Small Caps | May 24 2011
– REVA Medical developing bioresorbable stents
– Significant market opportunity of around US$9bn annually
– REVA likely to be of interest to dominant market players
– Southern Cross rates REVA a Spec Buy
By Chris Shaw
A stent is a small mesh tube used in treating coronary artery disease, which is one of the major causes of heart attacks. Currently, all commercially marketed stents are made of metal and are implanted permanently, but REVA Medical ((RVA)) is attempting to advance the market by developing one of the first bioresorbable stents.
REVA is working on the ReZolve stent and Southern Cross Equities sees potential for a near-term commercial payoff from the development work being done. Southern Cross rates REVA Medical as a Speculative Buy with a price target of $2.10.
What would set apart REVA's bioresorbable stent, according to Southern Cross, is it would restore a more natural healing response. This could be expected to reduce the incidence of stent related thrombosis as well as reducing the amount of medicines prescribed for dealing with serious stent side effects.
The fact ReZolve would be bioresorbable would give REVA a clear advantage, as bare metal stents have a restenosis rate of 20-30%. Restenosis is a re-narrowing or blockage of an artery at the site of a stent due to the formation of scar tissue.
Previous animal data and three years of pilot clinical work has shown REVA's ReZolve stent works in keeping arteries open. This suggests a large potential market, Southern Cross estimating the global stent market was worth around US$9 billion in 2009.
Stents are popular because the process works and is preferred by cardiologists and patients as stents quickly remove angina. Southern Cross notes potential patient numbers are significant, as around 7.6% of American adults are estimated to have coronary artery disease.
With four large players including Boston Scientific and Johnson and Johnson dominating the market, Southern Cross expects commercial interest in ReZolve will be high. There is already evidence of this, as Boston Scientific invested in REVA in 2004 and another large player, Medtronic, has a 6% stake in the company.
While there has been some slippage in the timetable for continued trials of ReZolve, Southern Cross notes REVA remains on track for completion of a pivotal trial for CE Marking by late in 2013. Prior to this a 50-subject product validation clinical study is expected to provide six-month data by the middle of next year.
Using conservative estimates and allowing for a further $85 million capital raising to fund an FDA trial of ReZolve, Southern Cross generates a valuation for REVA of $1.68. More optimistic assumptions result in a bull case valuation of $2.37.
Assuming REVA enjoys clinical success in its European pivotal trial in 2013, Southern Cross expects sales could begin shortly after in the EU market. REVA could sell directly, be acquired by one of the industry heavyweights or negotiate distribution terms with Boston Scientific as part of an outstanding option agreement.
Whichever course of action is chosen, Southern Cross sees upside for REVA assuming clinical trials results are positive. Given some recent timeline slippage the broker suggests any related share price would offer a good buying opportunity.
Good news from upcoming trials would also likely generate additional interest in REVA Medical, as given a current market capitalisation of $360 million the company receives no coverage from brokers in the FNArena database.
Shares in REVA Medical today are slightly weaker, trading down 1c at $1.04 as at 10.55am. Over the past 12 months REVA has traded in a range of $1.02 to $1.38.
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