By Thomas Kerr, CFA
NASDAQ:STSS
OVERVIEW
Sharps Technology, Inc. (NASDAQ:STSS) is a medical device company specializing in drug delivery technology for the pharmaceutical and healthcare markets. The company operates two primary syringe-based platforms which includes pre-filled syringes and smart safety syringes.
In November 2022, Sharps entered into an impactful manufacturing and research agreement with Nephron Pharmaceuticals in which the company’s lineup of pre-filled syringes will be produced in their South Carolina facility. The partnership also involves the distribution of the company’s innovative vial-drawn syringes in the U.S. These innovative safety syringes are manufactured at Sharps recently acquired and wholly-owned manufacturing facility in Hungary.
In July 2022, the company completed the acquisition of a large manufacturing facility in Hungary which will produce low-waste safety syringes. Sharps Technology’s smart safety syringes are designed to eliminate accidental needlestick injuries, prevent needle reuse, and significantly reduce wasted vaccines and medicine while retaining the intuitive simplicity of traditional syringes.
With the purchase of the Hungary facility and the strategic Nephron partnership, the company is well positioned to move from a pre-revenue research & development start-up to a true manufacturing company that should generate material revenues in 2023 and beyond.
In April 2022, the company completed its initial public offering (IPO) in which the company sold 3,750,000 units at a price of $4.25 per share. Each unit consisted of a share of common stock and two warrants to purchase one share of common stock each with an exercise price of $4.25. Gross proceeds were approximately $16.0 million (net proceeds $14.2 million).
The company was founded in 2017 and has spent the majority of resources since inception in research and development efforts related to its two syringe platforms. The company is led by a strong management team with extensive experience in drug delivery manufacturing and product development.
TRANSFORMATIVE PARTNERSHIP WITH NEPHRON PHARMACEUTICALS & PREFILLABLE SYRINGES
Sharps has developed a premium alternative solution to glass syringes through the use of inert polymers such as Cyclic Olefin Polymer (COP) and Cyclic Olefin Copolymer (COC), offering a high-quality solution as compared to traditional glass syringe systems. These polymer syringes have many of the same characteristics as current pharmaceutical glass designs to support long term drug stability and increase shelf life for customers in the pharmaceutical segment. Polymer syringes can also be made into custom configurations, which can eliminate breakage, minimize dead space, reduce contamination, and support the development of custom devices, including autoinjectors.
In November 2022, Sharps finalized an agreement with Nephron Pharmaceuticals Corporation, a market leading private healthcare company, which Sharps believes will provide multiple revenue growth opportunities. This agreement provides four key growth drivers for Sharps.
1) Manufacturing Agreement: The manufacturing and supply agreement with Nephron is focused on developing and manufacturing high value prefillable syringe systems which are in high demand by the healthcare industry and specific pharmaceutical markets. Sharps’ product commercialization is expected to begin in mid-2023 and includes a pipeline of several PFS products based on size and specialized features. The company announced the advancement of these products on January 10, 2023.
The PFS syringe lines will utilize highly automated manufacturing equipment and controlled environments established by Nephron. These products will be compliant with industry standards and compatible with market leading fill/finish technologies recognized in the US and around the world. The products that Sharps and Nephron will co-manufacture and commercialize are designed to provide solutions to support Nephron’s current strategies and their pipeline of new drug applications. This strategy supports both branded pharma and advanced therapies including ophthalmic and biologic applications. Sharps’ expertise in pharma fill/finish processes and equipment and strong connections with suppliers and the pharmaceutical industry are the basis for an effective market strategy in partnership with Nephron. Initial capacity from this arrangement is expected to be approximately 20 million units annually.
2) Pharma Services Program: The company’s collaboration with Nephron includes the creation of a Pharma Services Program (PSP) designed to support healthcare customers that need innovative solutions and products to support their business. This program will create new business development growth opportunities for both companies. These opportunities for Sharps will include the development and sale of next generation drug delivery systems for Nephron products, the healthcare industry, and pharmaceutical markets. The development of the program will help create new fill/finish project opportunities that will utilize innovative packaging solutions developed by Sharps. These new customer projects will help create a future pipeline of growth for both companies working together. Initial confidential projects have been identified and will be further developed through the collaboration efforts of Nephron and Sharps. The opportunity to create new innovative technologies to support Nephron and the healthcare industry is transformative for the company and provides a pathway for long-term growth.
3) Distribution & Sales of Sharps Smart Safety Syringes: The agreement also allows for Sharps Technology to utilize Nephron's sales and marketing teams to further support the sale of the company’s innovative products to targeted customers within the Nephron customer network. Nephron’s customer network includes a reach of more than 3,000 customers through a combination of direct and online sales through their web-based electronic portal system. This hybrid sales environment will allow for targeted marketing plans for the different types of customers within the network. Sharps will support the sales strategy with customer product in-servicing to facilitate specialized customer opportunities, which include the development of custom drug delivery solutions and private labeled product configuration needs.
4) Manufacturing Expansion: The company also is working with Nephron on plans for future expansion. To further support the planned growth for the Pharma Services Program, the company is discussing the plan to expand US operations in South Carolina with the collaboration of NPC. This expansion is currently focused on the construction of an additional manufacturing facility, located on the Nephron campus, that would center on the manufacturing of specialized drug delivery platforms. Through this plan of accelerated expansion, the company believes they will be able to deliver increased capacity, driving growth and profitability for their high value products segment of the business.
SAFETY SYRINGES
The company’s Hungary manufacturing facility has the capacity to produce 50 million vial-drawn safety syringes in 2023 and can be expanded to produce up to 200+ million syringes. Ultra-low waste and low waste syringes have become the preferred system for the administration of many vaccines and injectable medications. Sharps is currently producing innovative proprietary technology to serve this growing market.
Additionally, both active and passive safety capabilities are those most often requested features by clinicians in order to avoid infectious needlestick injuries and prevent the reuse of syringes. The company’s suite of safety features are designed to work with vial draw syringes and can be incorporated into prefillable systems largely used by the pharmaceutical industry. The Sharps Ultra-Low Waste smart safety syringes automatically engage safety and non-reuse features when the injection is given to the patient.
Independent testing has measured the typical waste space found in commonly used hypodermic syringes to exceed 50 microliters, with several types resulting in waste space in excess of 100 microliters. The Sharps lineup of safety syringes has less than 20 microliters of waste space. When typical waste space syringes are used, vials generally need to be overfilled to accommodate this higher waste. Sharps low waste products can significantly reduce the need for overfilling. If utilized during the pandemic, Sharps technology could have immunized up to 40% more patients, resulting in 75 million additional injections during the first few critical months, with no added production or costs for the vaccine manufacturers or sponsoring distribution programs.
Sharps low waste smart safety syringes have been designed to address three major issues in the industry:
1) Accidental needlestick injuries in which the clinician is stuck with an infected needle. According to the WHO, these accidents likely take place in excess of 2 million times per year. A recent analysis showed that 55.1% of healthcare workers had sustained a needlestick injury at some point in their career. Over one million healthcare worker needlestick injuries are documented each year in the US and Europe and over 3 million worldwide although the true incidence rate is believed to be more than double those numbers as half of injuries go unreported.
2) Certain types of syringe formats have a high “dead space” which permits the accumulation of injectable medications that cannot be accessed for patient therapy and are thrown away after each injection. Without knowing what syringe is going to be used, pharmaceutical companies must overfill their vials to ensure proper dosages and account for this waste. For difficult to manufacture injectable medications, this reduces the number of lifesaving doses which could be made available to the public. When a therapeutic dose is extremely small, waste space can exceed the required dose and that means more medication is being thrown away than delivered to the patient.
3) Needle reuse is a worldwide problem, particularly during difficult times when demand for syringes outpaces supply and manufacturing capabilities. Sharps portfolio of safety syringes incorporates reuse prevention features eliminating the risk of potentially deadly cross infections from previously used syringes. Reuse prevention isn’t just a responsible idea, but also a product requirement for the World Health Organization (WHO) in order to supply syringes to the countries it supports and services.
OPPORTUNITY & ADDRESSABLE MARKET
The addressable market for both prefilled syringe solutions and low-waste smart syringes is large and expected to grow at above industry average rates. Over the last 20 years, the pharmaceutical syringe operational model has shifted from the use of glass vials and bulk disposable syringes to next generation prefillable syringes, increasing prefillables from 15% to 85% share. This has contributed to market expectations of $15.7 billion in revenue for 2030 from $5.6 billion reported in 2020 for prefillables. The global market for smart syringes is estimated to be approximately $7.0 billion in 2023 and is projected to increase to $11 billion by 2030.
The World Health Organization has forecasted a shortfall of 1-2 billion syringes over the next several and there is an increased demand for low waste space syringes which is being driven by low dose vaccines such as Covid-19. All of the company’s products include ultra–low waste space and are auto disabled which are required by the WHO in order to prevent the improper reuse of the needle and syringe.
The company has expanded the product line for the Sharps Provensa smart safety syringes to facilitate the use of fine needles (e.g. injectable cosmetics, local anesthetics, and the ethical self-injecting market) with safety features on demand. These new designs can be used by the pharmaceutical and related industries as a prefillable syringe.
What does the Nephron agreement bring to Sharps in terms of manufacturing capacities? The Nephron agreement will encompass approximately 100,000 square feet and will have initial capacity of 20+ million units, with additional capacities that can be scaled by 2025 with an additional 100 million units annually. PFS products to be launched at this facility include a broad range of sizes, silicon free systems that address contamination issues for the broader healthcare market, dual chamber systems that improve drug shelf life while reducing unnecessary packaging, and customized solutions for systems that serve the growing autoinjector segment. PFS products to be launched at this facility includes, or will include volumetric delivery of 1.0, 2.25, 5.0, 10.0 and 50.0 milliliters including dual chamber systems.
FINANCIAL REVIEW
Sharps is currently in pre-revenue stage year-to-date in 2022 as commercialization and marketing of their products will not commence in scale until 2023. For the first nine months of 2022, research and development expenses were $1.5 million and general and administrative expenses totaled $4.4 million. Operating use of cash for the first nine months of the year was $4.4 million and cash used in investing activity was $2.9 million. This includes $580,000 in capital expenditures and $2.4 million for the purchase of the Hungary manufacturing facility. Net proceeds from the company’s initial public offering were $14.2 million. The company has a clean balance sheet with $6.4 million in cash and no debt as of September 30, 2022.
The company’s quarterly burn rate is approximately $1.5 million however we expect the company to generate substantial revenues in 2023 which would diminish or eliminate the cash burn. It’s possible the Hungary facility could generate safety syringe revenues in the $10-$12 million range next year. In addition, the Nephron partnership in South Carolina could generate pre-filled syringe revenues in the range of $5.0-$7.0 million in 2023.
We believe the company is funded to support planned operations through 2023 without the need to raise additional capital. However, the company may raise capital to invest in manufacturing expansion at the Nephron facility although project payback on these developments are expected to be short-term.
MANAGEMENT
The company is led by CEO Robert Hayes who joined the firm in September 2021. Before joining the Company, he served as Senior Director of Product Management and Innovation and other roles with Gerresheimer Pharmaceutical Glass from 2010 to 2021 where he led commercial sales and strategic partnerships with top global healthcare companies. He has over 25 years’ experience in the healthcare, medical device, and pharmaceutical manufacturing industry.
Alan Blackman is a co-founder of Sharps Technology and is currently the Chief Operating Officer. Beginning in December 2016 and prior to Sharps Technology, he began working with Barry Berler, the inventor of what is now the Sharps Provensa Ultra-Low Waste smart safety syringe. Prior to his involvement with Sharps Technology, Mr. Blackman was an investor in the medical device industry. His medical device experience has included cold sterilant technology, infra-red technology for the diagnosis of deep vein thrombosis, programmable cardiac event monitoring, doppler technology and specialty sutures.
SUMMARY
We believe Sharps Technology is currently well positioned for profitable growth after its transformative agreement with Nephron Pharmaceuticals and the acquisition of its Hungary based manufacturing facility. The addressable markets for prefillable syringes and low-waste safety syringes are on a global scale and demand for these important medical device solutions is growing. The company also has a deep product pipeline consisting of new advanced features and additional sizes of both its prefillable and safety syringe lineup.
Robert Hayes, Sharps Chief Executive Officer, recently stated: “Following years of research and development, Sharps is now in a position to commercialize and support the future of specialty syringe drug filling technology. The opportunity to advance our product and manufacturing strategy to include high-value prefillable syringe products will significantly accelerate our revenue growth for 2023 and beyond. The launch of these products could not come at a better time to support a market that is in demand for products produced in the US that provide speciali
zed solutions for customers that need options for their drug-filling operations. We look forward to providing updates as we commence manufacturing in South Carolina and introduce our new products to the market.”
We do not believe the company’s current market capitalization of $13.0 million reflects the shareholder value that can be created with profitable growth going forward. The year 2023 should be a breakthrough year in terms of revenue growth and new product offerings.
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