|Shares Out. (in M):||198||P/E||0||0|
|Market Cap (in $M):||73||P/FCF||0||0|
|Net Debt (in $M):||0||EBIT||0||0|
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This is a recently public venture stage nanocap trading on the Australian Securities Exchange with limited liquidity. As such, it may be only appropriate for smaller funds and personal trading accounts. We believe Visioneering has venture capital like upside potential if its products reach the commercialization potential for contact lenses serving the presbyopia and myopia markets.
Visioneering is a US-based medical device company primarily engaged in the design, manufacture, sale and distribution of a new set of contact lens targeting two attractive markets.: presbyopia and pediatric myopia.
VTI is focused on the contact lens business, where it plans to dominate the growing field of multifocal lenses. What are multifocal lenses? Traditional lenses focus light to a single point. This means they can be set for distance or up-close vision, but not both. With more consumers having presbyopia (i.e. needing reading glasses), there is more interest and demand for multi-focal lenses, which allow good vision through a range of distances. Imagine being able to read the paper AND admire those trees on the mountain. The company’s first product, the NaturalVue MF multifocal contact lenses, was launched in 2016 and is in the early stages of ramping up sales. The NaturalVue MF contact lenses offer substantial performance improvements and superior patient outcomes for patients with presbyopia.
Visioneering is also targeting the NaturalVue MF contact lenses to treat children with myopia. The company has presented some early data that demonstrates efficacy in slowing the progression of myopia in children. Both are multibillion dollar markets in the US and double the size including the international markets.
The company was founded in 2008 in Georgia and received venture capital funding over a number of rounds until it listed on the Australian Securities Exchange in March 2017 and raised AUD$33mil to fund the launch of its NaturalVue MF contact lenses. At this point, the company has received FDA clearance and the CE mark in Europe for its product and is now able to ramp sales in much of the developed world. The company holds 12 issued patents worldwide with 7 patents pending for its technology.
Visioneering’s basic technology underlying the product is the novel use of a pinhole aperture technology in the contact lense to improve vision: the unfocused light rays are blocked, while focused light rays pass through the aperture and result in clear focus of near objects. More information about the technology can be found in the appendix on the company most recent presentation: https://www.vtivisioninvestors.com/media/1082/vti_investor_presentation.pdf.
Orphaned security. While the company is listed in Australia, the company is headquartered in Georgia, US and conducts most of its operations in the US and has sales operationals internationally. This is essentially a US company, so there is naturally not as much interest among the Austrialian institutional and retail investors and very few US retail or institutional investors even know about this company even though its essentially a US company. Given the limited research coverage, the limited liquidity and the misaligned investor base, it’s easy to see why the company has not been discovered by the market. The company is looking to increase investor visibility both in the US and Australia by doing investor relations outreach through out the next year.
Targeting 2 large markets with a differentiated product.
The first target market is presbyopia, an age-related loss of ability to see near objects. The condition affects nearly all adults over the age of 40, and 46% of the US population is over the age of 40. Contact lens options for wearers of contacts lenses moving into presbyopia are non-ideal, resulting in very low penetration by current options. The current challenges to correcting presbyopia are shown in the following slide:
However, the company’s NaturalVue contact lenses overcome these challenges as shown below:
NaturalVue provides visual acuity and stereoacuity (depth perception) similar to glasses in addition to greatly reducing the fitting time/number of visits for the patient.
The current market for multifocal contact lenses is approximately half a billion dollar market in the US, dominated by Alcon, Cooper, Bausch & Lomb, and J&J, with a total addressable market of $3.4B based on the market estimate below:
The poor penetration by today’s MFCLs is due difficulty fitting the lenses and poor effectiveness at addressing near vision needs. There a sizable addressable market outside of the US in Asia, Europe, Australia, Canada and the rest of the Americas.
The second target market is myopia progression in children. Pediatric myopia is nearsightedness that develops in early childhood, causing blurred distance vision. Caused by eye growing too long from front to back. A child’s myopia that continues to worsen until early adulthood is called myopia progression. According to the WHO under-corrected myopia as the most common cause of visual impairment globally, and myopia rates have undergone explosive increase over the last few decades particularly in Asian countries as rates have skyrocketed in the range of 50%-200%. More importantly, myopia progression correlates to significantly higher risk of developing
serious eye problems later in life with a 4x-16x increase risk of retinal detachment; 2-5x increase in the risk of cataracts; and 4x increase in the risk for glaucoma.
Currently, the options available to slow myopia progression are limited as glasses or most contacts only correct the near-sighted vision, but have little to no impact on slowing the progression of myopia. The standard myopia sight correction exacerbates myopia progression. Glasses or contact lenses correct a patient’s Myopic vision at the centre of the retina to provide clear distance vision. But central correction results in peripheral light rays moving behind the retina, thereby creating a growth signal for the lengthening of the eyeball. On the contrary, the NaturalVue lense simultaneously corrects myopia and moves the light at the periphery of the retina forward, thus removing or reducing the growth signals that lengthen the eye.
The pediatric myopia progression total addressable market is estimated to be $2 billion alone in the US. The addressable market in Asia may be even larger because the percentage of children with myopia is 90%+ in some countries.
There have been some studies showing the benefits of using NaturalVue contact lenses in halting myopia progression as the slide below shows:
We believe additional studies will be done in the future to further bolster the evidence of the efficacy of NaturalVue contact lenses in reducing pediatric myopia progression to assist in ramping sales in this indication.
Inflecton point in sales ramp. The company raise AUD $33mil in an IPO in Australia in March 2017 IPO to invest iin growing the sale force and inventory to ramp up sales in the US and worldwide. The company started selling in the US market in 2016 on a small scale but was limited because of a lack of capital. With the IPO proceeds, the company has been hiring a sales team in the US and building out the sales infrastructure. From a small revenue base of $200k in 2016 and $1mil in 2017, the company achieve $555k in 1Q18. The sale force grew from 5 territory managerse to 25 in 2017, and the company is continuing to add to the sales team in 2018. Most of the sale force is from competing contact lens companies and/or have experience in selling to eye care professionals. International sales are starting in 2018. As the sales ramps in 2018 and beyond, we expect some lumpiness from quarter to quarter but expect a strong trajectory over the coming years. Below are two good slides showing the sales momentum and the potential as the newly hired sales force in 2017 ramps up its productivity in 2018 and beyond.
Potential acquisition by a large player in the space. There are a number of players in the multifocal contact lense market: Alcon, Cooper, J&J , Bausch & Lomb, among others. Once Visioneering gets sales traction, we could imagine any one of these competitors taking a serious look at the company as a way to defend and gain market share with a better technology and to enter the pediatric myopia market. There are number of other players in the optical market could be potential acquirers of the company as well.
Given the early stage nature of the company, it’s not easy to place a precise value on the company. The best way to look at the valuation of the company is to project sales in 3 to 5 years and use a multiple of sales to get to a value at that time and then use a discount factor to determine the likelihood of the company achieving that valuation. We could envision the company achieving $100mil in sales in 3-5 years just in the presbyopia market in the US. That would position Visioneering as one of the top 3 players in the multifocal market in the US. In addition, we expect sales penetration in some of the international markets with distribution partners for the presbyopia market. The pediatric market also have potential to add to revenues globally with an additional $100mil in sales in 4-7 years ($100mil sales would be 5% penetration of just the $2bil US market, exclusing the international opportunity). A 2x-4x sales multiple would not be unreasonable for a company with this type of sales growth addressing large target marketes with unmet needs. Thus, the potential valuation could be in the range of $400-$800mil at some point in the next 3-7 years. I will leave it up to the readers to decide what the appropriate discount factor should be.
Need to raise capital again within the next 12-18 months. The company may be able to extend the time required before a raise with the $10mil line of credit and be able to raise capital at a higher valuation after the sales have started to ramp up.
Company may not achieve sales ramp. With the significant increase in the sales force in 2017 and 2018, we would expect sales to ramp up from $1mil in 2017. How much it ramps and how fast it ramps in still unknown as it takes some time before the sales team to become productive. In these businesses, hiring experienced sales people with existing relationships is expensive but a proven method of achieving sales goals.
- Continued sales ramp in the US
- Commencement of international sales (EU and Asia)
- Development of additional new product line extensions
- Ongoing clinical data and industry publications the pediatric myopia space
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