it demonstrates just how uncertain the new investment case was nearly 3 years ago, and, by extension, how much it has been de-risked already. Both those factors are relevant to understanding how the negative legacy of a company can lead to a present opportunity being undervalued. **
Dubious Track Record
Albert Einstein utilized a famous thought experiment to explain his theory of general relativity. It involves the different perspectives of a person travelling on a train versus that of another person (more accurately, another man, women not winning the right to watch trains from platforms until the late 1970s – in fact train-spotting remains a very gender-imbalanced past-time to this day) watching that same train from the platform [1]. I understand about 15% of this little allegory, and about a nanoparticle of a percent of the broader theory it seeks to explain. It is often said that if you can’t explain something simply then you don’t understand it. I don’t know what is said of those who don’t understand the simple explanations, other than that a deep gulf exists between the minds of the likes of Einstein and yours truly.
The reason I mention such an abstract topic is twofold. Firstly, the task of watching Admedus these days is like watching a slow-moving train wreck, unfortunately from inside one of the carriages…the third class one getting struck by the lightning…in the early days of steam engines when disastrous train crashes still happened with relative frequency and first aid was in its infancy. Admedus’s 4C quarterly released on 21/01/2019 and their response to the ASX query re the same [20/02/2019] are just the latest examples of this. Money is being spent like it’s the last days of Rome, for little result, and further capital raises are on the way to keep this thing afloat for reasons I can only chalk up to tradition.
Secondly, I do not understand the perspective of the two sophisticated investors who – from the safety of the platform – have seen what was unfolding on the tracks and hopped on the 5:00pm insolvency express anyway. What were they told to make this happen? Now representing close to 50% of the share registry I am morbidly curious as to why this was a good idea for them.
Probabilistically, it is just an example of wealthy people being capable of the same sort of mistakes your average mug ASX punter is prone to. Ideally, I am faintly hopeful that their unique perspective and access to boardrooms – which must be decked out with the most beautiful of mahogany supporting porcelain plates wielding danishes and other pastries of the topmost of notches – has informed their decisions to jump aboard. Time will tell which.
Just some notes for thesis building.
In less than 15 years, transcatheter aortic valve replacement (TAVR) has progressed from a procedure of last resort in patients at prohibitively high perioperative risk for major morbidity and mortality from surgical valve replacement to a viable alternative option to surgery in most patients with native (non-bicuspid) aortic valve stenosis. The number of medical centers offering TAVR has rapidly proliferated.
Is there a market?
1. Is TAVR is a rapidly growing procedure with massive TAM
a. The Transcatheter Aortic Valve Implantation (TAVI) Market revenue was valued at $2,761 million in 2017 and is expected to reach $8,138 million by 2025, growing at a CAGR of 13.8% from 2018 to 2025. The volume market was valued at 107,011 units in 2017 and is expected to reach 337,778 units by 2025, growing at a CAGR of 14.8% from 2018 to 2025.
Is there a problem the company is solving?
2. Are TAVR patients are becoming younger so will need valves that last longer?
In 2019, the first year TAVR was FDA-approved for low-risk patients, this population made up 11.5% of all TAVR patients and had a median age of 75.
This was off the back of the PARTNER 3 trial which looked at TAVR for low risk patients. It found that TAVR was superior to surgery with regard to the primary composite end point of death, stroke, or rehospitalization at 1 year. - The most important limitation of this trial is the current results reflect only 1-year outcomes and do not address the problem of long-term structural valve deterioration. “This is a landmark study because it involves 80 percent of the people who are currently being treated with surgery for aortic stenosis. Our hope was that TAVR would be non-inferior or comparable to surgery, and we were surprised to find an almost 50 percent reduction in the primary endpoint, from 15.1 percent in the surgical group to 8.5 percent with TAVR,” said Martin B. Leon, M.D.
“There is a lot of long-term data on surgical valve durability, so in younger patients, which Valh said includes patients in their 60s and 70s, surgery might be the way to go. He explained a younger TAVR patient will almost certainly need to undergo a second valve replacement, which can be performed as a TAVR valve-in-valve procedure, but the patient's valve size then becomes important to guarantee there will be adequate room to place another TAVR device. "Unfortunately, not everybody is born with a valve annulus big enough where we can just do three to four TAVR procedures to carry them all the way to the end of their life span," he said.
3. Is Anteris’s technology unique? Are their claims believable?
a. I think this is the hardest question to answer but also the most important
i. The study the company sites as evidence was a study of The tissue-engineered ADAPT® bovine pericardial scaffold in 30 children who had repairs to congenital heart conditions they were followed up to 10 years and there was minimal calcification. (ADAPT is commercially available)
ii. They then use this material to make a single piece valve DurAVR and state that it should be more durable. A 2004 study is referenced which basically was just some mathematical modelling of stress distribution over a valve dependant on shape (Hardly convincing).
iii. Unfortunately valve degeneration is a complex process that goes far beyond mechanical stress if you are so inclined there is a good overview here.
And after reading through this material I think it’s plausible that they are on the right path (combination of mechanical design and minimising causes of calcification. However, I haven’t chased up what the competitors are up to.
** Edit 11/02/2021: I first shared this in July 2018 however much of it is still relevant. I have now added more recent straws to Anteris and I think they should be read in the context of caution and scepticism I first described here. **
The very colour of the sky itself has been called into question in recent years by historians, linguists and psychologists [1] [2]. It turns out that our ancient forbears may not have been able see the colour blue and this could be the reason behind the Greek poet Homer’s description of the sea as being “wine-dark”, rather than blue. The theory suggests that only the ancient Egyptians, whose environment contained the correct pigments to make blue dye, could see the colour blue.
The sky has been blue since at least the 1900s however. This was when legislation was first enacted in some areas of the United States to curb the pitches some shady stock promotors made to struggling and gullible farmers [3]. The term ‘blue sky’ is now a part of the investment vernacular, used to describe risky investments that promise sky-high returns.
Admedus has had a complicated relationship with the concept of blue skies in this latter sense. Since first listing publicly in 2004 both the promotions of its many capital raisings and its organic following of retail investors have touted the idea that its immunotherapies division would take the company to these heights.
With this pipe-dream now firmly dispatched the temptation might be to see such potential elsewhere. In some ways TAVR presents a more natural fit for the company. Admedus’ foray into this field is based on its valve being created with its patented ADAPT tissue, and in some other ways any developments in this field may be more in Admedus’ wheelhouse than bringing a successful vaccine to market. However, much more work is required – or unpredictable events, such as partnerships, need to occur – before these developments begin to shift the fundamentals of this company and by extension justify a shift in the share price.
In the meantime I have created the separate straw (# TAVR Milestones) to track updates in this area, which Admedus refers to as a multi-billion dollar addressable market [4]. However, some healthy scepticism rarely goes astray and we may be better off taking a page from Homer’s book (or more accurately, that of his unknown scribe some centuries later) and turn a blind eye to blue skies.
My present view (February 2021) of Anteris is that it is now both simultaneously a good and a bad investment. It is my Schrödinger’s Cat of investments. Which is probably just of hoity-toity way of saying investing in Anteris is still a gamble. Perhaps the only distinction I would draw between this and a mug punt is that for Anteris – unlike many games of chance – the probability of success is ultimately unknowable ahead of time.
If things go well for the company over the next 18 months you can probably expect good returns, outsized returns, before the company even turns a profit. This is because such success would likely cause Anteris to undergo a re-rate by the market from its present meagre base of market capitalization of approximately $30 million.
If things go poorly you will underperform the market. Significantly so. There is every possibility, perhaps even a probability, that in the future you will open this box and find your capital cat dead and not looking very bouncy at all. There is a universe where you lose every dollar you invested in Anteris, at this time there is really just no way of knowing that we are in it.
As the Romans would say caveat emptor – “no take backsies”.
Conflicts of Interest
NB I am an Anteris Baggie. A significant portion of the savings from my early working life is in hock to this rock show. Refer to my previous investment hypothesis from circa 1st July 2018 for full disclosures about this and/or a cautionary tale about my evolving investment thesis.
