Moelis Highlights Potential In AirXpanders

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-Oz success indicator for US launch
-Major benefit versus saline injections
-Growing awareness of reconstruction
 

By Eva Brocklehurst

AirXpanders ((AXP)), manufacturer and distributor of AeroForm, has piqued the interest of stockbroker Moelis & Co. AeroForm is a medical device used in breast reconstruction after cancer and has been approved and sold in the Australian market.

The commercial success in Australia is considered a proxy for the US opportunity, with the speed at which the unit has been received a leading indicator of its likely success, which in the broker's view de-risks the long-term valuation.

The company expects to launch the product in the US this year and, to Moelis, the stock offers a compelling investment opportunity, offering a market leading product that aligns all stakeholder interests and offers a simple path to commercialisation. Moelis initiates with a Buy rating and $1.95 target.

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 breast cancer site for reconstruction post mastectomy.

The device delivers a major benefit compared with existing saline expanders, which currently require several visits to the clinic for saline injections. This means the AeroForm device is less painful for patients and fewer follow up consultations are required. Both saline and AeroForm are devices which are required anew for each patient or breast.

AeroForm replaces saline expanders with a gas (carbon dioxide) that can be compressed inside a small canister in the expander. The patient is able to deliver frequent, small doses using a wireless controller. Given the device is only temporarily in the body any risk from ongoing use is limited.

Moelis maintains market growth is underpinned by the growth in breast cancer diagnoses and the passing of the Breast Cancer Patient Act in the US, which should drive increased reconstruction rates and increased awareness of the potential of reconstruction.

The broker believes its base case valuation of AirXpanders offers significant upside beyond assumptions around market penetration and timing, with a free option on longer-dated global expansion and further product applications.

US Food & Drug Administration approval is expected in the June quarter. AirXpanders currently operates from Palo Alto in the US and will establish a contract manufacturing facility in Costa Rica.

This should allow the company to achieve around 82% gross margin and increase its capacity to produce significantly greater volumes at a faster rate. Moelis anticipates the transfer of manufacturing equipment over the first half of this year and operational launch in the fourth quarter.

Breast cancer is the second leading cause of death in women globally. AirXpanders estimates its addressable market is US$800m per annum, based on a US$2,500 sale price. The current US market size for tissue expanders is 120,000 units per year, with a potential addressable market of 350,000 units per year.

The company was incorporated in the US in 2005 and listed on the ASX in June last year at 50c per CHESS Depositary Interest.
 

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