Nephros
Q3 2021
By Manuel Maurício
November 5, 2021
This morning, just before I was about to start writing this update, I thought I’d take a look at what I had written before about Nephros.
I was genuinely convinced that I had written an update to Q2. It turns out that my latest update was, in March !?
I wonder if I should be asking Cogstate to take one of their tests. By the way, you can now take one of Cambridge Cognition’s tests. Just click on Cambridge Cognition’s logo here. I scored 7 out of 10. Do let me know how you scored. (In case you’re wondering why there’s a partnership between Biogen and Cambridge, I must tell you I was also surprised and I’ll be following this lead).
Anyways, Nephros posted results yesterday. Here’s a quick update:
In the third quarter, Nephros’ revenue went up by 21% from the previous year. To be truthful, this tells me very little as last year was a one-of-a-kind year.
What would really make me jump off my seat would be for the revenue to have surpassed the 2019’s levels, but that hasn’t happened yet.
Maybe the Pathogen Detection segment has gone through the roof…
… let me take a look…
…Hmmm…
…Naaaa. The Pathogen Detection segment remains muted.
The management had this to say about the Pathogen Detection segment:
“We believe this relatively young business will see significant growth in 2022.“
They say this because there’s new Water Management Standards coming into effect in January 2022 and with it increased funding to all medical facilities to better manage water screening and water filtration. This should be a tailwind for Nephros.
So, what about the dialysis segment?
The company has finally filed all the necessary documents with the FDA and is waiting for feedback in the next couple of months.
On my March write-up I said the following:
“as the company stops spending $1.3 Million dollars on R&D for its HDF technology together with higher revenue from the other 2 segments, we should be seeing it turn profitable some day soon“
The company indeed stopped spending on the HDF R&D (yellow bars in the chart below), but it increased its R&D spend on Pathogen detection. Maybe this was related to the recent acquisition of Genarraytion, the company that develops the assays for the detection kits.
Going forward, as the company brought the development of assays in-house, I expect the gross margin to go up, thus helping Nephros reach profitability earlier.
All said and done, Nephros is still loosing money.
At the end of September, Nephros had $7.35 million in cash and a burn rate of around $1.4 million which benefited from working capital adjustments. If we back out these adjustments, the company has a burn rate of approximately $6.5 million so the cash in the bank is enough for roughly 1 year of operations.
If the company isn’t able to ramp up its revenue to somewhere around $15 million dollars (break even point), we’ll likely be seeing it issuing more shares and diluting shareholders.
CONCLUSION
I’m sending an email to the CEO with a few questions that came up during a very nice chat with Rui, one of the All in Stocks subscribers. Rui has a deep knowledge of the pathogen detection industry and was kind enough to suggest some questions for me to be asking Andy. Thank you Rui.
Nephros is still an unproven hypothesis in the All in Stocks Portfolio. It’s like a start-up. It’s all about execution now.
Until the company justifies its current valuation with some strong growth in both the filtration and detection segments, I’ll remain cautiously optimistic and Nephros will stay a small bet in the Portfolio.
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