Small Caps | Aug 13 2015
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-Major advance in technology
-US FDA approval in the wings
-Addressable market increasing
By Eva Brocklehurst
AirXpanders ((AXP)) has developed a major improvement in the technology used in breast reconstruction after cancer. AeroForm is already approved and sold in the Australian market and the company is planning to file for US approval in the current quarter.
The company has completed a trial to support its application to the US Food & Drug Administration and approval is expected early next year to support the commercial launch of AeroForm. Canaccord Genuity initiates coverage on the stock with a Buy rating and target of $1.25.
The company's device, or expander, is a temporary implant which is used to stretch the skin and chest muscles to allow the placement of a permanent implant. This prepares the site for women who have had breast cancer and are having reconstruction post a mastectomy.
The company's product is superior to existing expanders which currently require several visits to the clinic for saline injections. AeroForm replaces saline expanders with a gas (carbon dioxide) that can be compressed in side a small canister in the expander and deliver frequent, small doses by the patient using a wireless controller.
The ability to control or manage the expansion process is thus less traumatic for the patient and also allows clinicians to focus on other aspects that require their expertise rather than conducting routine injections of saline.
AirXpanders is expected to break even in 2017. Canaccord Genuity bases US market forecasts on estimated current sales of expanders. Reports show 4,694 breast reconstructions that used an expander and implant were performed in the US in 2014. The US addressable market is calculated to be US$369m in 2016. In comparison, the Australian addressable market is calculated to be $7.0m.
AeroForm was approved by Australia's Therapeutic Goods Administration in October 2013 and add to the government prostheses list in November last year, with reimbursement of $2,450 per expander. The company has recently increased its sales team ready for a national roll out amid strong initial interest from plastic surgeons.
Breast cancer is the third most common cancer in Australia and the broker estimates the current Australian market for tissue expanders is around 3,000 units per year. AeroForm has received the CE Mark of approval from European countries in the EU but this does not provide for any reimbursement. AirXpanders is not planning to launch product in Europe until it is established in the US.
The broker assumes the company will achieve a peak market share of 30% in 2021 and that manufacturing margins will increase to 80% by 2018, as a result of transferring the bulk of manufacturing to low-cost Costa Rica, while realising scale benefits. Currently, manufacturing is performed in California, with the facility able to manufacture 3,000-4,000 units per annum. Production in Costa Rica is expected to be underway by early next year.
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