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Share recommendation: Sphere Medical

By , 20 Sep 2012

Andrew Hore, editor of the AIM Journal, provides exclusive investment insights for BullBearings.co.uk.

Medical devices developer Sphere Medical (SPHR) is confident that it can secure a partner for its Proxima critical care blood analysis monitor. Discussions are continuing with global medical device manufacturers and Sphere chief executive Dr Stuart Hendry says that he is “surprised how well things have gone”.

These large global medical devices companies need new products to help to boost their growth so they are keen on the Proxima because it means that a patient’s blood can be analysed in real-time and re-infused rather than having to take blood samples to other parts of the hospital. This means the test is more accurate, quicker and cheaper. Many interested firms have already undertaken due diligence on the technology and it is designed so that it can be integrated with existing products.

Sphere will make money from selling the disposable microanalyser for the Proxima. This is a market that is estimated to be worth more than $200m a year– based on sales of more than 2m disposables. 

Sphere is focusing on the third generation of Proxima and it has spent a significant amount of cash in the first half of 2012 in order to complete this development. The first generation of Proxima has achieved regulatory approvals and the latest generation is on course to gain its CE Mark in Europe, while discussions are continuing with the FDA for US approval. The data for the CE Mark will be used for the US regulatory application. The US is more than two-fifths of the potential market.

Sphere cash of £8.3m at the end of June 2012. The first half cash outflow was £3.7m but the second half outflow will be lower. There are some revenues coming through from Sphere’s Cardiopulmonary Bypass (CPD) monitor and the Pelorius monitoring device for the anaesthetic Propofol, which use the same underlying technology as the Proxima. There were no revenues in the first half but second half sales could generate around £1m. All of this means that Sphere has plenty of cash for 12 months or more.

Sphere is in a strong financial position so if it does not secure a global partner for Proxima before the end of the year it will not be a problem. Management intends to hold out for the best deal rather than rush completion by the end of 2012. The exact structure of the deal and timing of cash payments is unknown but it will definitely involve the partner buying shares in Sphere. Critical care devices supplier Edwards Lifesciences already has a stake and it has right of first refusal on a deal but that does not mean that it will be the chosen partner.

At 82p a share, Sphere is valued at £30m. That is modest compared with the potential for the technology, both for existing and new uses, and if a favourable deal is announced in the next few months this could provide a boost to market sentiment.

SPHR Sphere Medical - trade the stock on BullBearings now.

Other articles by Andrew Hore >>>

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