Today’s full results for the 18 months to December from Creo Medical Group (LSE: CREO) told the story of a firm with lots of growth potential.
Operations are aimed at the medical device market and particularly the “emerging field” of surgical endoscopy. The directors asserted in the report that during the 18-month period, the firm made “considerable progress” developing its Speedboat device for use in Gastrointestinal (GI) therapeutic endoscopy, which is the first in a “suite of products” being developed for the CROMA Advanced Energy platform.
Still loss-making and revenue-free
It all sounded exciting and the directors reckoned operations have been moving along the path to commercialisation, but so far, the company has been losing money. Indeed, there was an underlying operating loss of £12.6m in the period, which compared to a loss of £5.6m for the prior 12-month period to June 2017.
As with all early-stage, loss-making enterprises, the big question is, will operations start to generate an income before the firm’s cash runs out? On that score, the news was positive. In August 2018, a placing of new shares raised £48.5m before expenses and has “substantially strengthened” the balance sheet with the firm reporting cash and cash equivalents of £44.6m at the end of the period, up from £13.7m in June 2017.
The directors now intend to accelerate physician training and the commercial rollout of the firm’s products “internationally” over the next few years. The race is on, but which will come first: meaningful operating cash inflow, or an empty bank account? There seems no doubt that the share remains speculative. If things click operationally and Creo Medical starts to generate decent revenues, shareholders could do well. But if the cash runs out before that happens, shareholders could suffer significant dilution or even total loss of their investment.
Chief executive Craig Gulliford seemed optimistic in today’s report saying that the company has established a solid platform for future growth and the directors look forward “with confidence to another exciting year in 2019.” However, he also owned up to not underestimating the challenge of changing the structures required to roll out the company’s system, or of gaining regulatory clearance for the other devices in the pipeline. But feedback from clinicians seeing the product in use has been positive.
However, I’d point out that, although Creo Medical’s Initial Public Offering was during December 2016 when it arrived on the stock market, the company was founded in 2003. So it’s been in the product development stage for a long time. Maybe we are indeed close to commercialisation. Chief financial officer Richard Rees believes so, saying in the report that the recent placing provided Creo Medical with the long-term platform to enable the further development of “multiple products through to commercialisation.”
Nevertheless, Creo Medical remains a jam-tomorrow proposition and carries high risks for investors. I’m looking for jam-today that comes with ongoing potential, so I’ll look elsewhere.
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Kevin Godbold has no position in any share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.