Thanks for posting. I read the entire article. It seems to me that the near term risk associated with Novadaq is not centered on how the Lifecell situations unfolds. As all of us identified late last year, the fundamental risk remains concentrated on how well the growing salesforce performs. By now, a meaningfull percentage of the salesmen hired should be reaching a point in time when they should be fully productive in the sale of Pinpoint and Luna. While it is now expected that sales in the third quarter will not reach 40% growth as per Arun at the last CC, I am hopefull that he paints a very positive sales picture for the 4th quarter. More importantly, I hope he gives a strong forecast for sales in 2015.
I am also hopefull that the Investor Day conference which will probably occur sometime in November paints a very positive picture related to developments internationally.
You are right, in fact, you are exactly right ! I Communicated with the company yesterday related to press releases. It is their feeling that while the Taiwan regulatory approval is good news, the issue does not become material until such time as they enter into a partner agreement that will result in revenues. Hard to argue with that. As you indicated in your posting, the company is very methodically going about the process of putting the building blocks in place. Hard to argue with that either.
Given the current pressure on the pps, you have to wonder why the company is not putting out press releases on Firefly approval and on the Taiwan approval. As it relates to the Zacks commentary, it is as amateurish as amateurish gets, because it is based on analyst slightly lowering their revenue expectations. Most of those very same analyst maintained their recommendations on the stock including one maintaining their buy rating and another maintaining their overweight rating. Irresepective, the company should be putting out press releases, especially on positive matters.
As previously noted in a posting here, when I spoke with the company last week, I asked if the version of firefly now in the new DaVinci was a newer model and if so, had the agreement with Intuitive been renegotiated. The company advised me the Firefly now in the new DaVinci was still the old model. All of the upgrades to the system have been incorporated only into Pinpoint. During this part of the conversation I commented that wouldn't it have been better to put the best possible model into the DaVinci to impress the surgeons and in turn their hospital administrators. I was advised that all of the surgeons who have been using Firefly already are completely on board related to its value. They also resiterated to me that most of the hospital administrators that their salesmen visit now are already aware of the benefits of the equipment.
The salesmen now can concentrate in these cases in showing how much more superior Pinpoint is compared to Firefly (i.e. color coded organs, etc). An interesting marketing strategy.
As hard as I try to not become overly enthusiastic about the future of the company, unless the marketing effort is a complete disaster, the idea that there will be at least one of these machines in every hospital of any consequence in the future is becoming a very realistic possibilty.
You write but only firefly, unfortunately. To the best of my knowledge this was the only action we had in front of the FDA. What else were you hoping for from the FDA?
In my communications with the company, they did not address Taiwan. They did however indicate they expected their applications in China and South Korea to be approved in the 1st quarter of 2015, with japanese approval expected by the end of this year. If this Taiwan commentary is true, shouldn't the company have put out a press release?
Initially, it looked like institutional exposure on this company had declined for the first time last quarter. With all the institutions now reporting, their exposure has increased agai to 81% of shares outstanding. Of particular note are the following:
JPMorgan - up 300,000 to 6.2 million
FMR - up 2.7 million to 4.7 million
Marsico - up 900,000 to 3.3 million
Janus - up 300,000 to 2.4 million
Visiuim - up 600,000 to 2.0 million
Mass. Financial Serices - up 500,000 to 900,000
Looks like the vast majority of major institutional investors are remaining in place in spite of the sharp recent decline in the pps.
At the last conference call so much time was devoted to Lifecell and second half revenue growth, that a critically important and positive development received only minimal attention. it has also eceived minimal attention on this message board, particularly from the detractors.
We all follow closely the growth in the percentage of breast reconstruction surgeries that utilize our equipment. We do this because we know what a positive impact it would have on the company's revenues if our equipment became standard of care for that surgical procedure.
Now we have the CEO indicating that the clinical studies in using our equipment for G.I. surgeries and lymph node surgeries is so positive that two comprehensive further studies are commencing shortly. The objective of these studies is NOT to simply further verify the benefit of using our equipment for these procedures. The objective is to make a case that the benefits of this equipment warrant it receiving a standard of care designation. Think about the long term implications of that realistic possibility.
You indicate that Arun indicated that the 3rd quarter would be weak. My recollection is that he indicated that the 3rd quarter would come in at a growth rate of 35% but that would be offset by a stronger 4th quarter, with overall growth for the second half coming in at the projected 40%.
You acknowledge that the company is sitting on some of the most compelling technology in the medical system space. I could not agree more and it is compounded by the fact that there is no competition presently or on the horizon. If anything, the recent acquisitions are going to further extend their lead in their space. It was Arun who got them to this point, why lose faith in him now.
You want them to be bought out. At what price? $18 or $20 or $24? Will Johnson and Johnson pay a 100%.
markup? Even if they did, is that fair value for their technology? Look, I would agree that the battle field is covered with the bodies of Doctor CEO's who could not cross the bridge to becoming Business CEO's.
In my humble opinion, Arun is developing an excellent business model that will take full advantage of the company's superior products and competitive advantage. At the moment, I, for one, am not going to let the pps volatility take my eyes off what he has accomplished to date.
Around this time each quarter I begin checking institutional activity for the prior quarter. While 9 of the 10 largest institutions have not as yet reported, those that have have shown an aggregate reduction. It is the first time that institutional exposure has declined since I first invested in the company. So far, we have declined from 78.5% to 74.8%. One institution declined by 800,000 shares and two others declined by 400,000 each. Seven institutions, including the above, reported an aggregate decline of 2,049,000 shares.
There are many reasons for the rapid decline of this stock from early April until now, but in my opinion, the institutional herd instinct is the biggest. In the first quarter Novadaq unjustifiably became a momentum stock with the institutions piling in. This drove the stock up to a pps of $24 and it was way over bought. In April, with the company making absolutely no announcements, the stock declined 40%, as the institutions have and continue to pile out. We are now in the most oversold position in several years, with the RSI declining to 17.5% at its low yesterday. With only 55 million shares outstanding, the stock is being whip sawed by the herd mentality of the institutions.
Yesterday, I shared emails with the company related to a sensitivity I have that could be influencing how the analyst interpret revenue growth.
During conference calls and investor presentations, Arun has repeatedly indicated that it takes 9 to 12 months for a salesman to become productive. The problem I have is that he has never clearly defined what he considers productive.
Is productive the point at which the salesman is fully product trained and released to commence marketing.
Is productive the point at which a salesman places a transaction into the pipeline, or is productive the point at which a transaction is actually consumated and the equipment shipped. The sales force currently numbers 60. Since we have no clear idea of what stage of marketing productivity they are at, the entire issue of matching revenues with the size of the sales force is wide open to interpretation.
The issue is made more difficult because the company never addresses the Pipeline, which would give us some insight into marketing development. So, in my mind, the analyst are all marching to the beat of their own drums in reconciling revenues with size of sales force. At some point, if nothing else, Arun needs to clearly define what he considers productive to be.
The company emailed me back and expressed their appreciation for the observations and suggestions. I only say that because I have found their investor relations department to be vey responsive. So if you have a concern or a suggestion write them an email.
Ok, so lets look at the cylinders:
Cylinder 1) Deeply immersed in bringing a start from scratch salesforce up to speed. Now numbered at 60 salesmen,expected to go to at least 80 by year end.
Cylinder 2) The introduction of Pinpoint and Luna with significant upgrades to these machines already made and continuing to be made ( for example - each organ having its own color)
Cylinder 3) Completing clinical studies and soon commencing trials on lymph nodes and G.I.
Cylinder 4) Actively doing clinical studies on Endometriosis which will have its own specialized software.
Cylinder 5) Actively seeking International partnerships and I imagine some in the far east are already in place and are just awaiting regulatory approval scheduled for later this year.
Cylinder 6) Actively seeking acquisitions to complement the existing product line. Two have already occured this year.
Cylinder 7) Actively attempting to either have its partner Lifecell get its act together and expand the marketing effort into other arenas in which Spy Elite has an application, or take over the marketing effort themselves.
Cylinder 8) Very actively continuing research to identify more surgery applications for Pinpoint and Luna.
Tredleon, you have been in this stock as long as I have, maybe longer. You've seen how far they've come, particularly in the past two years, and yet you want them to go even faster. Sometimes going to fast can be reckless.
As it relates to the fact that endometriosis was not mentioned at the CC, the company indicated that progress continues to be made in this arena. However, because of overwhelming positive clinical data on G.I. and Lymph node, they have been put into clinicals first. They also indicated that specialized software will in all probability be developed for endometriosis.
As it relates to DaVinci Xi they again verified that the novadaq equipment is embedded in the system. The $200,000 deferred revenue only represents royalties that were deferred. There are now 900 davinci systems in place that have firefly. Firefly in Xi is the standard model. All the upgrades such as color etc are being reserved for Pinpoint, which I consider a smart marketing strategy.
Finally I asked about the now 47% decline in the pps since late march. They reiterated many of the comments made by the old timers here. Even adding in the Lifecell sales the sales to capitaization ratio is still a very high 10 plus. So, you have to expect a high degree of volatility as happened to not only Novadaq but many other companies in similar circumstances over the past several months. Overall, they see the current pps as a buying opportunity and some managers have taken advantage of the opportunity.
Overall, I was left with the impression the company is running on all eight cylinders, and as many here have said we need to see this period through.
I had communications with the company yesterday as it related to questions I had posed earlier in the week.
I was first advised that the company realized that many issues were not addressed at the last CC because a great deal of time was spent discussing the current status of the Lifecell partnership. As it relates to breast Cancer reconstruction the percentage of surgeries using our equipment is now at 17%. Based upon continued strong support from opinion leaders in that field the company remains very confident that at some point they will receive Standard of Care. They also reiterated what many on this message board have mentioned, that in the long run, from every perspective, it will be a positive event when the company takes over the marketing from Lifecell.
On the questions related to international sales I was advised that currently 8 systems are in place in hospitals throughout Europe. The company continues to have meaningful international partnership discussions. They expect regulatory approval in China and South Korea in the first quarter of 2015, and Japanese approval by the end of this year. Most importantly, the company will have in place and be presenting a comprehensive strategy for marketing internationally. They will present this strategy on Investor Day.
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I am getting ready to send and email to the new head of Investor relations dealing with issues not discussed at the recent conference call. I would appreciate your help in insuring I cover all the bases. Here are a few points I believe require an update:
1) What percentage of breast reconstruction surgeries are using spy elite? Are we getting any closer to standard of care?
2) Any progress in developing international partnerships, particularly in the far east?
3) Any further insight into what progress is being made in Endometrosis?
4) Is NVDQ equipment that is now embedded into DaVince a newer model or is it the old model? If a newer model, where the terms of the original agreement improved?
What additional questions should be added to the above list?
Thanks in advance
Bear in mind that royalty payments of firefly for the new Davince model were delayed until FDA clearance. That should more then make up for the $300 thousand short fall. Excellent procedure growth.
You usually listen to the ISRG conference calls. Any mention of FDA approval for our equipment in the DaVinci?
On occasion I have referred to the old Wall Street addage that money flows from the impatient to the patient. That philosophy has worked well for me over the past two plus years on this investment. However, patience is no guarantee an investment will be successful. Been there, done that.
So it is important to regularly question whether the actions of Novadaq warrant our continued patience. I, for one, listen to all of the presentations and all of the quarterly CC's, and all of the Investor Day presentations. When you see the continued upgrading of their equipment you have to ask yourself a couple of straight forward questions. Can a reputable hospital that performs a great nany complicated surgeries not have at least one of these machines in their surgery suites? Will surgeons who either see or become aware of the benefits of this equipment not apply increasing pressure on hospital administrators to obtain it? Are the surgery applications for this equipment expanding? Is the equipment cost effective enough to meet the requirements of a hospital administrator? If you follow this company closely, the answer to all of the above questions is an increasingly stronger and stronger yes.
Then add to the above the simple but critical fact that there is absolutely no current competitive equipment on the marketplace today or any time soon. My conclusion and the conclusion of many of the regulars here is that continued patience is overwhelmning justified,
Yes, given Canadian accounting practices, we could show a profit for the quarter. However, that is likely to be somewhat discounted. However, depending on the level of revenues, an operating profit is not out of the question. That would be incredibly good for us. I have to admit I never could fully understand why it needs to take 9 months to a year for a salesman at the company to become productive. I've been assuming that a majority of the salesforce hired come with some experience in marketing in the medical industry.