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AVH, AVITA MEDICAL LTD
odi01
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odi01
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odi01
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odi01
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Stereotaxis - Acquisition Of Robotic Vascular Peer Underscores Substantial Upside Potential, Private Placement Another Positive
Sept. 3, 2019 2:05 PM ETStereotaxis, Inc. (STXS)AVMXY, CVRS, ISRG...13 Comments
Summary
Active M&A environment in Robotic Medical Device Segment continues with Siemens Healthineers’ $1.1 billion acquisition of Stereotaxis’ peer Corindus Vascular Robotics.
CVRS acquisition validates significant market potential for robotics in cardiac and neurovascular markets, and the P/S multiples paid for it would imply a $13-26/share valuation for STXS.
As per the latest of 350+ peer-reviewed publications, Stereotaxis robotic platform now carries trifecta of clinical superiority, safety and speed.
Securing $25 million via private placement from smart healthcare funds, including Redmile Group, provides foundation for faster growth and expansion of procedure indications.
Stereotaxis recently discussed opportunity to target cancer for first time, and that's noteworthy on heels of J&J's $5 billion Auris Health acquisition.
Active M&A Environment in Robotic Medical Device Segment Continues; Following J&J’s Acquisition of Auris Health for $5 Billion in February 2019, Stereotaxis’ Robotic Vascular Peer Corindus Vascular Robotics (NYSEMKT:CVRS) is being Acquired for $1.1 Billion by Siemens Healthineers; Notably Stereotaxis has Similar (if not Larger) Growth Opportunity Ahead

In the valuation/summary section of the prior SA article posted in May 2019 entitled Stereotaxis: Well Positioned To Become 'Intuitive Surgical Of Endovascular Surgery' With Genesis Launch And Proprietary Catheter Development, Corindus Vascular Robotics was highlighted as one of two robotic medical peers trading at a significantly higher P/Sales multiple than Stereotaxis (OTC:STXS). Since that analysis, Siemens Healthineers (OTCPK:SMMNY) has bid $1.1 billion to acquire Corindus, making Stereotaxis’ current valuation even more attractive, especially considering their higher revenues, lower cash burn, nearness to profitability, larger install base, and similar (if not greater) growth opportunity ahead.


Placing comparable P/S multiples on Stereotaxis for what Corindus was acquired for (102x, ~61X, and ~38X on actual FY18, estimated FY19, and estimated FY20 revenues respectively) would yield a value between $13-26/share for STXS today. This valuation range takes into consideration Stereotaxis’ higher shares outstanding, now approximately 114 million shares after the recent $25 million private placement led by Redmile Group.

Clearly these valuation levels reflect a takeout price of a robotic vascular peer, and this section is not suggesting that Stereotaxis is worth those levels today based on its fundamentals. Yet the future growth opportunity is arguably just as large, if not larger, for Stereotaxis as it is for Corindus as well as for Auris Health, which was acquired by J&J (JNJ) for $5 billion in February 2019.

As discussed in the prior SA article, Stereotaxis has broad regulatory clearance across the vascular system, including neurovascular, peripheral anatomy, and coronary vasculature procedures, making its total addressable market quite significant. Its unique robotic "pull" mechanism of action utilizes magnetism to more precisely and safely steer devices throughout the vascular system, as opposed to other robotic and manual approaches that use a “push” mechanism of action. This magnetic “pull” approach allows reach into areas of the vascular system that would be otherwise inaccessible via “push” approaches, including robotic and manual.

In light of this significant market opportunity and superior approach, under an acquisition scenario I do believe Stereotaxis can garner a value closer to $13-16/share based on similar forward P/sales metrics for FY2019 & FY2020 that Corindus is receiving at the $1.1 billion price tag, or even higher when taking into consideration the $5 billion ($3.4 billion in cash upfront) J&J paid for Auris Health earlier this year. This ‘takeout’ valuation level for STXS conservatively assumes $29 million in FY2019 sales growing to $38 million in FY2020, representing 31% year-over-year growth. Beyond 2020, Stereotaxis should see continued rapid growth for multiple years driven by new/replacement sales of its Genesis system along with the launch of its proprietary catheter currently under development. On its recent Q2’2019 conference call, CEO David Fischel noted that since unveiling their Innovation Plan three months ago it has been“an amazingly energetic period…The broad enthusiastic response validates that our innovation and strategic decisions were sound…We are confident in our expectation for significant revenue growth in the years ahead”.


Source: http://www.roboticep.com

Here is some more detail on the revenue estimates provided for FY2019, FY2020, and beyond:

For FY2019 - The $29 million estimate is based on ~$28 million in recurring high-margin revenue plus one new Niobe system sale to the Kansas City Heart Rhythm Institute to treat arrhythmia patients, which will be recognized in fiscal Q3’2019. This updated estimate for FY2019 factors in the receipt of a CE Mark for its Genesis system in May 2019 and a 6+ month sales cycle. On the Q2 call the CEO provided the following detail on Europe, US, Q3 outlook and color around new/replacement Genesis cycle: “In Europe, where we have regulatory clearance for the full robotic lab solution, including Genesis and Stereotaxis Imaging, we've begun engaging with existing hospital customers on replacement projects and with new potential customers on building robotic EP labs. In the US, we are advancing towards regulatory approval...In the third quarter, we expect to recognize the sale of a new Niobe robotic system to Overland Park Regional Medical Center, part of HCA Midwest Health. We expect in the coming months to be able to provide you with additional confidence that the replacement cycle opportunity for Genesis is real, and that our innovations support robotic adoption by new customers”.
For FY2020 - The $38 million estimate suggests growth of 31% y-o-y and represents the beginning of a multi-year replacement cycle for the Genesis system, with contributions from both Europe (CE Mark received in May 2019) and the US (pending FDA approval of the system which I anticipate within the next 4-6 months). As previously detailed in the prior SA article, management sees potential for ~$15 million annually from a Genesis replacement cycle. Considering (1) a 6+ month sales cycle, (2) CE Mark approval in May 2019, and (3) expected FDA approval near year-end, the $38 million revenue estimate for FY2020 factors the company achieving $9 million in replacement and new Genesis system sales. With respect to potential timing of FDA approval and a full global launch, management stated on the Q2 call: “We still think that some timeline around the end of this year, beginning of next year as a full launch globally seems reasonable”.
Beyond FY2020 - While this analysis will not look past 2020 in terms of specific revenue estimates, moving into FY2021 and beyond I’d anticipate the Genesis replacement cycle will be closer to management’s $15 million annual estimate. Stereotaxis’ other major driver of future sales is their proprietary catheter currently under development in collaboration with Osypka. As discussed in the prior SA article, management estimated that using just their existing global procedure volume its proprietary ablation catheter could generate "over $20 million in incremental high-margin annual revenue". That suggests potentially ~$48 million in high-margin recurring revenues annually after the launch of the catheter, without adding a single new customer. From a timeline perspective, management anticipates potential European approval for its proprietary catheters by the end of 2020 and potential FDA approval by 2022/2023, based off their comments on their Q1'2019 call.

From an overall profit perspective, the $38 million sales estimate for FY2020 could lead to a similar profit margin near the 72% achieved in FY2015; that is the last year the company had $10 million in hardware sales (generated from Niobe and Odyssey system sales). Given the costs that have been removed from the model in recent years, that could mean Stereotaxis reaching profitability next year just on the Genesis replacement cycle alone. Additionally, based on management commentary we may see some proprietary catheter sales beginning in 2H of 2020 in their sizeable European market, that would be additive to any replacement or new Genesis system sales. The sooner-than-later accretive nature of Stereotaxis should bolster its potential as a takeover candidate…more on that potential later.

Stereotaxis Robotic System has Regulatory Clearance for Navigation of Interventional Devices Broadly Throughout Vascular System; Recent $25 Million Private Placement Led by Redmile Group Will Help Speed Up Innovation in Electrophysiology and Kickstart Novel Applications Beyond Cardiac Ablation; Attracting Healthcare-Focused Institutional Investor Like Redmile Group is a Positive Development

From an expansion of procedures perspective, Stereotaxis has remained prudently focused on its large opportunity in cardiac ablation procedures, yet it has broad regulatory clearance throughout the vascular system, including cardiac, neurovascular and peripheral vascular procedures. Management has referred to the Genesis robotic system as a launching pad for future expansion noting "it serves as a platform on which potential future ventures in new endovascular anatomies are possible" and it is “a platform able to accommodate significant innovation in the future".

As mentioned, the total addressable market between cardiac, neurovascular, and peripheral procedures is quite significant. Stereotaxis has been cash constrained for years limiting its focus to cardiac ablation procedures, but thanks to a management/Board-led investment of $34 million in recent years and a new $25 million private placement in August 2019, that is changing for the better creating a substantial opportunity ahead for current and future shareholders. When discussing that $25 million private placement led by Redmile Group LLC on the Q2 call, the CEO had the following comments on broadening applications beyond cardiac ablation and expanding the sales team to better capture Stereotaxis’ significant opportunity ahead:

“This financing will allow us to initiate earlier, and advance more rapidly, multiple undisclosed innovation projects. I classify these projects into two general categories: a second wave of innovation in electrophysiology and novel applications for robotic magnetic navigation in interventional medicine. These projects will not have near-term impact on revenue, but are expected to have highly attractive IRRs to fuel future market share growth in electrophysiology and to create additional pillars of value for Stereotaxis outside of electrophysiology. I look forward to sharing additional updates as appropriate..."
"…A strong balance sheet will accelerate and support our commercial growth activities…While I'm confident the existing teams will be able to successfully commercialize our Genesis robotic system and next-generation ablation catheter at existing customers, we have limited bandwidth to focus on the 99% of the electrophysiology market that is not currently robotic. There's a real opportunity is that Stereotaxis has less than 1% share of a $4 billion and growing market. Given the clinical benefits of our technology, every electrophysiology lab should have a robotic system. This financing will allow us to thoughtfully expand our global commercial teams and execute on the opportunity.”
Management commentary on recent quarterly calls highlight that future expansion beyond cardiac is now clearly in focus for Stereotaxis, and their intent to expand procedure indications is more evident today than it has been since the company originally went public. The prior SA article discussed potential expansion into neurovascular applications (in particular for stroke patients), peripheral anatomy, pulmonary indications, and bronchial anatomy. Another indication has come to light since that last SA article was published in May 2019…cancer.


While the July 2019 article in Robotics Tomorrow entitled “Treating Heart Disease with Robotic Precision and Safety” did not have much new info, it was the first time I've ever seen cancer specifically mentioned as an area of potential focus. When asked "What type of patients does it impact now and who might it help in the future?”, Stereotaxis CEO answered: “Stereotaxis RMN is currently used to help treat patients suffering from cardiac arrhythmias... arrhythmias affect tens of millions of individuals worldwide. The technology serves as a platform for performing minimally invasive endovascular procedures. Looking ahead, Stereotaxis intends to apply the benefits of its robotic technology and proven safety into other fields, such as in the treatment of stroke, vascular disease, and various cancers." As mentioned in the prior SA article, the $5+ billion acquisition of Auris Health by J&J carries implications for Stereotaxis, and notably Auris' initial focus is on lung cancer...more on that later.

Shifting back to Redmile Group LLC, it is a ~$3 billion fund known for their healthcare focus and expertise that according to Bloomberg has 97% of its portfolio invested in healthcare. Having them lead the $25 million private placement is a major win for Stereotaxis and represents an inflection point in the management/Board led turnaround effort. With respect to my own experience with Redmile Group, I’ve had the good fortune of being involved in another medical device name that they also led a private placement in. That company is Avita Medical (OTCQX:AVMXY, AVH.AU), and from a 10,000-foot level there are broad similarities between the two companies including:

both have promising technologies that under prior management had not reached their full potential,
both have next generation platforms that could be transformational to their respective markets,
both are in a situation where a large capital infusion can help advance “idle-waiting-to-be-kickstarted” applications & pipeline opportunities into additional high-value areas, and
both have a clear edge from a clinical perspective, including efficacy and safety, over current ‘standard-of-care’ conventional approaches.
Let’s hope there is one other similarity here; Avita Medical shares have appreciated roughly 500% in the 9 months since its private placement that Redmile Group led in December 2018. I believe Stereotaxis has similar potential over the next 12-18 months, and it is reassuring to see smart institutional money like Redmile invest in the company at these levels and at this juncture.

https://seekingalpha.com/article/4289369-st...pside-potential



 
odi01
post Posted: Sep 10 2019, 08:14 PM
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https://finfeed.com/small-caps/biotech/heal...-sector-part-1/

 
odi01
post Posted: Sep 6 2019, 11:40 AM
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https://www.asx.com.au/asx/statistics/displ...;idsId=02144031

 
 


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