CPTS is at an interesting inflection point. The DTC campaign should be in full swing, revenues are growing at a pace that is faster than most of the expenses, and competition is barely there.
Regarding competition: Hologix' Adiana is in limited launch mode. It'll be interesting to see if it's much of a threat. We know how long it took for CPTS to get momentum in training doctors and getting them aware of Essure. It may not take so long for Hologic, as CPTS has done some of the heavy lifting in the department of awareness. Hologic already has a network in GYN for NovaSure. Further, Adiana is smaller & cheaper, and a bit easier to install (no anesthesia or sedation required). It's Achilles heal is efficacy: the pregnancy rate per procedure with Adiana is about 1/50, while for Essure it's 1/1000. According to CPTS, 2/3 of Adiana failures are "method failures," meaning failure of the device to perform, as opposed to an improper implant. This is important, because you can get implant failure rate down with education & experience, but not method failure. The implication is that Adiana will never be lower than 12/1000.
Out of pocket expense for the patient is usually copays of ~$20 for Essure. Insurers might not be lured by Adiana's upfront cheapness when compared to paying the cost of more unwanted pregnancies. To me, the higher pregnancy rate for Adiana is a significant problem for Hologic, and I think they'll have a hard time gaining traction. This is important to watch, because CPTS is a one trick pony.
I think Hologic and Adiana will need a couple of years before they can even try to make inroads. In the meantime, Conceptus is in its prime. Revenues are growing steadily, there is plenty of market left. Earnings have been and will be a little choppy for a while. R&D goes up and down as CPTS puts each new generation of device and implant protocol into place. This has the goal of making the procedure easier, and more slanted to in-office -- which is cheaper for all concerned, and no hit to ASP. But these waves of R&D hit expenses at times. I would need to listen to the next CC to get a handle on how many more such waves are coming. Incidentally, as of a year ago, in-office procedures accounted for 60% of the total. I assume the number is higher now.
The macro environment -- i.e. the crappy economy -- is about a wash. The desire to spend less on elective procedures is offset by the desire not to have children when you can't afford them. Long term use of condoms might actually be more expensive for the patient, and of course, less fun. This is in the context of insurance paying for most of the procedure. No indication that will change under ObamaCare.
CPTS' recent guidance on revenues and expenses has been pretty solid. A miss might yield a pullback that would provide a good entry for the long haul. In general, I am favorably impressed with execution over the last few quarters. My Mom remains a long term holder, and I might be looking for an entry myself.
Thanks for spurring me to take a fresh look here.
Cheers, Tuck |
