The following 3-part comment is from an article I drafted for an opinion site:
Kips Bay Medical (KIPS)
Kips Bay is a unique company, founded by a living legend of medicine: Manny Villafana. They are currently pushing through initial trials with their first of a kind medical device: eSVS Mesh™. As a small company, it has flown under the radar of even the most astute emerging growth investors; but mark my words, all of this is about to change.
ESVS Mesh™ is a beautifully simple device that is utilized in Coronary Artery Bypass Grafting (CABG) surgery. The external mesh is intended to support the saphenous vein (grafted from the thigh), which is used to connect the coronary artery to the aorta. CABG is the most common form of open-heart surgery performed in the U.S. and developed nations worldwide, with 800,000+ procedures occurring each year. Lifestyle decisions of the developed world have made poor cardio health a fact of life; it is likely that this number will continue to rise for the foreseeable future. ESVS Mesh has the potential become a staple of CABG procedures, as saphenous veins require external support to increase safety and effectiveness. Without this support, the vein often becomes injured due to the increased demand of blood workload and will often narrow in diameter or become externally weakened. Over time, this may causes failure of the grafted vein, requiring an additional procedure at great expense to one's health.
Without doctors and hospitals on board, eSVS Mesh has little chance of successfully completing FDA trials and eventual commercialization. Therefore, the initial success of KIPS depends on the answer to one question: Do physicians want it?
The answer to this question is an overwhelming YES!
Sentiment: Strong Buy
This article confirms our enthusiasm for KIPS, a tremendous update from CEO Manny Villafana, definitely worth a read:
Unfortunately your market analysis is the result of some irrational exuberance... First the number of CABG procedures, according to the AHA CABG (US) has been In decline since 1998. Also, the avg. no. of bypasses is ~3 which includes atleast one arterial graft and because the emerging clinical data demonstrates the excellent patency of arterial (~90%+) vs. vein grafts, more often two or bi-lateral arterial grafts are being utilized which would leave only one SVG graft potential per patient. Also if you read the company info the device only fits a specific range and quality of vein grafts so that will disqualify a material number of vein grafts as well. So the addressable market for the device is very likely considerably smaller than the one you provided.
As for being an attractive acquisition I wonder since established companies have been systematically moving away from surgically delivered devices in favor of minimally invasive devices. Furthermore the mesh requires the use of a surgical sealant of which the company apparently does not make nor supply making this a big commercial/regulatory risk.
But I do agree, do your diligence...
You are far from the mark when describing the potential of eSVS Mesh as irrational. Perhaps you are more informed than Dr. Bill Cohn of Texas Heart Institute who is incredibly excited about eSVS, or any of the other major medical centers who have enthusiastically signed on to participate in feasibility trials.
I also have a hard time believing that Coronary Artery Bypass Grafting Surgery (CABG) is going away, in particular procedures utilizing saphenous vein grafts. The current lifestyle decisions of the developed world are showing that the obesity epidemic is growing at an alarming rate; subsequently, heart disease is going to be at the forefront for many decades to come. Many patients are simply too unhealthy for minimally invasive operations. ESVS MEsh™ has billion dollar potential, this will not be overlooked by major medical device manufacturers. Perhaps you have forgotten Manny's track record?? He has the close attention of every major player in the Cardiothoracic and med device space.
Ultimately, an informed investor will look at the science behind eSVS MEsh™, the size of potential market (billions) and the buzz this product is creating among the the world's elite surgeons and make a decision.... side with a living legend of medicine in Manny Villafana, or a yahoo message board fanatic who begins posting after he receives an alert from his Schwaab "pro trader" account and decides to take a short position and bash. Which sounds irrational to me? Perhaps our readers may decide.
Sentiment: Strong Buy
Dr. Billy Cohn of the Texas Heart Institute recently presented eSVS Mesh at a lunch symposium for the 2013 Annual meeting of the American Association for Thoracic Surgery held May 7th in Minneapolis. My contacts have informed me that eSVS was the most discussed technology amongst the 200-250 surgeons in attendance. The event culminated with over forty of our nation's top cardiothoracic surgeons meeting at Manny Villafana's house for a dinner party, many eager to assist in getting eSVS successfully through FDA trials. Doctors know that this product is a game changer, one that will enhance the lives of their patients and they want to see it succeed.
The medical centers that have signed on to assist in completion of the initial trials represent the top-tier of cardiothoracic surgery centers in the U.S.:
The Cleveland Clinic
Texas Heart Institute
Emory University Hospital
Brigham and Women's Hospital
Northeast Georgia Heart Center
The participation of these great medical institutions and the enthusiasm of their surgeons are paramount to trial success.
Sentiment: Strong Buy
With significant addressable markets and a revolutionary device, KIPS is well positioned to reap the financial rewards of a potential FDA approval and subsequent commercialization:
800,000+ CABG procedures performed each year (and growing)
3.5 vein grafts per patient
Estimated 2,000,000+ eSVS Mesh used per year
$1,200 per eSVS Mesh
If KIPS is successful in completing both trials, eSVS Mesh has the potential to bring $2.4 billion in annual revenue. This may seem like an astronomical number for a company that is currently trading at $1.08 with a market cap of $29.07 million, but the market potential is very real. Consider also that these figures do not take into account the potential of eSVS in Kidney Dialysis (larger addressable market than CABG), Peripheral Vein Surgery and Artificial Arteries.
ESVS Mesh is a revolutionary product that would compliment the pipeline of any major medical device manufacturer. Upon successful completion of initial trials, a potential suitor may have interest in controlling the all important pivotal trials. KIPS is certainly an emerging growth company that warrants our attention.
The above listed companies carry a high level of risk for investors, none are guaranteed FDA approval or successful commercialization of their products. It is never prudent to invest in a company strictly based on acquisition speculation; one should have strong conviction in the management team, remaining confident that the company can succeed moving forward on it's own. Always conduct your own due diligence.
Sentiment: Strong Buy