Responding to a recent stock slide by Novadaq Technologies (NASDAQ:NVDQ; TSX:NDQ), Canaccord Genuity says that based on its due diligence, “we strongly believe the company possesses robust, clinically relevant, proprietary technology that is secured by strong IP.”
Analyst Jason Mills reiterated his “buy” rating and $15 price target and recommends investors “buy the weakness aggressively.” Shares of Novadaq closed at $9.11 on Tuesday, down from $11.70 on Nov. 1.
Mr. Mills said the culprits in recent weakness are “two concerns being raised by some” that suggest Novadaq’s disposable kit sales could be vulnerable to “homegrown” Iindocyanin green (ICG) usage and that Novadaq’s IP portfolio doesn’t provide sufficient barriers to entry.
FDA labeling and detailed contracts with hospitals protect Novadaq’s products and “mitigate any motive customers may have to use home-grown ICG, as hospitals would open themselves to legal action (breaking contracts) or patient liability (off-label use) for a de minimus cost savings.”
Novadaq has embedded bar codes on all of its disposable kits and a tracking database in its capital systems, neither of which it has activated, given the rare incidence of home-grown ICG use, he said. However, the company plans to activate the tracking feature by mid-2013, when it releases its next-generation technology that will incorporate a proprietary perfusion calibration device sold within the kit.
Mr. Mills said he has spoken to outside counsel and looked closely at Novadaq’s IP portfolio, which covers both apparatus (devices) and utility (procedures) for its SPY imaging technology in the operating room.
“We believe Novadaq’s patent protection is strong, noting it spans claims on software and hardware that are proprietary and critical to the creation of a superior fluorescent image that we do not believe has a peer within sight, based on our research,” he said.
“Clearly Intuitive Surgical (NASDAQ:ISRG) concurs, as we doubt arguably the most successful med-tech company on the planet would license a technology it felt was poorly protected.”