By Thomas Kerr, CFA
READ THE FULL MGRM RESEARCH REPORT
FDA Response to 510(k) Filing
On October 6, 2024, Monogram (NASDAQ:MGRM) announced it had received an Additional Information Request (“AIR”) from the U.S. Food and Drug Administration (“FDA”) on September 30, 2024, regarding its 510(k) premarket filing submission for the semi-active mBôs TKA System.
The application was submitted on July 19, 2024, and passed the initial FDA Administrative Review.
The FDA informed the Monogram that it had placed the application on hold pending a complete response to the AIR. The FDA has informed the company that it has 180 days from the date of the AIR to provide a complete response to their questions. AIRs from the FDA are very common for complex medical device submissions.
As Monogram responds to questions and issues raised in the AIR, the company will, in parallel, pursue a submission for its active modality with Outside the United States (“OUS”) clinical data as it continues to work through the AIR for its semi-active system.
Milestones
➢ Obtain regulatory clearance to conduct clinical trials in India with strategic partner Shalby Hospitals, with Indian government regulatory clearance expected in early late 2024 or Q1 2025.
➢ Conduct OUS live-patient surgery trials and submit clinical trial data to FDA, with clinical trials expected to include 92 total knee replacement procedures with a 3 month clinical follow-up.
➢ Seek to obtain clearance for the mBôs TKA System.
➢ Continue exploring domestic relationships.
➢ Continue expanding international relationships (the company will be exhibiting at Arab Health in January 2025).
Closing of Upsized and Oversubscribed $13 Million Public Offering
The company closed on its previously announced equity offering on October 1, 2024. The company sold 5,790,479 units, with each unit consisting of one share of Series D Preferred Stock and one common stock purchase warrant. The warrant allows the holder to purchase one share of the company’s common stock. The company received gross proceeds of approximately $13.0 million (net proceeds of $11.7 million).
Monogram intends to use the net proceeds of the offering to fund general corporate and business purposes, operational needs, and various strategic initiatives, including among other things, new technology development and potential acquisitions.
Dividends on the Series D Preferred Stock are payable quarterly in arrears on or about the 15th day of January, April, July and October, beginning on or about October 15, 2024. The first dividend, which is scheduled to be paid on October 15, 2024, will be $0.033 per share of Series D Preferred Stock.
Valuation and Estimates
Monogram has the potential to deliver strong revenue growth and positive earnings over the next 10 years after commercialization of its robotic system and customized press-fit implants. We believe the company can generate average annual revenue growth in the range of 25%-40% over the next 10 years and improve margins to industry averages over time.
Our primary valuation tool utilizes a Discounted Cash Flow process. Under the scenario described above, our DCF based valuation target is approximately $6.00 per share. Our target price may be conservative as it utilizes a high discount rate of 15.0% due to the unpredictability of earnings, higher prevailing interest rates, and the timeline of commercialization of the company’s products in the U.S.
A peer group of companies (NYSE:SYK, NYSE:ZBH, NYSE:SNN) are currently trading at approximately 4.25x sales on average, with the closest robotic competitor being SYK at 6.15x. This would create a relative value in the range of $4.75-$5.00 using Monogram’s estimated 2027 revenues and discounted back. Using Monogram’s closest competitor’s price/sales ratio, a long-term relative target value would be closer to $8.00.
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