I wanted to mention that the product is called DermACELL, not Duracell. Arun thought Q1 revenue from DermACELL could be a "few hundred thousand" from the hospitals that are testing it, increasing more in the second half of the year.
Also, regarding Arun's comment calling this year the year of execution, I believe this is in relation to the fact he called 2014 a transition year. This seemed to be because of the transition of recurring revenue being a larger part of the revenue stream.
Finally, they are very difficult to model. Not only because it's in its early growth stages with a lot of new products, but also because the terminology Arun uses changes frequently and they don't provide consistent metrics, something Arun mentioned will change in 2015. We shall see.
What are people feeling about the call?
I'm glad they explained the revenue hits because of ending the contract with LifeCell. I like that huge growth in PINPOINT/LUNA. I like the sales mix numbers for 2015 (90% direct revenue and 10% of the revenue should be international).
I need to investigate Stryker's entry into the market. I also was surprised that LifeCell let 25% of the SPY Elite base get to a point where it needs to be "revived" (Arun's words).
Thoughts from you guys?
I appreciate you posting your response from IR yesterday. Hopefully after a few more quarters it will be easier to model the productivity of the new sales team.
You're correct. On November 7, 2013 Novadaq entered an agreement with Swissray Asia to become the exclusive distributor of Novadaq products in Australia and Indonesia as well as other SE Asia and Oceania countries. It said that there has been an agreement on minimum annual purchase commitments but Arun has never mentioned these publicly, to my knowlege.
They also have an agreement with CHC Healthcare to distribute their products in China and Taiwan, once again with minimum annual purchases required. CHC hoped to begin importation into Taiwan as soon as they receive government approval, possibly by the end of Q2 2014 and in China possibly by Q3 2014.
So, Novadaq is moving ahead on the international front. Maybe he will address any approvals in the next CC. I really would like to see an agreement to distribute in Japan, but maybe that is covered by the Swissray Asia agreement. Japan is a huge sales opportunity, just like it is for Intuitive, and I'd like to see the approval process get started there ASAP.
The main revenue driver is going to be PINPOINT and LUNA. Novadaq doesn't get much revenue from Intuitive and while it sounded like LifeCell had good procedure numbers their inventory purchases were way down.
I was a little surprised by the $4.6M in PINPOINT and LUNA sales. That's up 39% just from last quarter. The direct sales team is starting to ramp up sales. Arun said 65 salespeople at the end of Q1, about 70 as of the CC and "triple digits" by the end of the year, with a long-term goal of 150-200, with a transition from capital sales to utilization sales. I think as these salespeople get up to speed (which Arun said was 9 months to get to "productive stage"), we are going to see rapidly-expanding revenue growth, likely starting a bit in Q3 but by Q4 for sure.
I guess with the share price dropping so much so far this quarter we should see non-cash warrant revaluation expense decline quite a bit, so the Q2 loss might not be as bad. I really think that Q4 is where Novadaq finally may become profitable, but with a 50%+ increase in current salesperson numbers by the end of the year, that may get pushed back into 2015. However, even with the less-than-ideal revenue numbers I am very excited about the next few years.
Novadaq has also mentioned that equipment sales can take more than a quarter to close, so Q1 may not be as affected by the ACA as Q2 or Q3.
Yeah. I think that they pre-announced January 14th because they were presenting at the JP Morgan Healthcare Conference later that day.
At last week's RBC Capital Markets Healthcare Conference Arun mentioned to Doug Miehm that there will be a "phase III-type trial" beginning soon and they will discuss that in the Q1 CC. This must be the next stage of PILLAR he's referring to.
I know I heard/read that figure of each salesperson contributing $1 million in revenue annually about a year after hire, and you've mentioned it on here a number of times, but when I went back and tried to find that exact comment by Arun I couldn't find it.
Do you remember where it came from? I didn't see it in any of the presentation notes I made, so maybe a quarterly CC? I'm thinking it may have been 6-9 months ago that he mentioned it? I'm just trying to get a grip on future revenue. Thanks!
I think of it as dilution also, especially when it comes to the future beyond a few years, because that is what it is. However, if they use this money wisely, I think it greatly increases the odds of a bright future, whether by extending their first-mover advantage or purchasing technology, intellectual rights, etc. that will make it more difficult for a competitor. If they use the money exceptionally wisely it could make the company something it wouldn't have been without it, which could actually produce the same share price, just a larger market cap.
I agree. I think it has to be an acquisition as they could get any infrastructure improvements at Richmond financed, though I had thought that the manufacturing capacity would be adequate right now anyhow. I don't know what technology is out there or its valuation, but based on their purchases thusfar I don't see any other obvious way to spend $105M+. Anyone have any ideas on what company it could be? I know there is a European competitor out there...
After looking at the conference schedule I believe this is the paper/presentation:
3:00 pm 50
TISSUE EXPANDER BREAST RECONSTRUCTIONS EXPERIENCE FEWER COMPLICATIONS WHEN SKIN FLAPS ARE ASSESSED WITH LASER FLUORESCENT ANGIOGRAPHY RATHER THAN CLINICAL JUDGEMENT ALONE Presenter: Patrick Garvey, MD
Affiliation: UT MD Anderson Cancer Ctr.
Co-Authors: Selber JC; Hobaugh CW; Zhang H; Butler CE; Baumann DP; Butler C
No. During the CC Arun answered a question about their growth in the breast recon market with this: "I think that the upcoming publication from MD Anderson should play another positive roll and hopefully be one of the more landmark papers that will drive this towards mass adoption." At another point in the CC they mentioned the paper was to be released tomorrow.
I agree. This could be an investment to help build up inventory if they receive standard of care? I think it was andersongordon who posted some numbers indicating that Novadaq's current manufacturing capabilities could handle a large increase in orders, but maybe this will increase it enough that they need to increase capacity at the Vancouver plant? That way no increase in sales force but in manufacturing. As of now it's all speculation but hopefully this will become clearer soon.
I hope you're right that they are using this because they believe that they will need to quickly expand to meet demand. However, right now they have 20 salespeople for PINPOINT/LUNA and in the CC Arun said they may add 3-4 this month and then expanding this summer with the long-term goal of 80-100 salespeople. So, I don't really see this as being the cause, though it's tough to say and we probably won't have it addressed until the Q2 CC.
Another possibility is that they believe they will very soon become standard of care in breast reconstructive surgery. They had 14% of the market at the end of Q1 and the big MD Anderson study is coming out tomorrow at the 2013 Plastic Surgery Research Council meeting. Arun had mentioned this could happen once they have 15-20% of the market. Just a thought.
That's too bad. The message boards are typically the only reason that I use Yahoo Finance. There was a lot of good info here. Well, actually it was only about 0.05% of everything posted on here, but it was good to hear others qualified opinions, especially when they seemed to have facts to back up their opinions.
You're exactly right. I was thinking back when it was 85 in 2009. There will be an overreaction but it's going to drop to 400. It's going to take at least a week to sort out what the market values the new Apple at. A company with old products and declining market share definitely needs a lower PE. Could bounce back with big innovations, but I don't see it as the competition has caught up with Apple.
I just finished digesting the CC. I’d like to hear what everyone else’s views are.
I guess I initially had hoped they’d become cash-flow positive by the end of the year, but it seems like the PINPOINT ramp-up will push that back, probably into late 2013? However, with the investment they’re making in PINPOINT, and their strategy of expanding their base, I see PINPOINT as being an expensive introduction of a product that will start generating “significant revenue” in 2013. Dr. Menawat said I he’d have to guess, he’d say the burn rate through 2012 would be in the $5-10M range, with the majority of that being for PINPOINT, and some of it going into the nerve imaging R&D. They should begin issuing guidance starting in 2013.
He finished with this, which I’ve paraphrased a little to (slightly) clean up:
“You can see that this has the potential of becoming a very big business and a very cash-flow business at some point, and as we get predictability my hope is, and I’m not necessarily committing to it, that starting in 2013 we will be able to provide revenue guidance. But my bigger message really is that we are a big agenda company. We have spent our time essentially creating a market describing the value to surgeons. We think we are over that hump. We think that the surgeons get it now. We think that there is a lot of clinical data that says that this technology is really valuable, and thereby I think it’s a matter of time. We have multiple partners, everyone is a leader, and we have our own product, I think that we (have) really positioned ourselves to be the leader in the space, and that is really our current message”.
"It's like picking up nickels in front of a steam roller". Well put.
Personally, I am wondering how high the PE can go in the current market. Japan system sales should help sustain ISRG in the near future but I'm really interested in growth and adoption of procedures outside of dVP and dVH.