Zacks Small Cap Research – MGRM: Monogram’s Potential for Profitable Long-Term Growth Supports Price Target of $6.00 – Technologist

By Thomas Kerr, CFA

NASDAQ:MGRM

READ THE FULL MGRM RESEARCH REPORT

Monogram Technologies (NASDAQ:MGRM) reported 1st quarter 2024 results on May 14th which were largely in line with expectations. Research and development expenses for the quarter ending March 31, 2024, were $2.4 million compared to $1.9 million in the prior year period. The R&D increase was primarily due to the company moving into the verification and validation phase of its robot prototype. This phase is expected to be mostly complete in the 1st half of 2024. Also contributing to R&D expense was the introduction of mVision technology during the quarter.

General & administrative expenses for the 1st quarter were $1.1 million compared to $0.8 million in the prior year period. The increase was primarily due to increases in consulting fees, insurance and regulatory compliance and professional fees. Marketing and advertising expenses decreased to $119,694 in the quarter compared to $1.1 million in the prior year period. The company incurred a high level of marketing and advertising expenses in the 1st quarter of 2023 which were related to its common stock offering in May 2023.

Net loss for the quarter was ($3.5) million compared to a net loss of ($3.9) million in the prior year quarter. Operating cash flow was a use of cash of ($3.6) million. We expect the monthly burn rate to be approximately $1.0 million for the remainder of 2024.

Cash and cash equivalents totaled $10.1 million as of March 31, 2024, compared to $13.6 million as of the end of 2023. Working capital was approximately $8.7 million and total stockholders’ equity was $10.2 million. The company plans to continue to try to raise additional capital through available financing options which may include equity and/or debt offerings, as well as straight or convertible debt financings.

Upcoming 2024 Milestones

➢ The company expects to largely complete mBôs system verification and validation process in the 1st half of 2024.

➢ The company then plans to submit its 510(k) application to FDA at some point in the 2nd half of 2024. The time frame for FDA clearance and the commencement of commercialization of the system in the U.S. could be in the 6-9 month range following submissions.

➢ The company has previously announced progress towards Outside the United States (OUS) live-patient clinic surgery trials for its platform (see below).

➢ The company hopes to expand its international relationships in the form of partnerships and other collaborations.

Contract Research Organization Hire for OUS Clinical Trial

On May 13, 2024, the company announced it had engaged a global Contract Research Organization (CRO) to oversee its clinical trial activities for its mBôs Total Knee Arthroplasty (TKA) system and to represent its submission to the local regulators outside of the U.S.. The international CRO has extensive experience and successful FDA submissions from clinical investigations conducted Outside the United States (OUS).

Ben Sexson, Chief Executive Officer of Monogram stated, “Partnering with a CRO expands our capabilities and will accelerate our product pipeline for the next-gen mBôs system. We were encouraged by the recent formal FDA feedback on the clinical trial protocol and verification plan. After integrating FDA feedback and finalizing the application, our partners at the CRO will submit it to the local regulators. We continue to expect verification and validation to be largely complete in H1 2024, with a planned FDA 510(k) submission in H2 2024. We plan to leverage the clinical data from the OUS study for post-launch marketing and to support international clearance and commercialization.”

Regulatory Update

On April 19, 2024, Monogram received written feedback from the FDA regarding the company’s 1st quarter 2023 pre-submission request. Monogram then conducted a teleconference meeting with the FDA on April 24, 2024 to discuss the written feedback further and obtain feedback on the Monogram mBôs™ TKA System verification test plan, which includes a proposed clinical trial protocol on an OUS target population. Management believes the feedback was comprehensive and will be advantageous for preparing a successful 510(k) submission to obtain clearance.

The company shared with the FDA various test protocols essential for establishing the safety and effectiveness of the Monogram mBôs™ TKA System. The company also shared a synopsis of its proposed OUS clinical investigation plan with the FDA.

Based on the feedback, management assessed that:

1) the proposed testing plan generally appears acceptable to address the technical differences identified with the proposed predicate device; and

2) a clinical testing plan that includes approximately 100 knee surgeries conducted on an OUS population at three sites with three months of follow-up should generally be sufficient for evaluating the safety and effectiveness of the Monogram mBôs™ TKA System.

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.

Our 2024 full year EPS estimate is a loss of ($0.40) and for 2025, the EPS estimate is ($0.46). We are conservative in our approach to revenue projections and expect no revenues in 2024 and $5.7 million for 2025.

A peer group of companies (SYK, ZBH, 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 $6.00.

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