I did not respond because I was trying to rebuild and calibrate my model for Novadaq. There are many currents in this model that have very little historical data points to model. In addition they are not linear, independent interactions. The Duracell product will interact with SpyElite sales and recurring revenues. How strong will the feedback loop be? As stated in the CC this is not a simple model. Sorry for the delay in responding. For one aspect look at my response to the SpyElite "bulge" possible response above. A similarly complex analysis is required for Duracell, for Pinpoint, for Luna, and what happens if the FILM study is a "knockout" in the field of cancerous Lymph Nod identification (as I suspect it will be)?
Bottom line..this company has so many very very positives going for it that as Arun stated in the CC "2015 will be the year of execution".
Total Active Surgeons Total Attrited Surgeons New Green Hospitals New Surgeons
---- ---- 15 254 Q1 2014
---- ---- 8 245 Q2 2014
---- ---- 9 144 Q3 2014
---- ---- 2 141 Q4 2014
8296 364 22 167 Q1 2015
Sorry I wasn't tracking the total active and attrited surgeons earlier. The attritions are due to retirements, deaths, and those leaving for family reasons (mostly female). There was a drastic drop off of new green hospitals and surgeons due to the ACA (Obamacare) uncertainty in hospital revenues and also the news media related scare about "dangers" of "Robotic Surgery". Both of these are being mitigated with time. The recent uptick in new Greenfield Hospitals (first machines) is strongly influenced by the efficacy of the new XI machines for General, Colorectal and Hernia surgeries.
The percentage of these surgeons of the total new surgeons is:
41% Q1 2014
50% Q2 2014
44% Q3 2014
53% Q4 2014
60% Q1 2015
This new additional surgery field makes what use to be marginally economic hospitals (due to size) now feasible. If this is true for the mid (250 beds) to small (less than 100 beds) hospitals as it seems to be, there will also be a push for the non-greenfield hospitals to add additional machines for the increased demand for use.
This is not an "explosion" of new demand, but it does change the growth of revenues from negative to positive again.
Endo, the Sages conference is packed with surgeons and salespersons and hospital administration capital equipment purchasers and is ongoing all week. The conference started Monday and the stock price started moving Tuesday and has accelerated ever since. I would like to have been sitting in a chair next to the NVDQ booth # 740. I suspect some of the institutions sent their analysts down to talk to the surgeons and hospital administrators to get first hand responses to the Pinpoint, Luna and now SpyElite usage, efficacy and cost/benefit impressions.
If I represented a Fidelity I would and so would you. The next day I would meet with the Fidelity investment committee, make a decision based on the newly acquired information and begin purchasing shares. The stock price had an inflection point around 13:00 on Tuesday and the buy side orders began to build and dominate the sell side.
My thoughts only...I didn't go to the SAGES conference.
I would love to see what the owners of minus 4,640,390 shares do when the price jumps to $20 after earnings.....(:-)
I have seen too much unjustified pain brought on by short sellers on legitimate companies. I believe there should be short selling especially to bring discipline to over exuberant markets, but it would also be sweet to see discipline brought to the exuberant shorts.
I am an engineer. I know we use quantitative measures coupled with statistical (large numbers of samples) evidence to make decisions on reliability and "predictors" of adequacy or success. NVDQ has all or will have all of these attributes available to them. They currently can measure over time the intensity of the energy emanating from the concentration of their chemical when stimulated with near infrared light. They also have a "calibrating" solution that can be given to each individual patient to determine what is a "good" flow for that person. A 5 year olds blood flow will differ markedly from a 65 year old, yet each has a flow that is associated with "healthy" tissue. Now take this information in large samples of individuals (statistical sampling is more predictable when samples get larger---below ~200 this technique is not "accurate" enough to be counted. Now gather these two and incorporate the software into the product presentation and this simple presentation of a very complex information and analysis system becomes a very very powerful help to the medical evaluation, treatment decision, implementation, and verification.
I have no insider information, just looking at what Novadaq has, what they could do and the direction Arun is moving in and ...speculate.
If Novadaq is doing this they will not let it be known until they have a proven concept and patent application in hand.
I came to the same conclusion. All else being equal LifeCell marketed to 30 hospital systems and expected sales in the month of December from a good portion of them. Enough so that they negotiated it into the contract release agreement. That means there are 30 sales ready to pop. If Novadaq, which knows which hospitals they are...how else would they be off limits for the month of December?, targets those hospitals they should be able to close a majority of them. At $200k per system, that would be somewhere between $3.0 million and $4.0 million in Q1. If one subtracts the quantity sold in Q1 2014 (Est 5--"15 sold in the first 3 quarters" from CC), and one figures 50% revenue sharing during 2014 that should be ~$2.5 to $3.5 million in additional revenue from Spy Elite in Q1. Why Arun has only 20% revenue growth for Q1 is not clear. I expect an upside bump. But being that we are 2/3 thru Q1 Arun may have knowledge about other factors influencing these pipeline sales. We should all know in 2 months or so.
One other note: the response of institutions lately is that they sense blood in the water and have been building their holdings...do they have contacts with the hospitals in question? If I was a Fidelity I would send boots on the ground to talk to hospital administrators from the big hospital systems to glean their intentions before buying 15% of the shares!!!!
If this hypothesis is close to being reality, the 4.4 million shorted shares will be squeezed. If 87% of the shares are being held by institutions, that only leaves 7.2 million non-institutional shares--take out 2 million held by management and there are precious few shares left for the shorter to pursue. The graph of yesterday fits this hypothesis. As the price rises, the shorts will face margin calls in the next few days and the price could break $18@. I don't expect this, nor do I want my readers to base purchases on this, but it is fun to think about.
Von, I went back and listened to the conference again. Clearly the 50%/25%/25% comment was about the LifeCell accounts and not the marketing staff in general. We'll get more clarification in a month or so. We are probably entering the 30 day blackout until the Q1 results are released. Good news would be good. Sounds like one of Yogi Berra's lines.
Go into the ISRG web site and click on "investors". In that page there is an "Investor Presentation Q1 2015" link. Its a 40 page update that ISRG renews quarterly with pertinent company performance, strengths, weaknesses and plans. Page 21 is a map of the world machine counts, Japan is listed for 12/31/14 as having 193 that is up 34 from 12/31/13. Page 19 shows system placements by quarter since Q1 2013 with breakouts for US, Europe, Japan, ROW. Page 34 has lists of "Product Milestones". Among them is listed "Clearance in Japan targeted H1 2015" for the Xi Launch.
I have hard copies of past presentations if you can't get them from the web site, though you should be able to even if you have to request them to send them to you.
Good to hear from you Von.
Tough questions Canada. Some are not constructive but some are valid and should be allowed to have answers. After revising the list please forward it to the NVDQ investor relations department and have them review and prepare answers for the upcoming Q1 conference call.
Thanks in advance.
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.
I suspect they didn't plan or want to take back SpyElite but LifeCell decided to play hardball and not yield on the value Novadaq developed. The 5 year special concession was now over and as often happens in negotiations the curse of framing judgment often leads negotiators to not review the fundamentals of the situation. "If they got X before, isn't it fair to expect X again?" What changed was Novadaq had an unknown and unproven new technology 5 years ago and 5 years later is was both known and proven to be of great value. A good distribution channel 5 years ago was still a good distribution channel 5 years later and deserved a "fair" share of the Present Value, but that was much less than the "fair" share of 5 years before.
All that being said, I think NVDQ was taken by surprise that LifeCell was unwilling to adjust their position. The best option for NVDQ was to take a hit up front on the distribution channel and take back the product to become part of their Integration Strategy...though earlier than they were ready for.
Looking at their Investor Presentations you can clearly see the change in emphasis. They moved from individual products to the Diagnostic/Surgical Aid/Result Confirmation Integration using their current and future suite of products. I suspect that was what Arun was hinting at when he stated at the CC "we will release our product enhancements when we are ready and it fits our strategy" not dependent on completion's introductions (Stryker).
Look for "zones" of adequate blood flow in the screen presentations the doctors and surgeons can use for diagnosis, surgical guidance and confirmation of results. Think of a topgraphical map with contour lines. Iso-flow lines of blood flow differentiated by color, red for inadequate, orange, yellow for marginal, green for adequate and blue for superadequate. Imagine what this would do for diagnostics. Treatment determination based on lack of blood flow followed by real time observation.
Of note was the statement made by Arun that he expects "standard of care" decision for breast cancer use of SpyElite "in six months", later reiterated at "six to twelve months". And "standard of care" for colorectal surgeries in "6 months to 2 years" (pretty large range).
Volumes are low, the paucity of news from management and the pre-announced 20%-30% range of growth for the first quarter has demand for increased holdings of Novadaq like deer in the headlights. It is easy to shoot a deer when he is standing still. All who wish to own a piece of this wonderful company, now is a very good time to build a position. But if you can't stand to see your share price drop even below your purchase price, wait until the news of progress comes out. You will have to pay a few dollars more per share than now but you will be able to sleep at night with the price higher than when you purchased it.
I concur Irony. What premium would be appropriate? If revenues eventually go to $2 plus billion and net margins of 20% would not be out of the realm of reasonable for a company with gross margins in the 70% range (expected by Arun), then with 55 million shares that would be about $7.50 to $10.00 EPS. With a P/E of 15-20 would anyone expect GE to pay $150-$200 per share now? I agree with you Irony. I'm in for the long haul on this one.
P.S. the revenues above are only US Domestic revenue estimates by 2022. The international could easily double this and the share price would too! Sit back, strap yourself in and enjoy the ride.
If you look at the "Investor Presentation--Q1 2015" on the ISRG web site there was a marked drop off in machine sales to Japan from ~20 per quarter to
Excellent blog Gopointers. Stryker is a very real threat, with their size and established distribution channels. My gut feeling now is that Novadaq has the very real potential with the Doppler non-invasive protrusion, diagnostic capabilities of Luna and the implementation potential of Pinpoint, Luna and SpyElite to carve out an entirely separate integrated market to aid the health industry. If they can build the integration correctly it will raise the barriers to entry high enough to hold Styker and other potential entrants at bay. This is all theoretical at this point, but it is the current model I am using to judge the value potential. You are also correct in your assertion that the Q4 2015 should be the time to see which road NVDQ has taken. If there are delays, disappointments and excuses, then it will leave the door open to Stryker. If they blow the doors off (60% plus YOY growth), it will strengthen the Integral strategy.
I thought the split was referenced to the takeover of the SpyElite accounts not the entire sales force. I'll listen again and correct my comment if I heard it wrong. Thanks Von.
Endo an update and correction on SAGES (Society of American Gastrointestinal and Endoscopic Surgeons) has ~6000 members and they expect 2400-2600 surgeons at this years convention. Also IPEG (Pediatric Surgeons) with 600 members expect to have 400 at this years SAGES convention.
The Exhibits actually start today (Wednesday at 12:00, and will be open all day Thursday and Friday). They had meetings and getogethers Monday and Tuesday of which Novadaq had a couple of presentations but not their Booth exhibit.
It weakens my hypothesis but does not eliminate it. I still would like to have a seat next to Booth # 740
Thanks Von Pezel. I would like to thank you personally sometime when I finally meet you for your well thought out, and relevant comments on this board. Thanks for taking the time to go to the investor day conferences and getting it straight from those that know the company best. This company surely is opaque. I haven't been able to find any info independently on hospital web sites, doctor comments or other secondary sources so I have to base my estimates of the company on what they release. Great market opportunity. Great market size. High gross margin potential. First mover advantage in a brand new field with large unmet needs. All the chess pieces are properly aligned on the board.
$17.24 to $12.80 in three days? I know the hypothesis of one or more institutions dumping (2+ million shares in 3 days) makes sense and fits the pattern, but....
My wife's theory is there are insiders or "friends" of insiders that know something and are "manipulating" the market for personal gains. She is not a market analyst but I have learned to listen to her or move at my own peril....