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Three emerging medical device companies

Pro Medicus (PME) and Nanosonics (NAN) have been winning a lot of headlines – the former for its world beating Visage file compression and streaming technology used by radiologists, and Nanosonics for Trophon, a product that is used to disinfect ultrasound probes. Investors have been keen to back them, and while both stocks have pulled back from recent highs, they look fairly fully priced. Here are three emerging medical device companies to consider.

AVITA Medical (AVH, $5.00)

Market capitalisation: $124 million

Five-year total return: 128.5% a year

Analysts’ consensus target price: $9.11 (Thomson Reuters)

Regenerative medical company AVITA Medical (AVH) produces and distributes the RECELL system. It was developed by plastic surgeon Professor Fiona Wood at Royal Perth Hospital to treat burns patients, takes a small sample of the patient’s own skin, from which, using a proprietary process, AVITA prepares a “suspension” of skin cells, which is then sprayed onto areas of the patient requiring treatment and regenerates natural healthy epidermis. The beauty of the RECELL process is that because skin cells contain information to “know” what a person’s skin should look like – for example, facial skin cells “know” that they are facial skin cells – they can signal and recruit other cells, including nerve cells, to come in.

The technology is better than the current standard-of-care for burns, which is the skin graft: the US Pentagon, which has helped AVITA with sponsoring trials, and has used RECELL to treat personnel wounded in Afghanistan, describes it as offering a possible “paradigm shift” in skin injury treatment. Apart from burns, RECELL also has applications in other skin related areas such as chronic wound care (trauma, ulcers), plastic surgery, vitiligo (an auto-immune disease that results in a loss of colour or pigmentation in patches of skin), aesthetics uses (for example, skin rejuvenation) and tattoo removal. Because RECELL uses the patient’s own skin, the body will not reject the treatment. The RECELL system was approved by the US Food & Drug Administration (FDA) in September 2018. In June this year, the company received FDA approval for expanded use of RECELL for paediatric patients.

The main reason why you would buy – or stay on – AVITA is the prospect that RECELL becomes the “standard of care” in how large burns are treated in the US, with the bonus of AVITA extending the reach of the RECELL platform technology into areas such as vitiligo, paediatric scalds, wound care, soft-tissue reconstruction (for example, after car accidents), cancer reconstruction and regenerative dermatology, for example, anti-ageing treatments. In August, AVITA reported that the FDA approved the company’s request to amend its pivotal clinical trial investigating RECELL’s application in vitiligo lesions, to bring-in data from its other research programs and speed-up the trial.

AVITA is another great Australian biotech story – although it has re-domiciled to the US – and longer-term, analysts and quite a few fund managers are very bullish on its prospects.


PolyNovo (PNV, $1.96)

Market capitalisation: $1.3 billion

Five-year total return: 48.1% a year

Analysts’ consensus target price: $2.50 (Thomson Reuters), $2.62 (FN Arena)

Coming out of research from the CSIRO, PolyNovo is aiming at a similar market to AVITA, but with a different technology. PolyNovo’s NovoSorb Biodegradable Temporising Matrix (BTM) technology is a lattice-style device to treat serious burns and other major wounds: it is a 2-millimetre-thick biodegradable polymer foam wound scaffolding that has three layers: a sealing membrane, a bonding layer and the foam scaffolding that enables integration.

NovoSorb provides a ‘home’ for cells to migrate and disrupts the ability of collagen protein fibres to form knots and bundles. It is placed on the wound area where it forms a closed protective zone, temporarily closing the wound and helping the body to generate new tissue. After use, the material biodegrades and is excreted either through urine or respiration. The material can be produced as a fibre, a cardiac stent or films and foams.

PolyNovo has FDA approval for NovoSorb and sells it in the US; it was approved for sale in Europe in December 2019. The company says it has a US$1.5 billion market opportunity in the treatment of full-thickness wounds and burns – but that NovoSorb could easily be extended into the hernia and breast treatment markets, which are even bigger.

The major difference with AVITA is that where the former creates a living layer of skin – a new epidermis – PolyNovo’s product works at deeper layers, the dermis, slightly underneath the skin. PolyNovo’s product is more applicable to deeper wounds.

PolyNovo also looks to have a nice runway for growth.


4DMedical (4DX, $1.58)
Market capitalisation: $418 million
Three-year total return: n/a
Analysts’ consensus target price: $1.70 (Thomson Reuters)

Imaging company 4DMedical (4DX) surged on to the ASX screens in its August 2020 float, with the shares, issued in the prospectus at 73 cents, opening for trade at $1.47. 4DX reached $2.60 in October 2020, but more than halved subsequently, plumbing $1.19 in May 2021.

4DMedical aims to disrupt the respiratory diagnostic imaging market with its unique four-dimensional lung imaging technology, XV Lung Ventilation Analysis Software (XV LVAS), which maps and measures lung motion and air flow by converting sequences of X-ray images into four-dimensional quantitative data. The 4Dx technology accurately and quickly scans lung function as the patient breathes, to provide sensitive, early diagnosis and to monitor changes over time. At the heart of the process is a proprietary technique 4DMedical has developed, inspired by wind-tunnel technology, which combines fluoroscopy and advanced visualisation to generate high-resolution images of the motion of, and airflow through, lung tissue.

In May 2020, the XV LVAS technology received 510(k) clearance from the FDA, following a major confirmatory clinical trial of the XV Technology, conducted at Cedars-Sinai Hospital in Los Angeles, California. The clinical trial showed that XV gave clinicians much more detailed information than the commonly used pulmonary function test (PFT) and computed tomography (CT) imaging methods, confirming 4Dx’s belief that the unique and non-invasive XV technology enables unprecedented insight into pulmonary functioning, which is critical in the analysis and treatment of respiratory diseases.

The clinical trial demonstrated that XV not only matched the performance of current ‘gold-standard’ measures and other clinically available measures, but it was also more predictive than other measures in assessing the onset of conditions such as radiation-induced pneumonitis and/or pulmonary fibrosis.

In addition, the trial found that XV was clearly superior to the major incumbent testing technologies, PFT and CT, in detecting loss of regional lung function associated with early-stage disease progression, both in terms of sensitivity to structural changes in the lung (where it was compared to CT) and in standard lung function tests (where it was compared to PFT.) 4DMedical says XV is a break-through medical technology and a potentially world-changing advance in better and more timely diagnosis – and thus, improved treatment outcomes – for all lung disorders, including asthma, chronic obstructive pulmonary disease (COPD), cystic fibrosis and cancer.

4DX has the technology in eight separate clinical trials, and three clinical pilot programs, in Australia and the US. Earlier this month it announced the successful completion of Phase One of a clinical pilot program with Australia's leading medical imaging provider, I-MED Radiology Network (I-MED), whose radiologists have been using XV LVAS in patient settings, on respiratory diseases including asthma, COPD, bronchiectasis, sarcoidosis, silicosis and “long COVID.” The company says Phase One of the trial resulted in “overwhelmingly positive feedback from I-MED radiologists and patients.”



All prices and analysis at 6 October 2021. This information was produced by Switzer Financial Group Pty Ltd (ABN 24 112 294 649), which is an Australian Financial Services Licensee (Licence No. 286 531This material is intended to provide general advice only. It has been prepared without having regard to or taking into account any particular investor’s objectives, financial situation and/or needs. All investors should therefore consider the appropriateness of the advice, in light of their own objectives, financial situation and/or needs, before acting on the advice. This article does not reflect the views of WealthHub Securities Limited.

About the author
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James Dunn , Switzer

James Dunn is an author at Switzer Report, freelance finance journalist and media consultant. James was founding editor of Shares magazine, and formerly, the personal investment editor at The Australian. His first book, Share Investing for Dummies, was published by John Wiley & Co. in September 2002: a second edition was published in March 2007, and a third edition was published in April 2011. There have also been two editions of the mini-version, Getting Started in Shares for Dummies. James is also a regular finance commentator on Australian radio and television.

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James Dunn


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