Very good insight Bio. There were many unsaid implications in the CC. I am not sure but there are both good and bad scenarios that fit the "un-information" conference call.
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.
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.
Arun said "When we are ready we will release our upgrades...not dependent on the competition" Sample size, sample size, sample size...tick toc, tick toc, I suspect they would need thousands to present to the FDA to get clearance for doctors to rely on such an indication tool.
We shall see...but it is painful watching the price get pounded.
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).
Endo, my thoughts exactly. I was thinking of commenting on the last weeks pattern of large volumes during the last half hour of trading pushing down the price each time. This fits your "shorting" action mentioned. Yesterday was the first day I saw this pattern successfully countered. All day the volumes were very very small-only about 60K shares traded through 15:00. Then the pattern began, shorting? 5k and 10k blocks sold and drove the price down from ~$10.37 to $10.25. Yesterday for the first time in weeks I saw someone come in and challenge the "shorting". They repeatedly took the offered shares 5k, 10k, 25k, 50k, 100k, 200k...right into the close. If an institution thinks NVDQ will finally get their marketing in gear, then a year from now the 200k-1,000k shares picked up at $10-$11 are going to look very good in someone's portfolio. I would like to have been able to be that person. If someone gave me $10 million or so I would like to pick up a 1 million share block to hold for 5-10 years. If NVDQ has a first mover advantage and IP strong enough to protect its leader standing in this unmet needs, new medical field, it should dominate the $2-$10 Billion eventual market. The reasonable (65%-70%) gross margin potential should yield a market cap of $10-20 Billion. At 60 million shares that should translate into ~$250 per share.
See you at one of the annual meetings after the stock price crosses the $100 threshold.
Based on Thursdays and Fridays result, it looks like the Institution(s) or short sellers still rule. It may take time to prove they are wrong or....Novadaq will not be successful in transitioning from breakthrough technology (R&D centric) to implementation of commercial production and distribution (Marketing & Business Model). Dr. Arun has been stating that the rollout is on schedule and we should see real (Revenue) results of 30%, 40%, 50+% revenue growth over the next 3 quarters. The first evidences will be in July at the Q2 conference call. If NVDQ misses, the stock price could deteriorate further. If they perform to the script, the price should increase at least 30% bringing the stock price back to $13 plus. Joseph is correct, the technology value is there...either NVDQ will reap it or someone who buys them will.
Japan only purchased 1 System in Q1 as hospitals were awaiting the approval of the Xi machine. They received Xi approval late in March, the last week if I'm not mistaken. It was too late to order & receive the machines (requirement to recognize revenue). Normally Japan would have purchased ~20 machines or even ~30 machines if you went back to just before the Xi was launched in the US. I suspect there will be a bump of 30-40 machines this quarter over Q1 all from Japan. I suspect some of the big players--Goldman Sachs, Fidelity, etc. have enough "boots on the ground" in Japan to confirm this and they are in buying heavily...excpect an announcement from whoever of "change from "Hold" to "Buy" of to "Strong Buy" as soon as they have the shares they want.
In a split along party lines with Democratic crossovers, the house subcommittee voted 25-14 to proceed with a full house vote on repealing the Obamacare Medical Device tax on revenue (2.3%). The Senate is considering a similar bill. Assuming both pass, will there be enough Democratic crossovers to overcome the promised veto? It should be close. If it doesn't pass how many Dems will be up for reelection with this job killer on their record?
If it passes this will add 2.3% of Revenue to NVDQ, and ISRG on domestic sales right to the bottom line...a pure 2.3% increase in tax free earnings. This would be the equivalent of about 3.5% increase in gross margins....forever! That should add about $45 to ISRG and $2.50 to NVDQ? (harder to judge).
Current domestic revenue (2015) is estimated to be around $2 billion. 2.3% of that is $46 million. There are 37 million shares that means around $1.25 per share in "new" captured earnings. At the current P/E of ~26 that's $32.50 per share. If you count the domestic growth rate of ~8% per year for the next 5 years, that would add another $10-$15 per share. Of course this would have to be discounted back into todays dollars. The $45 stated price change was not "rigorous" but the general approach has been presented. There are many variables---what is the appropriate P/E, what is the future domestic growth rate, and the biggest of all, what is the likelihood of congress and the president, current or future to make this repeal happen? You may have to discount the whole cash flow by 2-3 years if the current president is successful in blocking it. There are practically no costs associated with the repeal so the 2.3% will go almost 100% to the after tax bottom line.
The fact that the stock did not respond yesterday is an indication on what the market thinks the probability of this ever happening...nil. Taxes are "sticky". Governing bodies that can take money freely from others rarely give it up, once they have established it. Just look at our US income tax...established as a temporary tax to help pay for the big war. I don't think anyone believes it will ever go away.
NVDQ is much, much more touchy feely, but the thought process is the same.
Good request Pezel.
Von, the market for NVDQ is downright ugly. I suspect the short sellers are taking advantage of the Stryker entry threat and will be able to sustain the pressure until NVDQ proves them otherwise with real results. That being my hypothesis, what is your take?
1) what do you expect to be said at the Blair conference?
2) what would you like to see said at the Blair conference?
3) what are the items or comments that could counter or stop the advantage the short sellers have?
If the marketing initiative is slowed or even hurt by the Stryker announcement, how serious could it be? If it is only a transient, what would be your estimate of the decay factor (half life). Weeks (Q2 results), Months (they need all of 2015 for a "trend", Years (the rollout of PinPoint will take years to proceed along the adoption curve and the Stryker threat, real or perceived will remain).
I confirmed the SEC Form 13G filing on May 31, 2015. Primecap increased their holdings from 1.085 to 3.853 million shares. Their stated purpose was for "passive" investment. I found the reference to "Why Primecap Management Co Just Disclosed Huge New Novadaq Technologies Inc Stake" under Primecap's new investment in Nuance but could not find anything regarding Novadaq. There was one blogger who stated that Primecap was one of the best at finding out what is happening on the ground and the fact that they took this new (my words) $18 million increase in position of NVDQ would eventual prove to be significant.
I would like to hear Arun say something tomorrow that would support this.
Thank you for your participation on this board. I enjoy exchanges with thoughtful, analytic, informed individuals. Not with an agenda, or political, preconceived "feeling" centered presentation, but just good old plain...here are the facts we have, and here is a hypothesis that takes those facts and looks for predictive patterns.
Thank you for requesting verifiable sources, and explanations of hypothesis and their conclusions presented by others on this board...including myself.
Have a great day Von.
No one will skip surgery. The 2.3% will be paid and go directly to NVDQ's bottom line. Novadaq will not have to refund the 2.3% and since they don't have any competitor in fluorescent imaging, there is no one to try to undercut them.
Roger Deck (CFO) was very positive in his comments / responses to the questions following his scripted presentation. He stated as mentioned by Von that the recurring revenue disappointment of the 1st quarter had transformed into a very strong recovery in the second. He also mentioned a strong push to get rented and leased machines with high kit costs transitioned to a machine sale lower kit cost model that benefits the hospitals financially and accelerates the diffusion of the technology across other surgeons and surgical areas. Q1 Revenue was $11.7 M (13.5% YOY growth) and earnings of -$0.20 per share taking out stock and warrant impacts. Q2 stated bogie and this will be key is $14.2 M (27% YOY growth) and earnings of -$0.18 per share without stock and warrant impacts. If they beat this number and I think based on Roger's enthusiasm 85% of the way thru Q2, then the forecasted Q3 and Q4 results could and should also be exceeded. That would indicate Q3 $17.1 M (40% YOY growth), -$0.15 EPS, and Q4 $22.2M (70% YOY growth), -$0.11 EPS are also possible bogies that will be exceeded. This brings us for the year to the stated 40% revenue growth YOY. If this is true NVDQ will be in breakout mode late in 2015 and EPS breakeven would only be a few quarters away in 2016.
In the most recent vote (June 18, 2015) there were 46 Democratic crossovers up from 30 and there were a couple dozen Republicans that didn't show up for the vote. Since the vote was 280-140 there is ample votes in the house to override a presidential veto (2/3 needed). The Senate voted in a non-binding vote far in excess of the needed 2/3s but it was a show vote and linked with other issues so is not a clean indication of how they will vote...Stay tuned!
VP Marketing, Dr. Liam just converted 200,000 of options the day he was eligible to do so. He did it at $0.41 per share or $82,000. I don't think he is a fool. He knows what is happening. He is buying with his money.
Anyone else see this as any thing but positive?