Last Updated on January 29, 2019 by Sultan Beardsley
Note to followers: We apologize for not having the scheduled article on Bristol-Myers Squibb’s penetration into the Multiple Myeloma Market ready for publication today. Sultan became ill and couldn’t put in the time needed for research and writing. He hopes this will suffice.
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Stereotaxis Inc. (OTCMKTS: STXS), a company with 28 years of industry experience, has become a worldwide innovator in robotic technologies for the treatment of cardiac arrhythmias. In the past decade they had a big fall from grace declining from over $100 per share to $1.18 at the close of the last trading session. Depreciation has largely been due to waning product sales and slow uptake of cardiac robotics technology by hospitals. Conventional are tried and true making it hard for the decision makers to justify the high cost of STXS’ Niobe, Odyssey, and Vdrive systems. Additionally, the uptake of new technology is typically slow in healthcare.
STXS’ most recent 3rd quarter financial results indicate doctors and hospitals may be warming up to cardiac robotic technology. If the company’s performance continues in the same direction profitability could be achieved in the next few years.
STXS Finances are Improving
STXS’s 3rd quarter financial results this year are noteworthy. Sales of disposables, services, and accessories rose incrementally by 5.5% in the past nine months. However, Costs of revenue conversely decreased an impressive 20.3% in the same period. As a result net income rose dramatically 590% from a $3,334,653 loss in Q3 September of 2017 to a profit of $686,730. Albeit, total revenue declined 6.8% the take home message is STXS’s strategic initiatives are bringing the company closer to profitability. Additional highlights from the 3rd quarter financial results include the potential to surpass record recurring revenue this year and the launch of “www.RoboticEP.com”; a platform for STXS to present their technology in an organized and elegant manner to the larger medical community. Lastly, a core element of our thesis that STXS is a low risk high reward investment is the fact that they have $11.6 million in cash and cash equivalents, 0 debt, and $3.2 million borrowing capacity. In other words, for $1.18 per share you can purchase a deep value company with net liquidity totalling $14.8 million.
The Niobe, Odyssey, or Vdrive systems are well built robotics with acknowledged advantages over conventional techniques. But they’re expensive. There is a risk that hospital-decision makers will opt for maintaining manual cardiac surgery methods to save money. Historically, medical professionals are slow to uptake new technology after becoming accustomed to certain tools and procedures in high pressure settings. Essentially, STXS’s business plan relies on ample uptake of their robotics systems.
A requirement for STXS’s equipment adoption by hospitals is if doctors believe they are safe and effective relative to alternative methods. Liability concerns could arise if long-term clinical studies or patient experiences do not support Niobe, Odyssey, or Vdrive systems as safe and effective. Or, after a period of usage unforeseen defects could be realized and the negative publicity would also adversely affect sales.
Competition from other medical device companies is another risk. Technological innovation is fast-paced in the healthcare sector. Currently, STXS is a leader and reputed as having some of the most advanced robotic equipment for cardiovascular surgery. However, if a competitor like Medtronic (NYSE: MDT, $88.60) developed a superior product line it would negatively impact STXS sales and they may not be able to innovate quick enough to regain an advantage.
Two insider transactions occurred in November. In our view the market overreacted when STXS director David Benefer sold of a measly 760 shares (less than 1% of his total stake) at $1.44 on 11/28/2018. The stock price was riding high 222% above it’s 52 week low of $.513. Moreover, it was amid the holiday season, and like many of us he could have elected to sell to fund any number of Thanksgiving or Christmas related expenses. Or maybe not? Who knows. What we do know is he still directly owns 157,954 shares and indirectly another 2700.
While STXS sold off 7.5% when Mr. Benefer sold a few shares it did not react at all when the Chief Legal Officer & Secretar acquired shares via an option conversion. On November 5th, 2018 Mr. Kevin Berry bought 30,000 shares at an average conversion price of $1.07. From an investors perspective the former event was negligible and the later a neutral to bullish indicator of corporate sentiments regarding the stocks future valuation.
Stereotaxis 3rd quarter financial results told a story of improving fundamentals. STXS retains a robust product portfolio, and reputable track record in interventional cardiac medicine. Taken together the company is a relative a low-risk high potential reward investment at ~$1.18 per share.
AI technology and the next generation information systems are starting to replace conventional healthcare practices. The uptake of new technology is not always swift and absolute like has been the case with MNS and RMN systems. After all, manual catheter ablation has worked well for decades. Its widely accepted that robotics and AI technology will play increasingly prominent roles in precision cardiac surgery. Medical research into the efficacy, safety, and efficiency of robics has indicated numerous advantages of MNS and RMN over manual catheter ablation. Stereotaxis has been a leader in this space for 28 years; evolving and advancing its robotic systems to overcome surgical challenges and limitations as they arose.
So long they remain competitive, we anticipate increases in systems as well as disposable and accessory sales will push STXS’s share price back up significantly over the coming years. MS Money Moves 12 month price target for STXS is $3-$5.
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