Irrespective of how the stock performs today, the Lifecell news is excellent. A contentious, legal battle with a partner is now behind us. Now, we receive 100% of the revenue on Spy sales. There will be little or no impact on selling expenses since Spy will now be sold by the existing salesforce. Salesman productivity will be improved because we have now placed another excellent arrow in their marketing quiver.
Bear in mind, this whole problem developed because Arun felt that Lifecell was completely focused on breast reconstruction and not selling other significant applications of the Spy system. Well done Arun !
A small point of clarification. While the ownership positions reported for the last reporting period of June 30th showed a continued uptick, that increase was primarily due to the $2.7 million increase of one institution, Fidelity.
For the period ending June 30th, 46 institutions increased their positions by a total of $7.6 million, while 60 institutions decreased their position by $6.1 million. Eliminating one institution (Fidelity) from the calculations would result in 45 institutions increasing their positions by a total of $4.9 million, which is substantially less then institutions selling during the quarter. Given the sharp run up in the pps over the past 2 years, it is to be expected that some institutions would take some of their profits off the table.
One of the primary causes of the steep drop in our pps during the April/May period was the uncertainty surrounding our partners, lifecell and Intuitive. During that time frame Intuitive was under significant pressure and the stock dropped from $536 to $347. The new DaVinci is selling well and the pps has recovered to about $519.
So, the Lifecell issue is now pretty much solved and inuitive has recovered. Hopefully, now it will be our turn.
As with other long term shareholders here, I do not believe the market is rift with conspiracies. However, the price of a relatively lightly traded stock can be readily manipulated by a big institutional player.
In early April the stock was at $24 and it was unquestionably overbought. When the momentum players sold the stock dropped into the high teens. The situation was exacerbated by a 130% increase in the short position from 1 million shares to 2.3 million. The stock continued to drop and reached a low in the middle of June of about $13.50. During the last 15 days of the 2nd quarter the stock price recovered and closed the quarter at $17.05.
We subsequently learn that during this incredibly trying quarter for this stock, one player, Fidelity increased its position by 2.7 million shares to 4.6 million shares. An increased investment of at least $40 million. Draw your own conclusions.
In spite of a continued stream of solid good news related to its products the stock has continued to drop and theshort position grow. Sure, some of this drop can be layed at the door step of a substantial market decline. But as I indicated in a previous posting, we are now selling at a price lower then the price of the stock in April of 2013, before we announced the preliminary results of Pilar I. Hard not to conclude that there is some substantial manipulation going on here.
During the third quarter, the pps continued its steady decline moving from about $17 down to $13 per share. Cumulatively, the stock had dropped 46% in the second and third quarters. In the third quarter, as you would expect, there were some substantial reductions in individual institutional exposures. Here are some of the larger ones:
Marisco sold out 3.3 million shares
Ameriprise sold 857 thousand shares
Wells Fargo sold 447 thousand shares
Broadfin sold 1 million shares
Even with the above sales, Institutional exposure increased to 84% to 46.6 million shares due primarily to the activity of two institutions:
Fidelity increased 3.5 million shares to 8.2 million
Janus increased 2.9 million shares to 5.3 million
JP Morgan Chase increased 22 thousand and remains above 6 million shares.
Given the substantial decrease in the pps, I would have thought the overall exposure would have declined.
While some well known names like Broadfin and Wells fargo substantially reduced, they did not sell out.
Overall, imho, many of these institutions believe that this company is taking to market a disruptive technology.
Quite frankly I was pleasantly surprised by how well the stock performed yesterday. The substantial increase was also supported by terrific volume. So let me expand on the reasons why I originally wrote excellent news.
First, as noted by others here, the time table for termination of the patnership arrangement has moded up by a full year. Since we now receive 100% of the revenue from Spy sales, the analyst have now modified upward their revenue projections for 2015.
Secondly, having full control of Spy sales should accelerate the percentage of breast reconstruction operations utilizing Spy equipment. This, in turn, will accelerate the equipment becoming standard of care for this type of operation.
Third, since part of the salesforce is responsible for increasing product utilization, we can now see a much greater push by the company to have hospitals that already have Spy equipment use the equipment for other type of operations as indicated by Arun in past conference calls. This was actually the fundamental reason why this partnership began to disintergrate.
I'll leave it to some other old hands here to expand on the above list.
For the period ending 11/15, short interest spiked up 254 thousand shares to 3,538,000, a record high short interest position. This spike up probably caused by the large increase in the pps at the end of october because of the settlement announced with lifecell. What are these folks thinking? Do they believe that the marketing effort will fail?
Happy Thanksgiving to all here.
Great posts, thanks.
Let me add one point.
Given the multiple pointed questions related to the Lifecell partnership it is increasingly apparent to me that much of the recent decline in pps can be layed at the footstep of the uncertainties associated with this arrangment. One analyst asked the following questions, Are you paying Lifecell the $4.5 million up front? What will motivate Lifecell to be cooperative in this transition? Will you lose customers as a result of this termination?
Arun responded by indicating that the $4.5 million payment takes place at the conclusion of the transition period. He indicated that a transition procedure has been agreed to and the management of Lifecell is being very cooperative because the spy elite customers will remain customers of Lifecell other products. It would not be in Lifecell's best interest to have a bad transition. The lifecell salesmen are already working closely with Novadaq salesmen to educate them and insure an orderly transition. Training of the Novadaq salesforce on spy elite will be complete by the end of November. At that point Novaday will takeover the marketing with Lifecell salesmen standing by to help with glitches as they occur. Arun further indicated that he does not expect any loss of customers from the termination of the agreement.
I believe his responses went a long way to eliminating the concerns of many of these analyst.
Again, do yourself a favor and listen to this CC, it is a very,very worthwhile hour and a half.
November 17th - Investor Day - starts at 10am eastern time and can be listened to online.
November 18th - Investor Presentation - Stiffel - online
November 20th - Investor presentation - Canaacord - online
While a great deal of information was shared with us at the recent quarterly conference call, the Investor day presentations will provide even better insight into how the medical community views our products and their various applications.
p.s. For those who cannot listen, we do have the good fortune that Pezel will be attending and reporting back anything significant that we don't already know.
One point of clarification
The number institutions who sold out their positions in the 3rd quarter were significantly higher then the number of new institutional investors. Over 4 million shares were sold out offset by only 1 million in new institutional exposure. At the same time, a surprisingly large number of Institutions did increase their exposures by varying amounts.
I have been monitoring Institutional activity for over two years now, so let me take a run at answering your question. Over the past two years institutional ownership has just about doubled from around 40% to 80% of shares outstanding. Even over the past two reporting periods for March 31st and June 30th, institutional exposure increased moderately. One major problem has been the significant incease in the short position, growing from 1 million shares at 3/31/14 to the current 3.3 million shares.
When the stock price reached $24 in early April, most if not all of the long term investors here would have admitted that the stock had gotten ahead of itself due to momentum buying. So, when you combine momentum buyers selling and a rapidly increasing short position, you can see how much pressure the stock price was under.
Now add to that a slight decrease in the revenue forecast for the 3rd quarter and that fueled the fire and the aggressiveness of the shorts. Another factor to consider is that many of the Institutions that had owned the stock for years sold down given the sizable profits they had already earned. In following institutional activity I am comforted by the fact that with one exception there has not been any major sales by those institutions with the largest positions.
My apologies if this point was already covered. Arun, when asked, indicated that a double digit number of teaching hospitals throughout the U.S. have all three machines, Spy Elite, Pinpoint and Luna, at their facilities.
If you have an investment in this company, do yourself a big favor and listen to the conference call. It lasted an hour and a half and covered the entire landscape in great detail.
The company will be presenting at the following conferences in November:
Barclays - November 3
Stifel - November 18 at 1:50pm
Canaccord - November 20 at 9:30am
I am also curious as to how you came up with that revenue number. My recollection of Arun's comments at the last CC was that he expected 3rd quarter revenue to grow by about 35%, slightly below their basic projection of 40%. He then stated that he expected 4th quarter revenue growth to exceed the 40%, bringing overall growth for the second half of 2014 to 40%.
Utilizing those projections and the fact that 3rd quarter 2013 revenue came in at $8.9 million, I'm expecting revenue in the $12 million range, hopefully no lower. I would love to see your number of $14.9 million in revenue, but I honestly don't see how such a number is possible given Arun's comments.
While we don't as yet know exactly why the pps is under such extraordinary pressure, we certainly know the decline has to be primarily due to heavy institutional selling. As of 6/30/14, the institutions held 81% of the shares outstanding. When you add to that the shares controlled by management, there is not much left for retail ownership.
Some here contend that such events as the Lifecell partnership deteriorating, and supposed poor performance by Intuitive Surgery are big problems. These events go back quite a few months ago. Fidelity had to know about those events and yet they added over 2.5 million shares last quarter. Is Lifecell really a long term problem? Afterall, Arun is ending the relationship because Lifecell is not marketing Spy comprehensively for multiple applications. Lifecell, even after being provided with clear evidence, has continued to concentrate its efforts solely on breast reconstruction. Good bye to them.
Is Intuitive really having a problem? Prior to this overall market collapse, the stock had moved up from a pps of $340 to over $500.
Unquestionably, much of our decline in pps has to be layed at the door step of marketing and revenues. Nothing else makes any sense. Is the salesforce turning over to rapidly? No idea. Are the the products becoming difficult to sell in this enviornment? Who knows?
What I do know is that such a large pps drop has to mean some institutions for whatever reasons are selling down, particularly lately. Almost a million shares yesterday. All it takes is one or two institutions to decide to get out and this stock will get pressured for an extended period of time. Hopefully, that is what is happening, becuase for the life of me, I cannot identify a fundamental other then marketing that would justify this drop.
You are right in that this past January they preannounced earnings just prior to a major JP Morgan Chase presentation. In looking at the short blurb in the press release I don't think they are making a standard presentation at Barclays. I think it is more along the lines of a Q & A session. They don't even list the time of that presentation and it is not being carried on their website. Yes it could be exciting, but at times like this I tend to climb a wall of worry. While I would also love to see AG's revenue numbers, I am just basicly hopeful that the revenue comes in at up 35 % and Arun strongly indicates in his remarks that he fully expects 4th quarter revenue growth to be more then 40%, giving them 40% growth for the last half of 2014. I am also hopeful that he paints a strong revenue forecast for 2015. Now, let me get back to my worry wall climbing. lol