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Aurora Spine (OTCQB: ASAPF) is a recession-proof business offering solutions for some of the 80% of Americans who will suffer from back pain at some point in their lives. The company has transitioned from a third-party reseller to a developer and manufacturer of its own minimally invasive spinal implant products. While most microcap companies offer just one product, Aurora offers three major product lines; DEXA, SILO, and ZIP, that are transforming Aurora from a story stock to real success.

The stock price is down 55% since my initial article "Aurora Spine Is Shifting to A Higher Gear" was published a little over a year ago. Investors taking a quick look at the company's reported numbers will miss that the company's progress was obscured by Covid-19, causing elective surgeries to be postponed.

Revenues for 2022 Q1 were a company record, and in the first quarter where the company's new products were higher than previously reported third-party sales. I anticipate triple-digit revenue growth and profitability this year, attracting new investors and rerating the stock price.

Aurora was granted a patent for DEXA technology in October 2020. The technology is used to determine a patient's bone density which is then matched in implant devise material to improve fixation and promote healthy bone growth, as described in this study. In August, the company received FDA 510(k) clearance for its newest commercial product, DEXA-C, a cervical cage with bone density matching. DEXA-C was commercially available on a limited basis in 2022 Q1. Just two doctors were involved, but it accounted for almost 8% of total sales.

DEXA is the only commercially available solution for doctors that prefer to use the patient bone density information for a customized medical implant. The company plans to develop its unique and patented DEXA technology into a platform for multiple devices that Aurora will develop and market as well license to third parties for uses outside of its core competency.

DEXA technology has the potential to be a sales leader as the company intends to apply DEXA versions across all of its product lines, including SILO and ZIP. The next DEXA device Aurora intends to market is DEXA-L for lumbar support, currently pending FDA clearance.

Aurora has a co-marketing agreement with Echolight Medical, an instant bone assessment data provider to drive organic product sales, as well as third-party licensing deals for products such as a knee replacement implant device that has already been developed.

The SiLO-C is an allograft device that fuses the pelvis to the joint, requiring no screws, just one small incision, and less than one-hour for installation by minimally invasive surgery on an out-patient basis. SILO-C sales began in March and increased 35% on a sequential quarterly basis for fiscal 2021. SILO sales continued on a solid growth pattern, with a 26% increase reported for Q1 2022 over Q4 2021. The first quarter is historically the slowest quarter for elective surgeries, so the increase rate for SILO promises to accelerate in the subsequent quarters.

Aurora's non-allograft titanium device named SILO TFX is pending FDA clearance. The SILO TFX is a potential game-changer as it requires just one incision and one device and will compete against SI-Bone's (SIBN) market share leading device, which requires three incisions and three devices. Fewer incisions lower the cost and time of the surgery and reduce pain and the rehabilitation period for the patient.

The SILO TFX may eventually replace the SILO. It is unknown how long the allograft material will last, but it certainly will not hold up as long as titanium. The SILO TFX also provides more stability and control as it is implanted with two screws while the SILO is screwless.

CEO Trent Northrup shared in a recent conversation that he has compiled a waiting list of doctors interested in using the TFX device as soon as it is cleared by the FDA, which is expected in June.

Aurora's first organic product, ZIP, gained FDA 510-K clearance in 2013 and became commercially available in 2014. Zip is used for patients suffering from the abnormal movement of the spine resulting in physical impairment and pain due to degenerative disc disease, spinal stenosis, spondylolisthesis, and lumbar problems. A doctor places the device where the spine is unstable. The Zip is minimally invasive, requiring no medical screws and just one incision, and is an alternative to intensive surgeries that require hospitalization and a more extended recovery period.

ZIP sales have experienced robust revenue growth and margin expansion while moving away from a dependence on third-party product sales to organic product sales. Sales of the Zip device grew at a 79% pace for Q1 2022 compared to Q1 2021.

Aurora began commercial operations about ten years ago, selling third-party surgical products, mostly pedicel screws, while the company developed its own minimally invasive products. Organic products are now 70% of sales, supported by research, education, targeting a nascent market, and insurance reimbursement and production improvements.

ZIP, SILO, and DEXA all carry high-profit margins. The Zip device costs $400 to manufacture and sells for about $6500, while the SILO device production cost is $500, and the sale price is approximately $9,000. Price information for DEXA-C has not been provided; however, I estimate it to cost about $300 to produce and carry a sale price of $4000. The DEXA-C device includes a plate and screws, bringing the sales price to $5000.

SI-Bone has been involved in about 65,000 minimally invasive spine surgeries and has yearly revenue surpassing $100M, but they've penetrated only about 10% of the $2.5 billion U.S. market opportunity. Aurora has, arguably, better products that are being well received by the marketplace, creating a large enough opportunity to gain market share, if not market leadership.

Aurora's 20% sequential quarterly revenue growth rate should continue at the same pace or better for at least the rest of this year. I think that a full rollout of DEXA-C and the introduction of new products are likely to accelerate the growth rate, but to be conservative, applying the 20% growth rate results in revenue for 2022 of almost $19M and a gross profit of about $5M.

There are about 67 million shares outstanding. The market cap is $20.5 million. The company recently reported $1.4 million in cash and $3 million in debt. I expect the company will be profitable this year and able to fund operations. Still, there is a possibility that a capital raise may be needed to support additional production as demand picks up.

$19M in revenue results in a price to sales ratio of 1x. A profitable medical device company growing revenue at an 80% or higher rate should command a P/S ratio of at least 2x or even 3x.

Competitors such as Medtronic (MDT), Stryker (SYK), and Alphatec (ATEC) are much larger and have more significant resources. There is also a good chance that a larger player will look to acquire Aurora before it has an opportunity for the stock price to blast off. The larger medical device companies acquire technology to a greater extent than developing it independently.

SI-Bone has exclusive contracts with some major insurance carriers such as United Healthcare for some minimally invasive spine surgeries. Aurora will need to develop its exclusive relationships.

Pending clinical studies will be critical because the results are evidence of product claims.

The company's products, particularly DEXA, are brand new, and there is very little sales history.

The company's early success in sales of ZIP and SILO will be enhanced by introducing the one-of-a-kind DEXA technology. The DEXA technology is being developed into a platform for organic products and third-party licensing. Any company interested in matching implantable devices to a patient's bone density will have to work with Aurora. The Silo TFX is another potential game-changer as it offers superior attributes to the market-leading SI joint minimally invasive implantable device.

The stock is currently selling at a low market multiple, which should rerate as the company reaches profitability and continues its strong growth, as I expect will be the case this year.

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Disclosure: I/we have a beneficial long position in the shares of ASAPF either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.