OpSens is a takeout target, says Paradigm Capital

Paradigm Capital analyst Scott McAuley still likes the look of Canadian medical device maker OpSens Inc (OpSens Stock Quote, Charts, News, Analysts, Financials TSX:OPS), saying in a Wednesday research note that it’s positive early days for commercialization of the company’s SavvyWire optical tech, while the market currently has OPS trading at a discount to its peer group.

Quebec-based OpSens, which has an optical-based pressure guidewire platform for procedures in the cardiology field, has seen its share price drop sharply since mid-September, down about 32 per cent since then, with McAuley pointing out that OpSens obtained FDA clearance for the SavvyWire at that time and, moreover, that OPS’ Canadian healthcare peers are only down about 13 per cent over the same roughly two-month period.

“While early-stage medtech commercial rollouts can be bumpy, the value proposition and market opportunity for SavvyWire remains as valid today as it was ten weeks ago,” McAuley wrote. “We have OPS trading at 4.4x our CY23e (4.8x FY23e) versus a cardiovascular medtech group at 6.5x. Given recent declines in peer multiples, we have decreased our valuation multiple to 6.5x (was 7.0x) and rolled forward our valuation year to FY24.”

OpSens released its fourth quarter fiscal 2022 financials on Tuesday for the period ended August 31, 2022, showing record consolidated sales of $7.9 million, up from $7.3 million a year earlier, and a net loss of $4.0 million compared to a loss of $1.2 million a year earlier.

On the SavvyWire rollout, OpSens CEO and President Louis Laflamme said the company has now completed the controlled release phase in Canada and is entering full-scale release, while in the US, the full-scale will likely launch during calendar 2023. 

“Commercially, the second half of the year was  stronger than the first half as the subsidence of the pandemic resulted in a commensurate uptick in hospital procedure volumes, particularly those that leverage the OptoWire,” Laflamme said in a press release.

On the quarterly results, McAuley said the $7.9 million topline was below his forecast at $9.6 million and the consensus call at $9.4 million, saying the sequential drop in revenue related to a large order placed in the fiscal Q3 ended up being greater than expected. Gross margins were also lower than expected at 48 per cent versus McAuley’s 51 per cent, which helped to put EBITDA at negative $3.4 million compared to Paradigm’s estimate at negative $2.5 million. 

McAuley said he has lowered his expectations on the US sales in fiscal 2023 due to management’s outlook which called for a sequential revenue decline in the fiscal Q1. 

With the update, McAuley reiterated a “Buy” rating on OpSens and $3.40 target price, which at press time represented a projected return of 61 per cent.

“We believe the market is discounting the growth opportunity of OPS’ OptoWire and SavvyWire products. OPS now has two products in the high value minimally invasive coronary and cardiac surgery space. Its technology allows the integration of highly accurate pressure sensing into core products like guidewires and pumps, producing more accurate measurements and simplifying procedure workflow relative to existing products. We also see OPS as an attractive strategic takeover candidate for larger interventional cardiology medical device companies,” McAuley wrote.