Nova Eye Medical Limited (ASX: EYE) #bear case #excellent licence plate 

#best ticker code on the ASX

Thanks to Strawman and members @GnomeofZurich and @Bear77 I had a shallow dive in to Nova Eye. Although I love the ticker code I would be wary of the stock.

EYE looks like a day traders play thing. A quick 5 year ASX glance shows a stock with highs and promise of potential of $1.58 per share in 2016. A slow decline saw a drop to lows of 0.30c in July 2021. 

But wait…..

An exciting, heart pumping upswing currently to 0.42c per share.

Let’s dive deeper……

Founded 1985 Nova Eye has sales headquarters in Freemont California and Dunedin NZ. The company maintains 12% Board ownership (a plus but not huge).

What does Nova Eye Medical Ltd Do?

Manufacture, service and distribute medical equipment and devices to diagnose and treat eye disease. 

Company Numbers

 Market cap $61.3 M 

Shares on issue 144 Million

Trading volumes 120,000 – 250,000 share / day

Cash on Hand $17.8 M

EPS $0.256

NTA $0.18

Claims of TAM for products of US $5.9 Billion for glaucoma devices and approximately US $5.1 Billion for competition to age related macular degeneration (AMD) injections.

Revenue (shows slow growth)

$13.6 M 2021 up from 

$12.8 M 2020

Only 8% increase 

EBIT loss over the last year

Burnt through $15.5 M and made loss of $-4.4 M

Drum roll……I smell a capital raise in the next 12 months.

Debt but no Earnings

$3.7 M debt 2021  up from

$1.55 M debt in 2020

Cash on Hand 

$17.8 M  on hand 

Net cash position of $14.1 M (less liabilities of $4.69M and upcoming liability of $1.97M)

Long and short of it : losing money 

Recent Uptick

As far as I can tell recent share price spike as @GnomeofZurich rightly pointed-out is linked to announcement of an acquisition of a US portfolio of glaucoma device patents (August 2021).

EYE paid $2M plus $1.7M fully paid shares (under escrow for 12 month)

Business Offerings

 2 Streams of product revenue / future anticipated revenue

1)    Glaucoma medical devices

2)    AMD/ 2RT nanosecond laser 

Stream 1: Glaucoma treatment devices

Glaucoma is the second leading cause of blindness worldwide affects 300, 000 Australians 

And estimates suggest it affects between 60-130 million people world-wide. 

Stream 2: Age Related Macular Degeneration (AMD) specifically intermediate type treatment device.

(AMD) is the leading cause of blindness worldwide affecting 1.4 million Australians. Estimated 14% of Americans over 80 years. 

Let’s expand……

Glaucoma what NOVA EYE offers

Total Addressable Market (TAM) of US $5.9B for these devices

Recent patent purchase from US saw Molteno3 glaucoma drainage device coming into Nova Eyes product fold. 

Molteno3 is one of the most frequently used glaucoma drainage devices in the world. One of the “gold standards” for the treatment of advanced primary open angle glaucoma. A last resort treatment to save remaining sight.

Glaucoma is an irreversible blinding disease caused by optic nerve damage. This is slow and often asymptomatic until well advanced. Patients lose their peripheral vision slowly. 

Lay person terms:

•       You can think of the eye as a small pump

•       We produce fluid to keep the eye inflated so it can work,  just like we need air inside a car tyre

•       There is a primary drainage angle that sits like a 360 degree gutter in front of the colored part of the eye (the iris), in patients with glaucoma the eye produces more fluid than it can drain through this gutter leading to an outflow imbalance and eventual high intraocular backflow pressure that damages the optic nerve (the plug that connects the eyeball to the brain). 

•       Sometimes debris from inside the eye can build up in the drainage angle – think of the angle like a gutter on a roof, occasionally leaves can get caught in the gutter so fluid can’t drain away as easily

So what does the Molteno3 device do?

This surgically implanted device sits underneath the white of the eye (the conjunctiva) and part of it (a tube) sits inside the eye allowing the fluid inside the eye to bypass any compromised natural drainage tissue and exit the eye more easily. This lowers eye backflow pressure and stops damage to the delicate cables that run around the back of the eye.

This device has excellent long-term results in studies with up to 88% success rates for the past 20 years of use. It really does help to lower eye pressure and preserve vision. 

However it is a complex surgery and requires intensive follow because of risk of serious complications. 

So is this acquisition a BIG DEAL? …. Well YES and NO!

Molteno3 while a “gold standard” device has a great deal of competition. Think of the TAM being sliced like a pie and Molteno3 really is only a small and decreasing sliver.

Competition is steep in glaucoma device land

This is the kicker for me and my bear case for this revenue stream of Nova Eye. 

Molteno3 has a direct and equally effective competitor in the advanced glaucoma drainage space called the Baerveldt tube. 

Baerveldt glaucoma device is sold by Johnson and Johnson. Studies show that although surgeons take slightly longer to implant it (roughly 13 minutes longer) it is equally effective in patient outcomes. AKA lowering eye pressure and preserving sight. 

Other slivers of the glaucoma device pie

 SLT (selective laser trabeculoplasty)

Glaucoma device technology has improved significantly over the past decade. Glaucoma patients are frequently screened better in practice so disease is detected earlier.

Initial treatment alternatives are also really effective at preventing progression to advanced glaucoma and the need from drainage implants like Molteno3. 

The LIGHT study published in the LANCET in 2019 is a glaucoma treatment game changer. Patients with high pressure and glaucoma were found to benefit from an initial treatment of laser to this drainage angle as a first line treatment. This is instead of medicated drops. This can prevent disease progression. 

One hit of laser can last up to 5 years with a repeat possible, giving a possible 10 year eye pressure lowering cover. 

MIGS devices (minimally invasive glaucoma surgery)

MIGS are surgical implants but much easier for surgeons to place. They also work by helping the fluid or aqueous to flow out of the eye. Glaukos is one of the main companies producing this tech. Major devices include the Istent and Hydrus. These devices are inserted into the eye drainage tissue to help outflow. 

Increasingly popular these devices provide a 30% reduction in IOP. The benefits of these devices last at least 5 years and likely longer. Patients don’t progress as readily and don’t need major glaucoma drainage surgery. So the Molteno3 is hopefully going to be needed less in the future.

NOVA EYE and the ITrack (Other glaucoma device offerings)

Itrack is a patented MIGS offering by Nova Eye. It is a micro catheter implant that feeds 360 degree into the tube like drainage outflow channel (Schlemm’s canal). That gutter system we were talking about. This is new technology in the MIGS space. 

My concern is that there is limited data on efficacy. It also purports to lower eye pressure by 30%. Nova Eye claims that it doesn’t damage internal eye tissue like other MIGS devices do. This means that if glaucoma does get worse and further surgeries are needed there is more viable tissue to tap into to improve outflow pathways. 

Studies are small and I am dubious of the claims so far and suggest the surgery looks more difficult than the Istent or Hydrus due to the accuracy needed to feed the tube through.  

This tech doesn’t significantly increase aqueous fluid outflow compared to competitive market devices. 

There are early claims that the inside lining of the cornea (the endothelium) is preserved better but very limited evidence for this claim. I am failing to see a competitive advantage of this MIG device - yet. But happy to be proven wrong. 

The known unknowns

Pharmaceutical and device companies around the world are racing to develop the next latest greatest device. Protection of the eye cables in the retina with new therapies is a likely gamechanger in the future which may render outflow devices prehistoric.

Stream 2: AMD intermediate treatment device

Macular degeneration is an eye disorder that affects people over 50. There are 2 major types wet and dry macular degeneration. Both involve the progressive loss of central vision due to damage of the underlying retinal tissue. 

Wet AMD is treatable. Wet implies leaky new blood vessels that develop in the retinal tissues. Eye injections are used to improve and maintain central vision. Injections include Eyelea and Avastin. Once diagnosed with wet AMD a patient is on a regime of injections spaced every 6 to 12 weeks for the rest of their lives. Or until they no longer experience a sight benefit. 

Eye injection drug technology is a very hot game with the likes of Australian companies such as OPTHEA (OPT) in this space. The goal is to find a treatment that works effectively and allows for fewer and fewer injections. 

Wet AMD is a veritable gold mine. Most Ophthalmologists charge around $312 ++ per injection and the Medicare rebate is around $266 from the government. This is per injection. Every time. 

Currently there is no effective treatment for dry AMD. 

Let’s find out about the 2RT laser

The second major product offering from Nova Eye is a world first nanosecond laser therapy 2RT for macular degeneration. This product plays in the AMD space. 

The laser treatment is only effective on intermediate type macular degenerative changes. The laser is pulsed for a tiny duration to prevent damage and heating of surrounding tissue. The pulse is purported to have regenerative cell properties. 

2RT is cleared for use in Europe and Australia but is still waiting on FDA approval. 

The laser is meant to stop dry intermediate AMD from converting to wet AMD or at least delaying the change. This reduces the number of injections needed. 

Nova Eye reports success of the 2RT laser tech based on the LEAD study (a randomized controlled trial). People have raised concern about this study. The extent of success and reduction of progression of wet AMD was based on post hoc analysis removing a certain population type of people from the study results. 

I am always wary of post hoc statistical reporting. Oh! Those weren’t the results I wanted…… wait……if I remove these people or that group suddenly things are way more rosey.

The reality is that a whole group of patient’s didn’t show the same benefit from the laser if they had a certain type of macular tissue deposit at a certain depth. 

I am currently unaware of any colleagues using the 2RT technology for treatment of AMD. 

I would personally wait for FDA approval of the 2RT, further uptake of this method and repeated studies delineating patients into class of AMD before getting too excited. 

Summary

·      Cool Ticker coder 

·      Loss making company

·      Slow growth

·      Debt increasing

·      High cash burn

·      Need for upcoming capital injection 

·      I feel recent purchase US glaucoma patent portfolio isn’t spectacular

·      2RT tech doesn’t have enough evidence based support for me to get too excited

·      I feel the company is overhyped based on recent acquisition