Ellex Hiding In Plain Sight
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Australia is highly regarded in the world of biotechnology and medical devices, and it is companies like Ellex Medical Lasers Limited (ELX) that have generated this reputation. Established in 1985 and listed on the Australian Securities Exchange (ASX) in 2001, the Adelaide-based Ellex is a world leader in medical technologies for the diagnosis and treatment of eye disease: it produces lasers and diagnostic equipment for the treatment of various stages of blindness and eye disease.
The company says more than 20,000 Ellex ophthalmic laser and ultrasound systems are in use worldwide, which gives it a global market share of just over 14 per cent. The US market generates 33 per cent of the company’s revenue, with the balance split between Australia (19 per cent), Europe-Middle East-Africa 17 per cent, Japan 13 per cent, Asia 7 per cent, Germany 5 per cent and Latin America 4 per cent. The company has manufacturing facilities in Adelaide and in California: its products have been branded under the Ellex name since 2006.
Ellex is emerging as a global leader in the ophthalmic laser market, which is growing at a rate in the range of 3 per cent–5 per cent a year, driven by ageing populations. The total disease treatment market the company can address is estimated at about US$14 billion a year, in four major eye disease categories; glaucoma, diabetic disease of the retina, cataracts and age-related macular degeneration (AMD).
However, the market is dominated by pharmaceutical treatments, which have traditionally been recommended by ophthalmologists. But technological advances – including those from Ellex – have recently surpassed most pharmaceutical treatments in effectiveness, and momentum appears to be firmly with devices to increase their share of the treatment market. Devices offer clinicians (and health care systems) clinical benefits and financial benefits, and this is driving the growth in their use. Ellex is at the forefront of this trend.
In particular, Ellex has three products that are transforming the company. Its Retinal Rejuvenation Therapy (2RT) laser treatment for Age-Related Macular Degeneration (AMD) is currently the only therapy on the market addressing early-stage AMD, and is potentially also the world's first interventional treatment for the disease. 2RT has been shown, in clinical and scientific studies, to improve retinal function and to halt or delay the degenerative processes that cause retinal disease, and that it is an effective intervention for improvement in macular function. 2RT is currently undergoing a clinical trial over six sites, five in Australia and one in Northern Ireland: in May, an interim review of the trial found that it had met its milestones, and recommended that the trial continue through to 2018 as planned.
The second product is the iTrack microcatheter glaucoma treatment, which is proving to be a surgically effective way of treating Open-Angle Glaucoma (OAG), by restoring the natural glaucoma outflow pathway of the eye, without the complications that have hindered other treatments. Ellex is the fourth-largest player in this market but is gaining good traction as its results become more widely known.
The third product is Ellex’s Selective Laser Trabeculoplasty (SLT), which is well on its way to becoming the main glaucoma therapy, because it does not have the numerous side effects associated with the usual glaucoma medications, and is cheaper. SLT is a classic case of the shift from medication to device treatments: Ellex is the global SLT market leader, but SLT still represents only a minuscule fraction of the global glaucoma market, estimated at US4.6 billion. Both the SLT and Ellex share of this market can be expected to grow rapidly.
Ellex also has high hopes for its proprietary ABiC (ab interno canaloplasty) minimally invasive glaucoma surgery (MIGS) procedure, which it developed to address the shortcomings of current glaucoma treatment options, many of which include high doses of topical glaucoma medications. Ellex’s case series data shows that ABiC can effectively reduce intra-ocular pressure (IOP, or fluid pressure inside the eye) and medication dependence in glaucoma patients with minimal complications.
ABiC is the only MIGS procedure indicated for use outside cataract surgery by the US Food & Drug Administration (FDA), which broadens its clinical application and offers a considerable competitive advantage in the USA over other MIGS procedures, which are limited to use in combination with cataract surgery only. Since launching ABiC into the fast-growing MIGS market, Ellex achieved sales growth in the US market of 25 per cent during the nine months to 31 March 2016.
Shareholders were characterised as long-suffering over most of the 200s, but Ellex has got cracking recently, with the stock price tripling over the last 12 months, to 98 cents, which capitalises the company at $112 million. The company has been profitable since its last loss, in FY13: last year it brought in record revenue of $64.2 million (up 17 per cent) and reported a net profit of $1.17 million, down 30 per cent. For the December 2015 half-year, revenue rose 13 per cent to $34.8 million, while net profit surged 43 per cent to $1.17 million – what it made in the full-year preceding.
Ellex is a true Australian medical device leader. It has a diverse product range that addresses all major eye diseases, with either world-leading or dominant positions in each market segment. The diseases it addresses – in particular, AMD – are becoming major spending burdens on both the part of governments and insurance companies around the world, and these bodies are looking for more efficient and better treatment options. Ellex has these.
Ellex is continuing to expand geographically, as well as through new products that treat disease and conditions that have not previously been treated with devices. The growth opportunities for the company appear very large, and this looks like a company that is going places quickly.
James was founding editor of Shares magazine, and oversaw one of the most successful magazine launches in Australia. He has also written for BRW, Personal Investor, The Age and Management Today, and was subsequently personal investment editor at The Australian and editor of financial website, investorweb.com.au