Surgical thinks small as sales demand driven by patient vanity

Leeds-based Surgical, which makes instruments for keyhole surgery, has reduced the size of its devices from 12mm to just 3mm which means the holes left from surgery are so small they close up without leaving a scar.

Surgical’s chief executive Graham Bowland (pictured) said the days of creating one big hole that leaves a sizeable scar are coming to an end.

“Surgeons are creating three tiny holes which are just 3mm each hole. Our challenge was to make the instruments small enough and strong enough to do the job and we’ve done it.

“With this type of surgery big livers have to be moved back and our PretzelFlex device can do that at just 3mm. It’s very clever.”

Surgical recently received US regulatory approval for its PretzelFlex keyhole device. The instrument has a flexible pretzel shape to keep organs out of the way during surgery.

The most common laparoscopic (keyhole surgery in the abdomen) operation is gall bladder removal, followed by obesity surgery such as stomach stapling and gynaecological operations such as hysterectomies.

Surgical’s chairman Doug Liversidge said while cosmesis (the cosmetic aspect of surgery) is driving sales of the new 3mm instrument range, the other factor is safer surgery which is less invasive.

He was speaking yesterday as Surgical announced a 10 per cent increase in pre-tax profits to £1.7m for the year to December 31, in line with expectations.

Group revenues rose eight per cent to £7.6m.

Analyst Eric Burns at WH Ireland said: “The prelims were bang in line with both consensus and our own expectation and conclude a year of transition for Surgical.

“Encouragingly, revenues from core branded and OEM (original equipment manufacturer) products saw growth of 18 per cent which, stripping out the one-off windfall industrial contract in the comparative period, is much more representative of the underlying growth profile of the business.”

Mr Burns said he remained a buyer of the stock although he reduced his share price target from 15p to 13.5p to reflect a 10 per cent downgrade to top-of-range current year forecasts.

The market took note and Surgical’s shares closed down 0.6p at 10.12p.

In addition to sales of 3mm instruments, Mr Bowland said growth in demand for “resposable” instruments will drive sales.

Resposable instruments have elements that are re-usable while others are disposable and work on much the same basis as a razor (reusable) and a razor blade (disposable).

“Resposable has grown by 38 per cent,” said Mr Liversidge. “It’s a way of generating good profits and we’ve got a lot of confidence in resposable.”

Growth is being driven by strong US demand where the opportunity to save money by not throwing the whole instrument away is proving attractive.

European demand has weakened since last September due to a reduction in elective surgery as Governments struggling with the eurozone crisis have stopped funding surgery.

The US currently accounts for around a quarter of sales, but Surgical believes this could increase to 40 to 50 per cent.

Following the success of its instruments in laparoscopic surgery, Surgical now wants to move into other areas.

Hip arthroscopy (minimally invasive surgery to treat problems with the hip joint) will be the first new market.

“We are working on the hip market with various surgeons,” said Mr Liversidge. “We will launch devices in the second half of 2012 and we aim to generate revenues in 2013.”

Once Surgical has cracked the hip market, it will look at the spinal market.

Other possible areas are the heart, brain and lungs.

Mr Liversidge said Surgical is planning considerable growth over the next few years.

“I’m preparing this company for going up a league, up to the Premier league. I can see we have very strong prospects for growth. The market opportunities are significant and our financial situation is very sound.

“Over the next three years we will be a much more significant company in terms of value,” he added.

The group is not currently looking at acquisitions, preferring to focus on organic growth.

No dividend was paid and Mr Liversidge said that at this stage in the group’s development it is more appropriate to focus on “strong inward investment”.

Analyst Mike Mitchell, at house broker Seymour Pierce, said: “The business continues to deliver, and we note management comments that first quarter trading is in line with expectations.

“Exciting opportunities exist with PretzelFlex, the 3mm instrument range and hip arthroscopy. The combination of product innovation (new products for 2012 include the Optical Trocar and L Hook), robust manufacturing processes, multiple routes to market (we note progress in Asia) and an enviable clinical advisory board underpin the commercial activity of the group.”

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