(appeared first on Seeking Alpha, October 31, 2020)
Summary
- In surgery cutting, one's access to the operative field risks infection and bleeding. Minimally invasive surgery can reduce these risks.
- Knifeless surgery with highly intense focused ultrasound (HIFU) acts through the intact body surface completely eliminating the risks of knife, access, bleeding, infection and wound care.
- Theraclion's Sonovein uses HIFU for varicose veins. It is the first non-invasive and painless intervention, a unique selling proposition in a market of five million interventions per year.
- Knifeless HIFU-surgery is a disruptive innovation like computed tomography or the balloon catheter. Its growth potential is underestimated and undervalued.
Worldwide operative interventions on varicose veins total 5 million a year. Theraclion's (OTCPK:TCLIF) "Sonovein"-device addresses this field with HIFU (highly intense focused ultrasound), a new form of knifeless surgery. Its unique advantages - no incisions, no pain, no scars, no anesthesia, no operating theatre - make for a unique selling proposition which already conquers experts and markets.
Reducing the Risks of Surgery
In surgery the actual procedure - such as removing the gallbladder or appendix - is not very problematic. The danger lies more in creating access to the surgical area, an injury which risks blood loss and infection. There's also the risk of anesthesia. Minimally invasive techniques like endoscopic and robotic surgery reduce but do not eliminate such risks.
HIFU (high-intensity, focused ultrasound), a new technology makes surgical access and knife superfluous in many cases: Ultrasound waves are focused through the intact body surface like through a lens and thereby concentrated at a point inside the body where the tissue is killed by heating up to 85° degrees Celsius. The skin not being opened there is no need for sterility, asepsis, disinfection and wound care, sometimes not even for an operating theatre or anesthesia. This saves time and costs.
HIFU's Many Applications
HIFU is used in many fields: For prostate cancer by French EDAP and US SonaCare, as discussed before. For uterine fibroids and bone metastases by Canadian Profound Medical (OTC:PROF) among others. For high eye pressure (glaucoma) by French Eye Tech Care and for brain disease by Insightec in Israel among others. For a detailed overview, see Focused Ultrasound Foundation's voluminous State of the Field-Report 2020.
Theraclion's start with thyroid and breast tumors
Theraclion is a French company traded in Paris. Those lacking trust in French engineering may be told that Napoleon founded the first technology school ever for his military engineers, the École Polytechnique. Since then, the French never had a lack of brilliant engineering and the École Polytechnique got many copies, e.g. the Massachusetts Institute of Technology.
Theraclion, like EDAP, is part of a French technology cluster which grew around the state laboratory LabTAU (Laboratory for therapeutic applications of Ultrasound) founded 1985 by INSERM (The French National Institute for Health and Medical Research) together with the departments of experimental surgery and of engineering of Lyon university. They used ultrasound for vascular imaging and for crushing of kidney stones. The latter was then miniaturized for prostate cancer and commercialized by EDAP.
Theraclion which was founded in 2004 as a spinoff of EDAP is based in Paris and its "Echopulse" device uses HIFU for safe and efficient removal of benign breast and thyroid nodes, this costing up to 65 percent less than open surgery. The market is not enormous and its map (scroll down to see it) shows only about two dozen installations mostly in Europe.
The scourge of varicose veins
So far, the story is not overwhelming. But now the company has opened another opportunity with its Sonovein system for varicose veins. Some facts of life may explain why this is a really big deal:
Varicose veins affect about 30 percent of all people, more woman than men. Most varicose veins are only a cosmetic nuisance, which moneyed people let treat in private clinics. But they also can lead to swollen legs, bleedings, thrombosis and ugly chronic ulcers which affect about 0.75 percent of the population. Of the ulcers 1/4 remain open despite constant treatment with bandages and compresses which can cost thousands of USD a year. Since 80 percent of these ulcers could be healed by operative interventions Prof. Whiteley estimates that the UK alone wastes billions on ineffective treatments every year.
Older interventional treatments include open surgery or stripping, the latter pulling out the veins with force. Both can lead to a painful and prolonged postoperative recovery with hematoma formation, nerve injury, and infection. The state of the art are minimally invasive therapies: Sclerotherapy injects toxic substances into the vein, adverse effects being rare but sometimes severe, e.g. infections, extensive tissue damage, arterial occlusion. This century saw the "endovenous revolution" where radiofrequency or laser is introduced into the vein over a wire or a light guide and acts by heat. This mostly need anesthesia which adds risk. To me as a physician all these techniques never seemed worth the risk in cosmetic indications. E.g. I would not let my wife or my daughter do it.
HIFU as a quantum leap
Theraclion's "Sonovein" is the first completely non-invasive technology for venous disorders. Its HIFU-beam is guided by ultrasound imaging and acts through the intact skin. There is no relevant pain, no infection and no anesthesia. The 30-minute procedure can be performed single-handedly in an ambulatory office setting. A first successful study from the vascular clinics of Dr Alfred Obermayer in Austria led to a CE-mark and was confirmed by Prof. Mark Whiteley, the pioneer of the "endovenous revolution" in the UK who runs the renowned Whiteley clinics for venous diseases: According to him HIFU is a quantum leap and a potentially disruptive technique, see him explain here. Clinical experience led recently to the second-generation "Sonovein S" machine which generates shorter ultrasound pulses (0.5 versus 4-8 sec) and works much faster and without pain.
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| Sonovein in action: HIFU probe on the right |
Are such first studies significant? Sir Austin Bradford Hill the pioneer of medical statistics held that there is not always a need for big series: E.g. when under penicillin the first 10 patients with pneumonia had become afebrile and well within 48 hours no further studies were needed. Similarly, in some dozens of patients treated HIFU was as effective as other endovenous techniques while doing away with asepsis, disinfection, knife, incisions, scars, injections, toxic substances, pain, anesthesia and even an operating theatre. In fact, this is the first technique I would personally accept for cosmetic varicose vein indications as a physician.
Chances of wider adoption
By 2021 Theraclion will have expanded their user base to 12 academic or leading European institutions, which will refine the technique, generate corroborating studies, train physicians and drive accelerating commercialization in Europe from 2022.
Initial reactions by specialists are enthusiastic. The learning curve for the experienced is minimal, because all previous treatments use ultrasound imaging, and instead of placing a needle, a wire or a light guide one places the HIFU-probe over the vein.
According to the CEO David Caumartin, a super smart physicist and telecommunications engineer, the Sonovein system is placed free of charge under a pay-per-use model (around EU 1,500 for Switzerland), thereby eliminating the hurdle of an initial investment.
There is no insurance coverage yet and costs are higher than for endovenous radiofrequency. However, varicosis is unique, because most cosmetic treatments - a substantial minority - are anyway paid out of pocket.
There are an estimated 5 Million venous procedures per year worldwide, and alone 100,000 in the UK, of which Theraclion wants to conquer a significant part. Awaiting insurance coverage "Sonovein S" has a role as a "premium-treatment" for self-paying customers. In most bigger towns and many hospitals there are vein specialists and in every country there a several specialized clinics each treating hundreds of varicosis patients a year. Patient demand will force them to adopt HIFU if they do not want to lose well-to-do clientele. From medical circles here in Switzerland, one hears of a keen interest. Knifeless surgery without anesthesia is just a unique selling proposition. Insurance coverage is probably a question of time.
The technology had been submitted to the FDA already in 2019. Studies in the US had to be postponed due to COVID but will start in summer 2021 and will be the base for requesting the 510k approval from the FDA. A realistic time frame for sales in the US is 2024.
Financials
Theraclion is a small start-up with ca. 25 employees. Market cap is USD 27 million, yearly loss is USD 4 million and debt USD 7 million. Revenue comes from selling devices, service and disposables, and for "Sonovein S" from pay-per-use. Revenues grew from USD 2 to 3,4 million in the last years. 2019 showed a growth of total revenue of 66 percent and of income of 38 percent. For 2020, it expected sales growth of 30-50 percent. Then came COVID, which however the company weathered rather well: Revenues in the first half of 2020 were 15 percent lower on a y/y basis, but due to early cost containment, operating loss was reduced by 5 percent y/y.
According to the report for first half of 2020, it had cash of EU 1.4 million as of December 31, 2019. During the first half of the year 2020, the company obtained EU 1.4 million under a State Guaranteed Loan (PGE) and an innovation loan from Bpi France, and it also received the EU 1M Research Tax Credit. Given a cautious estimate of system sales in 2020 with a second half expected to be more dynamic than the first, as well as the issuance of tranche 2 of the financing contracted in early 2019, Theraclion considers that it will be able to cover its cash flow needs until mid-2021. In addition, Theraclion obtained an EU 3.6 million credit line in the first half of 2020, which could be activated, if necessary.
A study by CIC market solutions equity research from October 22nd prognosticates a slowly growing thyroid and breast business and a rapid adoption of "Sonovein S" with 12 centers 2021, 20 in 2022 and 40 in 2023 and so on which is realistic. Assuming one center generating 300 procedures a year this amounts to total companywide sales of EU 4,6 million in 2021, 8.4 million in 2022 and 13.6 million in 2023 which should take them to breakeven and profits.
CIC-Market Solutions previously thought that the company might need further financing but now it concludes that it will be able to begin marketing without additional capital. I would agree as long as the COVID epidemic will be brought under control by next spring.
Downsides
Start-ups can go down, but Theraclion rides an emerging international wave of HIFU-adoption and will probably get the resonance and means to survive. COVID remains a danger but it resisted well.
There are no downsides inherent to the technology, which does basically the same as previous methods, just with considerably less inconvenience and adverse effects. Therefore, one can hardly imagine how further growth could be impeded by company-specific factors or factors inside the MedTech and medical ecosystems.
Theraclion has not yet obtained insurance coverage for its venous treatment and is presently limited to the substantial minority of self-payers. HIFU being more expensive than other minimally invasive treatments it has to succeed as a "premium product" which is reasonable given the advantages. FDA-approval can but will probably not be as cumbersome as with previous HIFU applications.
In the domain of veins, Theraclion is protected by patent until 2026. Thereafter it remains the first-mover with solid links to leading experts which will help to convince and maintain users.
Investment Thesis
Theraclion rides the global wave of HIFU-adoption and with "Sonovein S" has a unique selling proposition of painless non-invasive intervention in the enormous venous market. This disruptive breakthrough has low hurdles for adoption and must result in explosive growth of revenue and profits already over the next few years.
Afterthoughts: Risk and investment strategy
Investments must reside in a context, which for us is the following: The growth of world economy is not assured and may give way to shrinkage, causes being economic or belligerent conflicts, environmental and resource problems or other turmoil. Fiat currencies, blue chips and value investments are all at risk of losing value, perhaps sharply and for good. Somewhat better may be real estate, physical precious metals and maybe shares of relatively resistant industries, e.g. health, food and utilities. These may resist inflation but have no growth prospects.
If one looks for real growth one can put a percentage of the available means into breakthrough adventures as long as one understands them. This may be rewarded by one- or double-digit multiplication. As long as they grow there is no point in much selling or rebalancing - never change a winning horse - except putting minor parts of the profits into other growth candidates or in safer investments. Theraclion and EDAP have further potential, especially after the recent dip.
