Thanks for taking the time to contact Kilmer. Excellent post. It has been my opinion since this rapid decline began that it was likely to be the result of institutional selling. However, like most individual investors I tend to always climb a wall of worry. Again, thanks for such a high quality and timely post.
Thanks very much Von. I read the Stryker submission to the FDA and they are bundling existing technology and claiming it is similar in nature to ISRG's "Imaging Vision System" which has already been approved. They submitted it to the FDA Nov 4, 2014 and received on Dec 2, 2014. The clearance was based on existing technology and predicate devices that predated the May 28, 1976 enactment date of the "Medical Device Amendments"...its old technology bundled together that has already been evaluated and approved for ISRG---not patented.
All of the above means to me the Stryker is going to attempt to commercialize the existing "commodities" that have been around for 30 years only through bundling the "white light" system with a second "Indocyanine Green" chemical injection (kit) and a second IFR "near infrared light" exciter, to be able to capture blood profusion. They don't have the ability to overlap these two images as NVDQ has a patent on that "multiphase laser light simultaneous transmission technology" thus Stryker must "toggle" back and forth between for their product. Also the color indications of the PINPOINT for different tissue and fluid flows is a software derived image and it too is patented. I agree as an engineer with the assessment made by Steve above. Novadaq's patented software hardware combinations will render Strykers product like looking at HD 3D color versus a flat mono-color screen hard to sell to surgeons. If NVDQ could enhance their PINPOINT, LUNA and SpyElite images with "zones of likely successful blood profusion", a combination of quantitative and qualitative measure of statistical / historical surgeries and their outcomes, it would put Stryker out of the picture. I believe NVDQ has been working on this angle but to get it past the FDA could take a ton of data...maybe years worth.
I very much appreciate Steve's willingness to state that he thinks the recent sell off is probably the work of 1 or 2 institutions selling.
To all my fellow board members~
I spoke with Steve Kilmer, Novadaq's director of investor relations this afternoon.
Here's is what he told me
1. Stryker's entrance into the florescent Imaging market, introduced at SAGES was not a surprise....they have been expecting it since .last year.
2. Pinpoint is a superior product because:
A) the visuals are better
B) Only PInpoint enables surgeons to switch from white light to fluorescent light without the need to switch cameras interrupting the procedure, and forcing surgeons to" remember" the previous image
c) Only Pinpoint has the capacity to overlay local and larger images of the structures
3. Stryker's product doesn't compete with either SPY Elite or Luna
4. He guesses that (1 or 2) institutions may be participating in the selloff.
5. Novadaq's patents make them bullet proof
6. Expect Stryker to postpone their own launch 6-12 months..
The Stryker® IRF Light Source and SafeLight Cable are indicated for use to provide real-time endoscopic visible and near-infrared fluorescence imaging. The Stryker® IRF Light Source and SafeLight Cable enable surgeons to perform minimally invasive surgery using standard endoscope visible light as well as visual assessment of vessels, blood flow and related tissue perfusion.
Inferior product - surgeon has to switch b/w white light and fluorescence imaging - cannot overlay images as PINPOINT does. Also, believe only intended for gall bladder surgery at this point and will not launch until much later this yr.
SAGES conf was all about the SYK product that never launched - all anyone was asking about on NVDQ's mid-west tour last week. Plus topic of PINPOINT purchase deferrals (as a result of people wanting to see the SYK beta) came up - so perhaps people smell defensiveness from mgmt on that and on reinvigorating SPY sales. Why anyone would expect 35-40%+ 1Q15 y/y % growth, I don't know - the guidance was looong ago walked back to something much less w/ more of burden of full yr $65m rev falling on 2H15. 14-day RSI now approaching the mid 20s? Good grief - look at it over 4-5 yrs - can you say...oversold? The washout feels like its very late innings (a la Oct '14) barring anything truly ugly/unexpected on the earnings call.
Thanks for trying Endo. I too am waiting for the 28th. It is very disconcerting but without a preannouncement, I can only think some large or group of large institutional investors are leaving or lightening their holdings---to the tune of 3 to 4 million shares in the last 4 days and today looks like another million share rate as of 11:00. I hope they finish soon if not already have finished.
At these prices, NVDQ becomes a good candidate for a takeover by some other company. GE, MNK, CAH, Q... NVDQ can be easy pickings for any of those.
As with many here, I've seen biotech companies go down even more sometimes in a day. But those situations were almost always the result of really bad news like a bad decision from the FDA. Here we have no news.
These folks are well aware of the need to preannounce serious misses in financial results. They are also aware that a material negative event needs to be reported immediately. We know that a miss on revenues would not cause such a dramatic drop on such heavy volume. We already knew the first quarter revenues were going to be soft. I have sent 2 emails to Kilmer expressing my concerns. Usually I receive an immediate response. One time I actually received a phone call from Arun and we talked generally about the company for nearly an hour. This time, nothing. Not a peep. The 28th cannot get here fast enough for me.
They have to develop the Doplar technology and have marketing developed around an as yet non-existing research and paper portfolio showing its uses and benefits. That should take 2-3 years as this is an entirely new approach. A new field even as a tack on to the existing fluorescent molecular technology will be difficult to convince since the medical community doesn't currently have anything in this realm. Then there is the need to develop and get approval for the cancer binding molecules and all the research papers needed to show both its efficacy and financial benefits. This will take 3-5 years to develop and both of these combined could easily eat up $100-$200 million. They have the business model in mind that incorporates all of these three modes as an integrated and complementary imaging market that currently doesn't exist. It took ISRG 10 years to build their market and it is still expanding. The R&D alone for ISRG from 1999 thru 2009 was $356 million. Add in their marketing and managements time and it could easily exceed $1000 million to build their market and barriers to entry. I expect NVDQ will follow a similar trajectory. ISRG didn't pay dividends or buy back stock until 2009. And then only when they had a few billion in cash.
I agree. A buyback utilizing cash raised for strategic purposes is not inline with Novadaq's management style. They do not respond to the vagaries of the market and its gyrations, rather their demonstrated creed is to focus on the business and the market will eventually reflect their achievements. The cash is not surplus from earnings. Expending the warchest earmarked for building the business on speculatively propping the stock would seem, to me at least, foolhardy, capricious, and out of character for management.
The cushion just seems a little... cushy. Novadaq has a $25M annual burn rate now. At that pace it would take five years to run through the cash. If we didn't see positive cash flow in a year I'd be thoroughly amazed.
Until they have a secure, stream of positive cash flow, they need to keep the cash they have as dry powder. Should a delay (regulatory or otherwise), the cash acts as a cushion until the delay's cause can be addressed.
In October of 2013 Novadaq placed a stock offering at $16.75 per share, gaining $105M. At the time it was billed as paving the way for future acquisitions or buying complementary businesses. It was thought that they were about to buy a business to acquire a fully functioning sales staff. This never happened and Novadaq filled out their own sales team.
As of last quarter they still had $141M in cash. We are now $4 or 25% below the offering price. Is it time for the company to reinvest some of this money with a partial buy back? Or at least authorize one to open the option?