Is Stereotaxis the Next Intuitive Surgical?
by: Bapcha's Stocks posted on: August 20, 2008 | about stocks: HNSN / ISRG / STXS
Intuitive Surgical (ISRG) needs no introduction. The company's daVinci surgical robot is allowing the company to grow at a heady rate, and added to this, ISRG makes a gamut of disposable tools (which serve as the "working end" of the robotic arm used in surgery) which need to be "renewed" for every surgery. The tools provide ISRG a stream of revenue in a manner that is similar to Gillette's blades. ISRG's revenues are almost at a billion dollars a year run-rate, and it sports a market cap of over $10 Billion. The largest company that exclusively focuses on medical devices is Medtronic (MDT). MDT's market value was at $10 billion - back in 1995 - the same year that ISRG was founded.
There is still a lot of money to be made, and in ISRG, there always is room for newer disruptive technologies in the field of MIS (minimally invasive surgery). The two companies of today - which are often compared with ISRG - albeit with ISRG from about a half a dozen years ago, are: Hansen Medical (HNSN) and Stereotaxis (STXS). Hansen1 develops, manufactures and sells a new generation of medical robots designed for accurate positioning, manipulation and stable control of catheters and catheter-based technologies. Stereotaxis2 focuses on the cardiac surgery market, and enables physicians to complete more complex interventional procedures by providing image guided delivery of catheters and guidewires through the blood vessels and chambers of the heart to treatment sites.
STXS has an extensive array of patents covering its magnetically guided catheter systems. HNSN has an equally impressive array of patents protecting its Sensei system. After a review of both patent portfolios, I'm confident that STXS has an edge over HNSN. Plus, STXS's system has a huge operational advantage - its catheters are substantially slimmer than HNSN's comparable ones. This is due to the fact that STXS's catheters have a magnetic tip, and are guided by a magnetic field surrounding the patient - while HNSN's guidance wires are bundled with the catheters (and hence thicker).
STXS's system has one huge disadvantage - the room in which the system is located needs to be custom built with magnetic shielding. Also, operational procedures similar to those taken by MRI facilities (no ferrous/ferric/magnetic stuff anywhere close to the system or the room it is in) need to be taken into account. In short, once a STXS magnetic guidance system is in place, it is cost-prohibitive to even think of moving it.
HNSN's most recent quarterly numbers were hampered by "sales lumpiness", but the company fell short of its goal for quarterly system sales (system sales drive the sale of disposables). STXS has the edge in system sales for now - despite the fact that its systems are a lot more difficult to deploy. But, STXS had its own missteps, and had to go back and re-engineer its magnetic irrigated catheter (it needs to be re-approved by the FDA). Optimistically, this will contribute to revenues in calendar Q1-2009.
STXS Q2, 2008 STXS Q2, 2007 HNSN Q2, 2008 HNSN Q2, 2007 ISRG Q2, 2001 ISRG Q2, 2000
Revenues 10.66M 7.84M 5.8M 2.4M 12.72M 5.13M
R&D 4.8M 7.1M 6.3M 4.4M 3.3M 2.8M
Gross profits 6.5M 3.5M 1.08M 0.781M 6.1M 1.6M
EPS (0.35) (0.42) (0.60) (0.37) (0.12) (0.23)
Shares 36.5M 36.1M 24.7M 21.5M 35.6M 19.8M
From the table, one can see similarities in the numbers. ISRG had a reverse 1 for 2 split in July 2003 - which means that there was 100% dilution from the point of time that I chose to pick in 2001 for ISRG. STXS has been smart with its money, and got a $18 million payment in royalty from Biosense Webster - its partner in the manufacture of ablation catheters. Looking at numbers from other 10Q's filed by ISRG, ISRG extracted much more in sales for the amount of expenditure on R&D - even in the early stages of the company.
The bottom-line:
1. There is no clear winner here in the battle for becoming the next ISRG. In fact, the next ISRG is ISRG - as it has another half a decade of growth left in it.
2. Between STXS and HNSN, my pick is STXS, because its technology has been through 10,000 cardiac procedures, some so complex that they were not attempted before STXS's Niobe entered the fray.
3. HNSN can use the fact that it is more easily deployable to get an edge over STXS, but at the end of the day, the thinner, more routable STXS catheters will be able to perform surgeries that HNSN's Sensei cannot touch.
4. Both companies are burning money now, and will probably continue to do so for another three years. So, there is no urgency to get into either stock.
Operating rooms are rarely re-located. Neither are MRI labs. So, STXS's biggest negative is probably not a big deal in most cases.
Notes:
1. I have no positions in either stock. May initiate in the near future.
2. From Hansen's latest 10Q.
3. From Stereotaxis' latest 10Q.
4. ISRG's 2001 10Q.
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