Independent Security Analysis. Technical Analysis. Fundamental Analysis. Watchlists. My Portfolio.

Independent Security Analysis. Technical Analysis. Fundamental Analysis. Watchlists. My Portfolio.

Browsing "Older Posts"

Neovasc Part II: Recent Developments Provide Even More Upside Than Previously Thought

By The Wall Street Fox → Monday, November 25, 2013
 
Since I first highlighted Neovasc (NVCIF) in an article published last month, the stock has jumped more than 50% and the company announced several bullish updates that make an even stronger case for why this severely undervalued medical device company should be trading at much higher valuations.
 
Neovasc is developing two groundbreaking devices for the cardiovascular space, and has a profitable core operating business that produces tissue like leaflets for aortic heart valves and stents. Phillip Frost and his company OPKO Health (OPK) both have a stake in Neovasc.
 
 
My original NVCN article was published on October 28th ((A)).
 
On October 29th ((B)), Neovasc presented at the 2013 TCT in San Francisco and announced positive pre-clinical results for its Tiara device.
 
On November 6th ((C)), Neovasc reported positive top-line results of its COSIRA trial, which assessed the safety and effectiveness of their novel product, The Reducer.
 
On November 13th ((D)), Neovasc received its first US patent for its novel Tiara device, a transcatheter mitral valve.
 
On November 20th ((E)), Neovasc released strong quarterly earnings showcasing the potential of their core PeriPatch division.
 
Neovasc's share price has experienced a steady rise in the past month, and there is still a considerable amount of value that is not yet reflected in today's share price. The recent company updates will allow shares to continue their run, here's why.
 
Core Business and Earnings
 
Neovasc's quarterly earnings released last week were better than any could have hoped. The company's core tissue division continues to post solid figures, and its revenue growth has been outstanding. For Q3 2013, revenues increased 80% year over year and 30% quarter over quarter to $3.6 million. This growth is largely due to the sharp increase in consulting services that Neovasc provides to medical device companies. Consulting service revenues jumped 350% year over year, increasing from $530,000 to $2,400,000. This growth should continue to accelerate as more companies receive FDA approval and begin selling their heart valve devices that utilize Neovasc's Peripatch tissue.
 
Neovasc posted increased gross margins of 41% for Q3, compared to 36% a year prior. The company's margins are impressive, and they are bound to continue their improvement once the company stops producing surgical patches. Neovasc recently divested their surgical patch division to LeMaitre Vascular for $4.6 million. The terms of this transaction require Neovasc to continue the production of the patches for LeMaitre until LeMaitre obtains approval from the FDA for their production facilities. This is expected to occur in Q4 2013 or Q1 2014. Once Neovasc completely divests its surgical patch production, the company will be able to dedicate more people, clean room space, and materials to their more profitable tissue products, which should result in higher profit margins for the company. The robust growth of Neovasc's Peripatch division, its state of the art clean room facilities, and its unique relationship with its customers, as explained in my previous article, support my valuation of approximately $3.00 per share.
 
The Reducer
 
Neovasc announced top-line results from their COSIRA clinical trial on November 6th and they were spectacular, officially paving the way for widespread adoption of the device. The Reducer is already CE marked in Europe, and plans to begin US trials soon. The Reducer provides treatment to more than 2.5 million patients who suffer from refractory angina ((RA)), which currently has no effective treatment. While there are still final results yet to be published, it is now certain that the Reducer will meet all necessary standards and soon be a viable treatment for all patients suffering from RA. The company is still analyzing the data, and plans to release the complete results near the end of 2013.
It's difficult to accurately value The Reducer because there is truly no comparable device out on the market today, which is why there is so much excitement behind this device and Neovasc in general. The closest comp is Adrian, a medical device company that was sold to Medtronic (MDT) for $800 million in 2010 (plus commercial milestone payments). Adrian produced a novel catheter-based device that alters blood flow to aid in reducing blood pressure. The Reducer is a novel catheter-based device that alters blood flow in the heart's venous system to provide life-changing relief to RA patients. At the same valuation, The Reducer would be worth $14 per share.
 
For a more cautious valuation, take a look at Ventor Technologies, which was acquired by Medtronic for $325 million in 2009. Ventor was a developer of transcatheter heart valve technologies for the treatment of aortic valve disease, and developed a minimally invasive transcatheter-based device. The Reducer is also a minimally invasive transcatheter-based device. A similar deal for The Reducer would equate to $5.70 per share, and an average of the two above deals (~$550 million) would equal $9.64 per share. The sky is the limit for The Reducer, and with no sales team currently in place at Neovasc, it seems more than likely that a deal will be announced in the near future.
 
The Tiara
 
The Tiara, an early staged device that is considered by many to be the front-runner in effectively treating mitral regurgitation ((MR)), has made significant progress in the past few weeks. Near the end of October, the company presented at the 2013 TCT conference in San Francisco, where they presented positive pre-clinical data of The Tiara that illustrated the devices safety and effectiveness in animals (sheep and swine). A month ago, the Tiara and potential behind it seemed to be tossed up in the air, a hit or a miss, but after last month's published results, and plans to begin human trials in early 2014, the Tiara seems to be leaning towards a hit.
 
Approximately two weeks after positive data surrounding The Tiara was published, Neovasc received its first US patent covering the product, marking a significant milestone for the promising device. This patent is a valuable asset mainly due to how much ground is covered under it; the patent is extremely broad, and covers nearly 30 different claims, though this has been trimmed down from the original 70+ claims the company filed in their application. You can view the patent here.
 
If the Tiara proves to be successful in human trials, then the valuation behind Neovasc could be through the roof. With no device to be compared to, it's tough to estimate a value for The Tiara. If The Tiara proves to be safe and effective in human trials and Neovasc sells the device, then investors should expect a deal worth no less than $5 per share, and as high as $20 per share. The ball-park range is large, but the lifesaving potential behind The Tiara is even larger. Investors should keep an eye on the company as they progress towards successfully implanting The Tiara into humans. Any follow up data should have a positive impact on shares.
 
The Hidden Seller
 
Investors should never underestimate the power of one very simpleminded trader, who just so happens to own a ton of shares of a certain company. Neovasc has just that, a hidden seller who can't seem to tell the difference between selling high and selling low, or maybe just holds a personal vendetta against the company, or maybe is just too ignorant to realize what investors are willing to pay for shares of Neovasc.
 
This seller is most likely utilizing an iceberg order. An iceberg order is an automated program that divides large buy or sell orders into smaller lots so the public only sees a small portion of the order at a time. This person (or fund) is offering shares at $4.25, which equates to $4.05 for NVCIF, and has already sold more than 100,000 of them. It is unclear how many shares are left in this order, but once this order is complete and the seller has been exhausted of all their shares, this stock should breakout to new highs.
 
Neovasc has 57 million shares outstanding (including dilution), and insiders and management own nearly 80% of shares. This leaves a relatively small amount of shares to be traded, and once Neovasc unveils plans to monetize its Reducer product, this stock will jump regardless of who's selling.
 
Conclusion
 
Neovasc is currently undergoing a period of healthy consolidation after spiking nearly 50% in less than a month; however, from a sum of the parts perspective, Neovasc is still severely undervalued. The recent company updates, earnings, and the impending success of The Tiara in humans illustrate a clear picture of Neovasc preparing for takeoff.
 
With the Peripatch division worth upwards of $3, and the Reducer worth a conservative $6, shares of Neovasc should be trading north of $9 even if The Tiara turns out to be a complete dud. An optimistic estimate would value Neovasc north of $20, but it seems more than likely that the company will be acquired before those price levels can be obtained.
 
The current share price of Neovasc may be the last stop before this rocket blasts off, and it's leaving soon. All clues point to a value-creating deal to be announced (or explored) sometime in the first half of 2014. By then, Neovasc will have fully divested of their surgical patch business, will have released complete results for their COSIRA trial, and will have tested their Tiara device in humans, which will add value to the company and pave the way for clear negotiations with potential suitors. Shares of Neovasc are trending up, and it's not too late for prospective investors to open up a position in this promising medical device company.
 
Information was sourced from Neovasc's latest 10-Q and MD&A.
at 6:34 AM 0 comments
Labels: , , , , , ,

The Potential Of Nokia: Why I'm Holding On For Double Digits

By The Wall Street Fox → Friday, November 22, 2013
 
Nokia (NOK) has recently been the talk of the town. The company has impressed analysts by obtaining upgrades left and right, has wowed consumers by receiving rave reviews for its first phablet and tablet, and has pleased investors thanks to its soaring stock price, increased profitability, and pile of cash. Nokia has plenty to prove moving forward, and I'm confident that their future prospects look stronger than ever. While much attention is given to Nokia's NSN division, which now accounts for more than 90% of Nokia's revenues, I believe many investors are overlooking the strategic importance of Here Maps, the potential surprise of Nokia still developing and releasing hardware, and the lucrative deals stemming from Nokia's patent portfolio. With the company abandoning its plans of acquiring a piece of Alcatel Lucent (ALU), it seems more than likely that a special dividend and/or dividend reinstatement will occur sometime in early 2014. Strong operating margins from NSN, consistent profit generation from Here, and aggressive monetization of its patent portfolio will allow Nokia's share price to breach double digits in the not so distant future.
 
Here Maps Driving the Future
 
Nokia is a true innovator and is constantly thinking ahead. While many view Here Maps as an incompetent competitor to Google (GOOG) and Apple (AAPL) maps, there are still a lot of value added features that should appeal to every smart phone user, such as the ability to fully utilize all services of Here Maps when your phone doesn't have service. Augmented reality, global mapping, and accurate traffic updates represent what Here has to offer now. A look into what Here Maps plans to offer in the future is what's truly exciting.
 
Enter the future, where a plethora of sensors and cameras allow cars to autonomously drive in any type of traffic situation, to any destination, for any amount of time (fuel permitting), freeing up precious time for the operator of the car. Just think of all the articles I could write on my journey home from school! But in all seriousness, autonomous cars could potentially take a giant chunk of human error out of driving, resulting in fewer car accidents and making the roads safer for all.
The reality is, this software-based technology has already been tested, and proven by Nokia. The race is on between Nokia and Google, but what's encouraging is Nokia's current relationship with car manufacturers. Here Maps has already taken a strong liking to cars, being installed in approximately 80% of them, thanks to the core business of Navteq. The company is building a foundation with several different car manufacturers, and this collaboration will create future value for Nokia and its shareholders. Nokia's offerings at Septembers International Motor Show illustrate the company's efforts to capitalize off of their massive install base.
 
Nokia's Here division posted declining revenues and a meager operating profit of $18.7 million last quarter. While this division may look bleak now, I believe the sophisticated mapping asset will continually appreciate in value, as it lands deals with phone vendors and auto companies, and manages to consistently operate at a profit. This in depth article dives into the power of Here's mapping technology, and ifthis video is any indication of the future for Nokia's Here division, I'm in (keep in mind there are several legal and regulatory barriers in place that will take years to sort out).
 
Nokia Hardware Here to Stay?
 
Nokia has transformed into an exciting technology company that offers truly remarkable devices in a short period of time. Nokia recently unveiled a plethora of innovative, hardware capable devices that have impeccable designs and are a step in the right direction for Windows Phone 8. Here's the kicker, Nokia's not finished, Nokia's device division is going out with a bang, and while most view Nokia as a device-less company once the Microsoft (MSFT) deal closes in Q1 2014, I believe Nokia will still have some tricks up its sleeve.
 
According to one source (@evleaks), Nokia plans to unveil an 8'' tablet, and another flagship phablet at February's Mobile World Congress. There have also been rumors of an updated Lumia 520, a smart watch, and a number of impressive accessories. Regardless, the end of the Lumia brand is near.
However, that doesn't mean the end of Nokia's device making is near, and I'm not talking about them jumping back in after their December 31st, 2015 agreement with Microsoft, but rather before. According to one Nokia executive, the company is quite keen on continuing its production of hardware devices (just don't expect smart phones).
 
Here are some comments from Michael Halbherr, Executive VP of Here, in an interview with El Reg towards the end of September:
"We have sold our device business for a reason, but that doesn't keep us out of the device business."

"We are not prohibited from making any communication device. We will concept and think about new forms of devices."

"It would be wrong now to think about this from a phone perspective. With the cloud and the internet-of-things, we're seeing a convergence of form factors where you do a few things well in a totally seamless way."

"We will still surprise people with leading-edge hardware."
As a long-term investor, I welcome the words above with open arms, as well as any device Nokia can manage to sell between now and January 1, 2016. While they are barred from releasing phones, and most likely tablets, I have the feeling that Nokia has the ability to make a splash in the wearable device market, which is expected to record annual shipments of 485 million devices by 2015. Although Nokia will soon lose more than 30,000 employees, and its production facilities, it's not out of reach for Nokia to source and produce innovative devices, such as smart watches, accessories, and other form factors that have the ability to interact with smart phones and tablets. Nokia has the ability to design and develop devices, and a small, trimmed down device unit can utilize Nokia's research and development and take a step into new hardware markets while being cost efficient. Any such announcement from Nokia could give a considerable boost to its share price, especially if they planned to release devices compatible with different mobile operating systems. Investors shouldn't rule out the possibility of Nokia continuing to generate revenue from hardware sales.
 
Patents, Taxes, and Growth
 
Recent developments have been extremely bullish for Nokia's CTO office and patent portfolio. Besides patent wins against the HTC One in various countries, the real win is the deal between Nokia and Samsung (OTC:SSNLF). Nokia has allowed Samsung to continue licensing its patents for another 5 years, with a settlement amount to be determined by arbitration in 2015. Nokia will also receive additional compensation beginning in 2014. Some investors may be overlooking the significant value behind this deal.
 
Since news broke that Samsung's lawyers disclosed confidential information regarding Apple's licensing deal with Nokia to more than 90 Samsung employees, the ball is in Nokia's court. Samsung's hopes of gaining an upper hand in negotiations with Nokia failed terribly, and will cost them in the end. The value of this deal could be astronomical.
 
Lets assume that Apple pays Nokia $4 per iPhone sold (most speculate $6-$9). If Samsung pays a $1 premium, as a consequence for leaking confidential information and getting caught red handed, they would pay $5 for every smart phone sold. Samsung sold 88 million smart phones in Q3 of 2013, and is poised to reach 300 million units by years end. Lets assume an extremely conservative growth rate of 5%.
 
Quarter Samsung Smart Phone Sales Nokia Royalty Amount
2013 310,000,000 $1,550,000,000
2014 325,500,000 $1,627,500,000
2015 341,775,000 $1,708,875,000
2016 358,875,000 $1,794,375,000
2017 376,775,000 $1,883,875,000
Total 1,712,925,000 $8,564,625,000
 
Nokia would generate $2.30 per share if they managed to squeeze $8.5 billion out of Samsung. An even more conservative estimate would yield approximately $1.20 per share, and a realistic estimate would yield upwards of $5.00 per share. This is all based on a single patent litigation; the potential growth is massive for Nokia's patent portfolio that has eaten tens of billions of dollars over the past decade. Nokia's venture into 5G technology, self-driving cars, Graphene, and its current core holding of essential 4G patents should ensure royalty fees from many technology companies for years to come.
 
Nokia seems poised to benefit from many tax benefits, which will help improve its financials and profitability. The company lost a significant amount of money from operations over the past few years, and has a massive tax carry forward asset to utilize. At the same time, Finland recently lowered its corporate tax rate by 4.5% to 20%. With Nokia swinging to a profit, these two factors will help Nokia dazzle investors when future earnings are released.
 
NSN will continue to be dissected by analysts, as it is the main contributor behind Nokia's financial performance. With improved operating margins currently at a sweet spot, investors are looking for growth, which many thought would come externally. Some analysts predicted that the acquisition of Alcatel Lucent's wireless division would increase NSN's market share control to 30%. However, with the WSJ recently reporting that Nokia has ditched these efforts, the company seems to be searching for growth organically, and is starting to find it. NSN recently won a US contract from Sprint (S), who is aggressively expanding their 4G networks thanks to the capital infusion from SoftBank. NSN also has contracts with US Celluar (USM) and T-Mobile (TMUS), and is desperately trying to increase its low US market share. The Sprint win is the type of momentum NSN needs to continue landing high margin contracts with mobile carriers.
 
Conclusion
 
Nokia is continuing to hammer out its future road map, but it's quite clear that the prospects are looking grand. A dividend reinstatement will attract a flock of new investors, earnings should continue to be strong, and Nokia can still surprise investors with any type of unexpected hardware announcement. Nokia's lucrative patent portfolio, future tax benefits, and strong NSN growth should help Nokia's share price breach double digits going into the new year.
at 6:23 AM 0 comments
Labels: , , ,

Erba Diagnostics: Future Consolidation Of Business Divisions Points To Significant Upside

By The Wall Street Fox → Thursday, November 14, 2013
 
Erba Diagnostics (ERB) is a fully integrated in vitro diagnostics company that has been in the midst of a turnaround for more than three years. The company was once a subsidiary of Phillip Frost's Ivax Corporation (previously named Ivax Diagnostics), and spun off into its own entity after Suresh Varizani bought the company in 2010 for approximately $15 million. Suresh Varizani is a Mumbai based entrepreneur who founded Transasia in 1979 with an initial bankroll of $5, and is currently the CEO of Erba Diagnostics Manheim. Through Erba Manheim, Varizani owns 82.4% of Erba Diagnostics. Erba Manheim is the parent company of Erba Diagnostics.
 
Erba Diagnostics, through the acquisition and consolidation of several companies, is composed of five separate divisions, including Delta Biologicals, Diamedix, ImmunoVision, Drew Scientific, and JAS Diagnostics. The company's positive 3Q 2013 earnings results, management's continued mention of consolidation and acquisitions, and the clear synergies between Erba Diagnostics and the other five divisions of Erba Manheim lead me to believe that Erba Diagnostics is in the midst of steadily acquiring and consolidating every division of Erba Manheim into themselves. Varizani would most likely run this combined, publicly traded company, and it would be years in the making. With shares trading at $1.70, and a current market cap of $68 million, now is a prime entry point for the speculative investor who believes something big is brewing at Erba.
 
Overview
 
The divisions of Erba Diagnostics provide an array of products and devices, including the MAGO series instruments, clinical chemistry reagents, and diagnostic reagents, which are sold internationally through many distribution channels. The picture below illustrates a clearer image of the structure of Erba.
 
 
When you buy shares of ERB, you are buying a share of Erba Diagnostics (USA), and its five subsidiaries. Erba Manheim and its five other subsidiaries are not publicly traded as of now. Erba Diagnostics collaborates with the other divisions of Erba Manheim. The divisions of Erba Manheim include:
 
Founded in 1979, Transasia provides end-to-end solutions in biochemistry, hematology, immunology, critical care, coagulation, urine analysis, diabetes, microbiology and molecular diagnosis. The company is one of India's largest producers of diagnostic equipment, exports to 90 countries, and achieved sales of approximately $200 million last year.
 
Erba Russia is a growing marketing company that offers sales and after sales service to its customers with products including urine analysis, clinical chemistry, microbiology and hematology. The company employs approximately 120 people.
 
Erba France specializes in the design, development, and manufacturing of automated analyzers and reagents in the field of clinical chemistry, hemostatsis, and immunology. Erba France has more than 1,000 employees, operates in 70 countries, and generates annual revenue of approximately $150 million.
 
Erba Lachema, located in the Czech Republic, develops, manufactures, and sells products for urine analysis, clinical chemistry, microbiology, and hematology.
 
Erba DDS, located in Turkey and established in 1993, develops, manufactures, and markets in-vitro diagnostic products in the field of urine analysis, biochemistry, and hematology. The company does business in 15 different countries throughout the Middle East.
 
There are many similarities between the companies that make up Erba Manheim (above), and the companies that make up Erba Diagnostics USA (below).
 
Erba Diagnostics is a fully integrated in vitro diagnostics company that develops, manufactures, and distributes diagnostic reagents, test kits and instrumentation for autoimmune and infectious diseases throughout the US and globally.
 
Delta Biologicals, located in Italy, manufactures and distributes the MAGO product line, and in vitro diagnostic products for hospitals and medical laboratories. The MAGO is an automated immunoassay system.
 
Diamedix manufactures in vitro diagnostic kits marketed in conjunction with the MAGO system. The company also offers autoimmune and infectious disease test kits. The company has obtained FDA approval for their products.
 
ImmunoVision is based in Arkansas and develops and manufactures a range of antibodies and antigens for use in diagnostic reagents.
 
Drew Scientific provides reagents and analytical instruments for the field of diabetes management, hematology, and clinical chemistry. They are specialists in blood analysis. Erba acquired the company in 2012 and their systems are renowned for their high performance.
 
Jas Diagnostics is a manufacturer of clinical chemistry reagents, and has established sales in the US, Latin America, Africa, and Asia. Jas diagnostics was a subsidiary of Drew Scientific, which was acquired by Erba in 2012 for $6.5 million. The combined revenues of Jas and Drew for 2012 were $13 million.
 
The partnership between Erba Diagnostics and Erba Manheim has led to collaborations and cost savings for the publicly traded company. In December of 2012, JAS Diagnostics worked on research and development with Erba France, subject to terms that JAS diagnostics covered the cost of the research by paying Erba France seven monthly payments of $50,000 and then some. However, on July 24, 2013, JAS and Erba France mutually terminated the financial agreement above and Erba France refunded JAS's entire payment, which totaled approximately $739,000. This led to significant cost savings for the company.
 
Another example, Erba Manheim charges Erba Diagnostics an annual fee of $1 to license and use the name Erba. More cost saving collaborations of this nature should be expected between Erba Manheim and Erba Diagnostics in the future.
 
All 11 companies mentioned above, and recently formed Erba Mexico will be joining Erba Manheim at the 2013 Medica trade fair, the largest international medical exhibition, taking place in Dusseldorf, Germany next week, between November 20th and 23rd.
 
 
During this time, I expect the divisions to review and update their strategy moving forward as a whole, together. The similarities between these divisions are pointing to one consolidated entity in the future. This combined company would have distribution channels that cover the globe and experience accretive earnings as the many possible mergers take place.
 
Earnings Results
 
Erba Diagnostics released their quarterly earnings on November 11th, and investors liked what they saw, with shares jumping upwards of 20% before closing the day with gains of 13%. The company achieved positive net income for the second quarter in a row, with revenues increasing 83% to $6.9 million, and gross profit margin increasing 46% when compared to 3Q 2012. Net income stood at $130,000 for the three months ended September 30th.
 
The company has been experiencing accelerated growth in the sale of its high margin reagent products, and the recent acquisition of Drew Scientific has significantly contributed to the company's top and bottom lines. Drew Scientific's 3Q revenue stood at $3,489,000, representing approximately half of Erba's total revenue. Drew achieved a gross profit margin of approximately 43%. The integration of Drew Scientific will continue to lead revenues higher and is expected to lower operating expenses over time.
 
The company also expects to see an uptick in sales as the Affordable Care Act is implemented in the US. Currently, the company is doubling the production capacity at its Miami Lakes facility, and will be buying two vacant buildings next to the plant. The organic growth stemming from Erba Diagnostics and its five subsidiaries is almost as exciting as the potential growth through acquisitions.
Erba Diagnostics recently set up a subsidiary in Mexico, where the in vitro diagnostics (IVD) market is expected to surpass $400 million this year. The US IVD market is expected to reach $9.5 billion by 2017. Analysts predict that the IVD market will be the largest in the Medtech sector by 2018, with forecasted sales reaching approximately $62 billion by 2016. Getting far ahead of us, analysts predict the market to reach $126 billion in sales in 2022; long-term growth is not letting up. Erba Diagnostics is well positioned to capitalize off of this growing market, and the company continues to seek and fulfill opportunities of geographical expansion.
 
 
Comments from Erba's interim CEO Sanjiv Suri reaffirmed the idea that the company is looking to merge with other companies, and the synergy and likely cost efficiencies makes Erba Manheim and its subsidiaries a likely target. Suri stated, "We continue to consolidate our operations as well as to implement a number of new initiatives in an effort to grow sales and expand the product range…We continue to explore potential acquisitions, both in the United States and internationally."
The efforts of an acquisition would be supported by Erba Manheim's stock purchase and warrant agreement, which would give Erba Diagnostics access to nearly $30 million in funding.
 
Stock Price Needs to Rise For Consolidation to Occur
 
If Suresh Varizani is truly planning on merging the subsidiaries of Erba Manheim with publicly traded Erba Diagnostics, then the share price of ERB needs to appreciate beforehand. Because Varizani owns 82.4% of the company, he cannot simply merge Erba Diagnostics with his other private businesses because his ownership of the overall company would be too high, and the company would lose its public listing status. Therefore, Varizani needs to offer shares in order to reduce his ownership and allow mergers between the two companies to take place.
 
However, I do not believe Varizani wants to offer shares and dilute at today's market price, which he most likely views as extremely undervalued. The future release of positive earnings, possible stock repurchases, and continued business expansion should over time help raise the price of the stock to a level where Varizani would feel comfortable offering up shares (possibly around $4 per share), which would signal the green light for a merger between a subsidiary of Erba Manheim with Erba Diagnostics. Most of the mergers would be earnings accretive for Erba Diagnostics, and as the share price continues to rise, Varizani would continue to offer more shares and then incorporate more of Erba Manheim into Erba Diagnostics. If Erba Diagnostics eventually acquires all of Erba Manheim, their share price should surpass $15. The combined revenues of this hypothetical company would generate sales upwards of $600 million.
 
This company has approximately 43 million shares outstanding, and only has a float of 7 million shares. This is a thinly traded company, and it wouldn't take a great deal of news to drive up the stock.
 
Conclusion
 
Erba Diagnostics is a profitable, expanding, small cap company that is well positioned in a growing market at an exciting time. The risks associated with any small cap company apply to Erba. This is a volatile stock, and the company has an accumulated deficit of approximately $36 million. There is also heavy competition for established companies such as Roche, Abbott, Siemens, and more. Dilution is also a risk for shareholders, and the sheer amount of work (legal, SEC paperwork etc.) needed to complete these mergers is a testament to how long this process may actually take.
 
At the same time, this company has a healthy balance sheet, has achieved profitability, and only has long-term debt of $1.5 million. The current valuation of Erba is out of whack. Revenues will improve as the company continues to consolidate the operations of Drew Scientific and Jas Diagnostics. The company has access to global distribution channels thanks to the many subsidiaries of Erba Manheim, and it's only a matter of time before the two companies consolidate and take advantage of the many synergies between the two. Management is dropping hints everywhere, and when you browse the websites of these 12 different companies, you realize that they should be pieced together.
 
 
Information was sourced from Erba's latest 10-Q, and 10-K
at 6:08 AM 0 comments
Labels: , , , ,

The Merger Between SafeStitch Medical And TransEnterix: Multi-Bagger Potential

By The Wall Street Fox → Friday, November 8, 2013
 
In September of 2013, SafeStitch Medical (SFES) completed its merger with formerly private TransEnterix, a North Carolina-based company that develops minimally invasive surgical devices. SafeStitch Medical develops medical devices that are focused towards treating obesity, hernias, and gastro-esophageal reflux disease (GERD), with an emphasis on minimal invasiveness. The synergies between TransEnterix and SafeStitch are abundant, and the newly formed company that raised $30.2 million in a private equity offering last month has ample room to develop and market its two potential blockbuster products, the Spider Surgical System and the Surgi-Bot. The technology behind the Spider System that TransEnterix is bringing to the market is disruptive, and will surely give Intuitive Surgical's (ISRG) da Vinci System a run for its money. TransEnterix's experienced management, superior technology, and the deep pockets of insider Dr. Phillip Frost make this stock primed to record massive gains in the coming years.
 
Product Pipeline
 
TransEnterix, which will formally change its name and ticker from SafeStitch Medical pending shareholder approval, has many exciting products under development. The AMID Stapler, Transluminal devices used to correct GERD and obesity, the Spider Surgical System, and the Surgi-Bot all provide significant shareholder value that is not yet reflected in today's share price of $1.40. The technology behind these devices is ground breaking, and has already impacted the lives of many.
 
The AMID Stapler
 
The AMID Hernia Fixation Device is already on the market, and is used for Inguinal and Ventral Hernia repairs. The minimally invasive device is fast and easy to use for surgeons, and reduces post-operative pain for patients. The device conveniently manipulates and fixates mesh that is implanted into the patient, staples the mesh into place, and closes the skin. The device could help reduce the invasiveness of the approximate 950,000 hernia surgeries that occur in the US annually. The AMID device was introduced in the middle of 2012, and sold a meager 126 devices. The company sold 93 AMID Staplers for the first six months of 2013. With revenues of only $17,000 for the first six months of 2013, the AMID Stapler has an extremely low price point. Currently, this device is a non-factor for TransEnterix, and even if the company sold its existing inventory of 5,700 units, the revenue generated would be minimal. However, The AMID Stapler still has plenty of room to grow, and the technology behind the device is impressive.
 
GERD Procedure
 
SafeStitch has been developing Transluminal devices to restrict gastric acid reflux disease, and decrease obesity, all through a minimally invasive, and usually incision-less procedure. This is an outpatient procedure that is safer, less expensive, and allows faster recovery time when compared to current surgery treatments. The results from the company's human trials are promising. After performing GERD surgery on 7 patients in a preliminary clinical trial, patients reported positive findings. After a two-year follow up, all patients experienced significant weight loss and an overall reduction in GERD (30%-60% reduction for two patients). The procedure is performed via the mouth, instead of opening the abdomen, which is extremely expensive and can be life threatening for obese patients.
 
Treatment of GERD in the pharmaceutical industry is a multibillion-dollar market alone. There are more than 400,000 weight loss procedures, and 250,000 GERD procedures performed every year. The company plans to expand its pilot study this year, and plans to seek FDA approval thereafter. The potential behind TransEnterix's GERD procedure casts a giant shadow over the AMID stapler, and can significantly contribute to the company's bottom line if commercialization commences.
 
Complementary Products
 
TransEnterix has a line of products that are either under development, or are fully developed and have already been approved for sale. Some of these products have been approved for years, with the company continuing to explore commercialization options. The revenue contribution behind these devices would likely be insignificant, but they are worth mentioning. The Barrett's Excision and Strip Mucosal Device has a target market of 11 million patients, the Smart Dilator has a target market of 2 million annual patients, the Retention Bite Block has a target market of 20 million annual patients, and the Airway Bite Block has a target market of 5 million annual patients. While these devices cover a large, diverse market, I believe management is more focused on developing and commercializing their more advanced devices, and therefore, will not pursue these complementary products for the time being.
 
The Spider System
 
The Spider System is a revolutionary surgical platform that allows for nearly scar-less abdominal surgery. The device has already been CE marked and FDA approved, and launched in 2010. The surgeon makes a small incision in the patient's belly button, about the size of a dime, and then inserts the Spider System, which opens up like an umbrella and deploys a camera and two super flexible arms that offer an array of tools, control, and functionality for the surgeon. The platform is unreal, and still seems quite futuristic to me, especially after viewing this video.
 
 
The flexible arms that are deployed in the patient's abdomen allow the surgeon to precisely manipulate 360-degree rotating instruments at several different angles, which improves the accessibility and dexterity of the operating site. The ability to approach an operating site at a triangular angle is something that has only been achieved through multiple incisions that are strategically located around the patient's abdomen. Never before has a device been able to achieve this functionality through one small incision. Intuitive Surgical's da Vinci system requires up to 5 separate incision sites for their procedures. The advantages of having fewer incisions include less scarring, less pain, and a faster recovery time for the patient. The Spider System is safe, effective, and has already been deployed by surgeons worldwide to treat obesity and a variety of other health complications.
 
The Spider System has already changed the lives of hundreds, and testimonials from patients talking about their experience with the device can be found here. Just last month, Dr. Michel Gagner, an internationally renowned surgeon, used the Spider System to successfully perform a mini-gastric bypass. Dr Gagner is the president of the 2014 World Congress of the Society for Obesity and Metabolic Surgery. Promotion of the Spider System and its associated advantages from within the surgeon community will help increase the awareness of the product and help speed up its adoption rate.
 
The Surgi-Bot
 
The Surgi-Bot is TransEnterix's first step into the robotic surgery market, and while CEO Todd Pope claims that this is not a direct competitor to Intuitive Surgical's da Vinci System, it blows it out of the water. The Surgi-Bot is an extension of TransEnterix's Spider Surgical Platform, and adds the functionality of patient side robotic control, which increases the strength, leverage, and accuracy of the device and its functionality. Patient side is the key word. Instead of the surgeon conducting surgery in a "Surgeon Cockpit" that is sometimes placed in an entirely separate room from the patient, the surgeon controls the Surgi-Bot system right at the patient's side. This ensures a more connected operation that gives the patient more confidence about the procedure because their surgeon will be by their side throughout the entire surgery.
 
 
The Surgi-Bot is still deployed through a single incision in the belly button, about the size of a dime.
The Surgi-Bot is currently in late stages of development, and the company expects to receive FDA market clearance sometime in 2014. The robotic system is designed to be able to move from room to room, provide high-def 3D vision, and will be less expensive than the da Vinci's price tag of $1.5+ million. This is extremely appealing to hospitals looking to utilize robotic surgery without the high costs and large footprint associated with today's current offerings.
 
Intuitive Surgical generated annual revenues of $2.1 billion in 2012. The robotic surgery market is expected to grow upwards of $20 billion by 2019; the global market for minimally invasive surgical devices is expected to reach $35 billion by 2016. The growth potential for TransEnterix is massive, and the company is looking to quickly capitalize on the market, expecting to launch their Surgi-Bot immediately after they receive clearance for the device sometime in 2014. Investors seeking to buy in at the current price levels should be prepared to sit on their investment for the long term.
 
The Competition
 
Currently, the main competitor to Transenterix's Spider System, and prospective Surgi-Bot, is Intuitive Surgical. Intuitive has dominated the surgical robotic market, and has a recurring revenue stream from its customers that include annual service agreements and instrument and accessory replacement. The da Vinci system is expensive, bulky, and straight up scary. There have been reports of terrible malfunctions during procedures with the da Vinci system, which have been deadly. In one report, one of the robotic arms abruptly swung and hit a patient in the face. Another report described one of the robotic arms failing to let go of grasped tissue during an operation. These freak accidents, and an uptick in reports of death, have caused the FDA to launch an investigation into the system. Lawsuits will soon follow.
 
Despite the da Vinci System's associated problems, more than 400,000 surgeries were performed on the platform last year. This number continues to grow. The system costs anywhere from $1-$2.3 million, annual service agreements range from $100,000 to $170,000, and the instruments cost upwards of $2,000 per procedure. These high costs are great for Intuitive and terrible for hospitals. The slow adoption rate for the da Vinci System is attributed to its high initial costs, and size. The device is a monster, and takes up a large amount of space.
 
 
TransEnterix has a solution to all of these problems. The Surgi-Bot is mobile, affordable, allows patient side operation, and only requires one small incision. These advantages will shout out to surgeons, hospitals, and patients alike if the device is approved in 2014.
 
Other companies in the robotic surgery market include MAKO Surgical, Accuray, and Hansen Medical.
 
Management
 
The future success of TransEnterix and their groundbreaking technology depends on the execution of management, and the ability to raise additional funds. The management and insiders behind TransEnterix are nothing short of exceptional. Prior to joining TransEnterix, President and CEO Todd Pope was the Worldwide President of Cordis Corporation, a multi-billion dollar division of Johnson and Johnson, and held various management roles at Boston Scientific and Liquidia Technologies. Pope's experience of running a massive division within a publicly traded company should quell any fears regarding TransEnterix's ability to successfully transition from a private to public company.
Joseph Slattery, former CFO of Baxano Surgical, will serve as the CFO of TransEnterix. Both Dr. Jane Hsiao and Dr. Phillip Frost, of Opko Health, will serve as directors. Raising funds in the future should not be a problem thanks to billionaire Frost. In the recent private equity offering, $10 million came from Frost, Hsiao, and existing SafeStitch investors, while $20 million was raised from existing TransEnterix investors. TransEnterix's investors include many venture capitalist funds, so their pockets run deep, and their confidence is high. Dr. Frost's keen sense of backing strong performing companies makes me think that something big is brewing at TransEnterix.
 
Conclusion
 
Risks associated with newly merged TransEnterix include the failure to receive approval for their Surgi-Bot in 2014, intense competition from Intuitive and others, and the fact that the company has yet to turn a profit and has an accumulated deficit of more than $100 million.
 
However, if management can successfully spread the word and market the capabilities of their technology, then TransEnterix will see a tremendous appreciation in business and their share price. If the Surgi-Bot receives approval and obtains a conservative 20% of Intuitive's market share, I believe shares could be trading north of $9.00. The risk/reward ratio is even more appealing when you factor in the company's GERD procedure, AMID Stapler, and complementary products. Shareholders of Intuitive Surgical should consider selling a portion of their position and investing it in TransEnterix; just think of it as a hedge.
 
Information was sourced from:
SafeStitch 10-K, SafeStitch Presentation, Intuitive Surgical 10-K, Intuitive Surgical Presentation.
at 1:47 PM 0 comments
Labels: , , , , ,
Subscribe to: Posts ( Atom )