Henry, this company has not had positive earnings or cash flow. The price of the stock is based on almost 100% estimates of future results. Until the market understands the full potential and sees a clear trajectory the price will be very volatile. Take a step back and wait. The PINPOINT and LUNA revenue growth was 31% Q over Q!!!! There are only a few companies in the world that have that kind of growth Y over Y. I expect the earnings will finally go positive in the 4th quarter. If not it is only because Arun has ramped up production and marketing and infrastructure based on his knowledge of a super growth potential. Either way the price will be over $30 this time next year. Bring this back next Memorial Day to laugh at me or with me.
Placement of machines is up 237 (20%) since reported 2 months earlier including an additional 30 (60%) PINPOINTS. This is approaching the inflection point ("Knee") in the adoption curve where the transition from early adopters changes to the general market. The "Knee" is the maximum acceleration point, where analysts statistical and historical growth models are the most behind the curve. This is typically where the market price of the company's stock explodes up when the new "unexpected" results come in.
The new PINPOINT CSF Mode introduced at the SAGES conference in early April is truly a "Disruptive" technology enhancement. As Arun stated, it is the first step in color segmented organ, tissue, cancer, abnormalities given to the surgeon so they know exactly where the boundaries are of interest in a surgery. Complications are typically reduced by 67+%. This will be documented in upcoming papers showing the clinical as well as financial (major) benefits to the hospitals.
The new Aimago slide was another "Disruptive" technology addition that will be introduced in the first half of 2015. When complimented with LUNA the diagnostic value of the two in burn centers will become a "must" in just a few years (my estimate). He stated that the first national wound care company will be signing an agreement for their system later this year with ~20 applications per site (how many sites was not stated) per quarter. This is big, very big and should add ~500k applications per year for the US alone. Overseas market will be bigger than the US!
Gross margins are up 2% from 63% to 65% and should ramp up further to mid 70s with volume.
Based on what I see the market cap for Novadaq should be around $20 Billion by 2024. Assuming share #s are comparable that translates to $360@! Nice....Hello Mr. Herb Greenberg....where are you?
Thanks FISH wherever you are for bringing this next 10 Bagger to my attention.
In the past few days the stock has meandered and declined for the first 5 hours. Then the volume picks up substantially and 10-20k shares every 10 minutes are purchased driving the price from a 1-3% loss to a small nominal gain. It looks to me like some institution or individuals are acquiring shares, perhaps as much as 500k in anticipation of the upcoming end to silence at the conference call. I expect a $.05 per share loss this quarter but underlying progress is being made in setting up the breakout expected in 2015. The marketing division is being assembled, and organized to support explosive growth. The papers and studies will either be in place or be released come early 2015. These studies will clearly and powerfully show both the clinical as well as economic benefits of NVDQ's new technology platform. I say platform because there are many new and exciting weld on technologies as well as applications that will enhance the argument for hospitals as well as clinics to include NVDQ systems in their health management and treatment.
Arun has stated repeatedly "40% revenue growth". Starting in 2015 expect this to increase to double that for a few years.
P.S. Forecaste: NVDQ goes positive recurring earnings in 1st quarter of 2015.
In summary, this was the best Cardica CC I have listened to...period.
"we continue to hear from surgeons that this device is facilitating existing procedures and aiding new procedures in a manner not feasible with conventional surgical staplers."
"In most hospitals this process takes approximately 30 to 90 days. Foreign FDA clearance of the white cartridge along with the change in the tube of the cartridge Cardica immediately started working with surgeon advocate and hospital system to initiate this process.
As of March 31, five VACs have approved the XCHANGE30 for product evaluation and following successful clinical application some of these have already resulted in purchases of the MicroCutter. Importantly, we have initiated the process in numerous additional hospitals during the last month and we expect to initiate more in the future.
Taking the step back, we believe there is a very large market opportunity for the MicroCutter. There are approximately 2.5 million surgical procedures in the United States annually focusing on our current indications for youth, appendicitis accounts for 320,000 procedures each year. A variety of other gastrointestinal procedures where the use of the MicroCutter could be considered beneficial, account for at least another 150,000 to 300,000 procedures.
In addition, there is a large number of additional pediatric surgeries annually. Cardica intends to work with pediatric surgeons as they see the size advantage of the microcutter for the small patients."
"Turning to operations, currently we’ve two MicroCutter sales representatives in addition to our Vice President and the Sales and the marketing calling on U.S physicians daily. In addition, during the current quarter we plan to train our three cardiac surgical representatives on the MicroCutter to expand our reach into their current sales regions."
See Part 2 continuation
"As we build a solid customer base and begin to see revenue growth we plan to add three to four sales representatives per quarter. For manufacturing with the product performing low to daily, we will work to increase our weekly production capacity to 250 devices and thousand cartridges per week by the end of 2014 and drive our cartridge gross margins to more than 75%."
Moving to Japan, our partner Century Medical continues to work with the Ministry of Health to enable potential market clearance of the XCHANGE 30 in the significant market. Century anticipates market clearance within this calendar year. Our product development we are working to expand the MicroCutter product line so that this device can be used in additional surgical procedures moving forward.
We were developing XCHANGE30 with a short shaft handle, which we believe will be ideal for procedures in more confined spaces. We expect to introduce the short shaft handle in the third quarter of calendar year 2014. We’re also working on the development of XCHANGE 45, which is designed with an eight-millimeter shaft. Similar to the XCHANGE 30 this new product was also articulated up to approximately 80 degrees in either direction.
We see both the reduced size and increased articulation to be clearly differentiating features when compared to existing products. In addition, XCHANGE 45 works with a larger green cartridge necessarily to staple bigger tissue like that of the rectum or stomach. Pending PDA clearance from XCHANGE 45 will expand the total available market for the MicroCutter line.
Today we have working prototypes of the XCHANGE 45 and plan to begin animal studies by the end of this summer. Once we complete animal studies we believe we can begin using the product in humans by the end of the calendar year 2014."
As said in one of my favorite movies...."That will do Pig...That will do."
You are correct on this Endo. The deal is done and the negotiations complete. The fact that Arun kept saying over and over in the CC, PINPOINT and LUNA are what I am focusing on...They are our future...etc. They may have gotten a better deal for XI and PINPOINT, but since PINPOINT 2 was not yet out and not yet FDA approved, I suspect the XI will have the second generation technology and not the new CSF (color segmented fluorescence). Arun hinted at what is in the works when responding to RBC question...'We are spending a lot on R&D and where I see our technology in the future is...the physician will type in the kind of surgery (application) he is doing and the machine will highlight with colors the areas (organs etc) of interest and marginalize all non-relavant parts". KOOL--FAR OUT--GROOVY (I'm dating myself here).
Novadaq can't lose in this. The best long range solution is they take back the product and bring it in house like they did LUNA. They control the marketing, manufacturing and are able to seamlessly incorporate upgrades and new features in a planned fashion. If Lifecell wishes to focus on other non-diagnostic and associated surgical process enhancements, they hurt themselves and the surgeons and the patients. They should work with Novadaq to increase the pie and not focus on keeping their share of the pie.
I watch what could be one of the most undervalued company on the open market have its stock price continues to drop full percentages almost every day. On April 4th the stock hit a high of $24.09. Two months to the day (tomorrow) the price will open around $13.71 (closing price 06/03/14). Down 43%! I thought it was high at $24 but not 43% high. The institutions are absent by and large based on volumes and types of trades for the last few weeks. I was told a few days ago there were approximately 3 million shares shorted out of 55 million. With this many shares (about 10-14 days average volume 270k) I would think shorts would be loath to pile up much more. Does someone know there is an unannounced threat to NVDQ's technology? Does someone have knowledge that the ongoing marketing initiative of PINPOINT and/or LUNA is not going well?
I remember back in 2008 ISRG dropped from $357 to $87 in a few months! I was befuzzeled back then too. It later rose to over $600 before it was beset by rumors, false law suites, and a prominent news casters twisted negative presentation on Bloomberg. Back then I wish I had a $ Billion. I would have purchased 25% of ISRG and returned 6 fold in 3 years. Today I would take that same $ Billion and buy 80% of Novadaq!
If anyone has a theory or even reasonable guesses as to an explanation for the precipitous drop in NVDQ over the last 60 days please reply to this.
Good summary Endo. I caught the same Bloomberg 1year old new as if it happened yesterday....I would be embarrassed to write an article announcing the results of 2012 elections as if the just occurred last night. Notice in the article they didn't even mention that it was 1 year old to the day...just sort of forgot that 2013 is not the same as 2014. On another topic...Endo and Von and if Fish still is out there, the Medtronics /Covidien deal will free up about 10 to 15 $Billion to purchase med equipment companies. NVDQ at ~$1 Billion (15% premium) is well within the scope of their prowlings. I would hate to see it and since they are a Canadian company the tax advantages are not as strong, but still as a one stop-shop for Hospitals, to get NVDQ in-house would be a plum. A 100% premium (~$30@) would be a steel but might entice enough shareholders to part with their shares. Medtronics/Covidien with their vast marketing departments could push NVDQ's products into hospitals in a small fraction of the time it will take NVDQ. Good for Metronics, bad for current NVDQ longs, but this is Capitalism. Let me know what you think, but please don't tell Medtronics just in case they haven't though of this yet.
An other twist is what would J&J do now that they are feeling the greater threat from a larger, more capitalized, tax advantaged player in their space. They might want to make an offer to NVDQ as a preemptive strike.
The 330k was probably done as a "mezzanine" trade...negotiated off the retail market. There was ~3 or 4 multiple thousand shares blocks sold in the last few seconds that drove the price down 30 cents. These shares were filled on the open market and there was no commensurate demand on the other side, thus the large drop for what was a small fraction of the days volume ~1%. This is why large institutional block trades are usually done as "mezzanine" trades then recorded on the open market once complete.
Hope this helps Mr B.
From my model:
Revenue for the 2nd quarter, $13.5 Million
Net income (excluding one time and stock expenses) $-2.5 Million
Earnings per Share (-$0.05@)
The should break even in the 4th Quarter!
Revenues of $19.0 Million
Net income (excluding one time and stock expenses) $-0.01 Million
Earnings per Share (-$0.00@)
The revenue drivers are well stated by Endo above. The expenses are the ongoing push for clinical and economic justification in existing and new application as well as the burgeoning sales and marketing hiring.
Here are my estimates. April 29, 2014
1) 10-20% Very disappointing earnings, and ISRG correlation is very strong and continues.
($10.1 Million revenue, $(-0.09) EPS, 39% YOY revenue growth)
Price drops to $14-16 range
2) 20-80% A mixture of the theoretical adoption curve and the impact of exogenous forces.
($11.5 Million revenue, $(-0.07) EPS, 58% YOY revenue growth)
Price rebounds to $16-$20 range
3) 80%-100% My theoretical model for adoption, all the exogenous influences are minor
($12.8 Million revenue, $(-0.04) EPS, 76% YOY revenue growth).
Price returns to previous high and grows ~50% on an annual basis $20-$24 plus
The Results are in:
Revenue $10.3, $(-.08) EPS, 41% YOY revenue growth.
Price should be just above $16 range---Closed yesterday at $16.50 (Fairly priced-based on numbers)
When you dig below the numbers, what we see is more of the PINPOINT/LUNA systems were "sales" to hospitals and less were "rented/trial" placements. This would indicate that the hospitals see real returns and are willing to purchase "Capital Equipment" that has high cash flow and earnings potential for them. Consumables (kits) revenue was "flat" caused by the increase of machine purchases and the savings that come from the lower kit price for owners vs renters. That is a good thing and will wash out once most of the systems are converted. The real important metrics to watch are procedures 6600 "driven by a sequential 23% increase over Q4 2013 and the placement of 175 new systems of which 139 were PINPOINT and LUNA. This is 139 versus 42 for Q4 and vs my models estimate of 76. This is a blowout number and bodes very well for the future. It moves me from Scenario 2) towards even into Scenario 3)... I feel a price of ~$20 is warranted by these results.
We shall see.
My point also. What "newsperson" would print an article about something covered extensively in the past with no new information? What publisher would pay a "newsperson" for writing such an article? Some one who has as you said a more sinister purpose is a logical explanation.
The international regulatory maze and local markets make the international penetration very costly and labor intensive. Only now after 20 years is ISRG at a point to make significant progress and at a cost of hundreds of millions of dollars. Arun is going for the US as a base to build out internationally. I want him to stay focused on the US until his revenues approach a Billion dollars or so. He can put his toe in the water and do preliminary work with partnerships but to develop his own in house international marketing staff should wait. Having the international contained within is much better for margins and control. Tred, your concern is very, very important and I think the international market will be even more important for Novadaq than for ISRG eventually.
Let revisit this in ~2-3 years.
You are correct. I read it wrong and went back and redid my analysis. They placed 61 (Q1 14) up from 42 (Q4 13) a 45% sequential increase. This is good news but not enough to move the needle on my price to the $20 range of Senario 2). With this corrected analysis I estimate around $17 for a fair price. I was too quick on the trigger Endo. Thanks for catching my error...I too was on to it an was recalculating when you response came up. Check my boards. Keep me on my toes.
Bingo! You put your finger on a key driver...not scarless but applications to large unmet needs in surgery or enhancements that make the surgery less invasive and enable minimal trauma.
Arun stated that there would initially be a marketing push for capital equipment placements. Depending on how strong and broad the acceptance was there would be a transition to marketing emphasis on kits and utilization of the technology. I suspect the ~200 might partially transition to utilization but with new technology like the Doppler and Isotope/Radionuciotides (spelling) that he has in the pipeline for late 2015 introduction I suspect the 200 will stabilize and the total force should be ~350-450.
Good point Bharat, I do not expect any new Xi sales though there could be ~20-40 retrofits to existing SI and S models. I have been monitoring the Da Vinci doctors and newly listed sites. I expect this will be the low for ISRG results. Doctors are down about 30% from last quarter and they are a pretty good secondary indicator of system sales.