People who know this space have written that the stock should be in the 15 to 20 dollar range, right now. Seeking Alpha has 3 or 4 bullish articles.
Here is just one of many, from a stxs owner.
Stereotaxis - Acquisition Of Robotic Vascular Peer Underscores Substantial Upside Potential, Private Placement Another Positive
Sep. 3, 2019 2:05 PM ET|15 comments | About: Stereotaxis, Inc. (STXS), Includes: CVRS, ISRG, JNJ, PHG, RCEL, SMMNY
Overlooked and Underfollowed
Overlooked and Underfollowed
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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.
In Addition to Supporting Valuation, Siemens' Acquisition of Robotics Vascular Peer Corindus Supports Stereotaxis’ Long-Term Fundamental Growth Outlook; Stereotaxis Holds Trifecta of Clinical Advantages Over Manual Approaches: Clinical Efficacy, Safety and Speed; Latter Advantage Detailed in Most Recent of 350+ Peer-Reviewed Publications on Stereotaxis’ Robotic Magnetic Navigation
In the Siemens Healthineers analyst call discussing the Corindus deal (link to presentation) on August 8th, their management noted that they see significant potential for robotic-assisted procedures in the cardiovascular, peripheral and neurovascular markets. Their vision that over 15% of complex interventions will be done with robotic approaches supports a favorable long-term fundamental outlook for Stereotaxis. Siemens Healthineers provided an estimate that the Corindus deal will be accretive for them in 2023. By that time, the new/replacement Genesis sales cycle will be well underway and Stereotaxis will also have launched its proprietary catheter in Europe (by the end of 2020) and likely in the US as well (potential FDA approval by 2022/2023), providing a material boost to its revenue growth and overall profitability.
Source: Siemens Healthineers Analyst Presentation
Below is a section of another slide from the analyst presentation detailing “Growth opportunities in complex cases”. The percentages shown represent the CAGR from 2013-2024 on each procedure listed (Source: Decision Resources Group Medtech 360, Mar 2018 & Siemens own extrapolation). Notably these are all market opportunities that can be addressed now or in the future with Stereotaxis’ Genesis system, including cancer:
Source: Siemens Healthineers Analyst Presentation
Moreover, Siemens also went on to list “Key Investment Highlights” in another slide of its presentation (shown below). Once again, almost all these highlights apply to Stereotaxis. Frankly when it comes to the “superior technologies” and “higher precision” bullets, Stereotaxis has the edge on both of these over manual approaches based on the 350+ peer reviewed publications detailing Stereotaxis’ clinical superiority, extreme precision, strong safety profile, lower radiation for patients/physicians, and the many additional advantages its robotic magnetic “pull” system has over other robotic/manual “push” systems. This assessment is also based on other publications showing Corindus’ robotic-PCI does not yet have an edge versus conventional-PCI in terms of efficacy, cost, or fluoroscopy time (publications listed further below).
Source: Siemens Healthineers Analyst Presentation
With its smartly re-designed website, Stereotaxis has made it easy to find that "the clinical data speaks for itself". The website has slides showing Stereotaxis robotic magnetic navigation leads to (1) a decline in major adverse events, (2) a reduction in minor complications, (3) higher acute success, (4) lower cardiac perforations, (5) lower fluoroscopy exposure, and (6) and superior freedom from recurrence. The data is overwhelmingly in favor of Stereotaxis' platform versus manual approaches. Here are three of the six graphs for reference:
Decline in Major Adverse Events with Stereotaxis Robotic Navigation
Source: www.roboticep.com/clinical-data
Higher Freedom from Recurrence with Stereotaxis Robotic Navigation
Source: www.roboticep.com/clinical-data
Lower Fluoroscopy Exposure with Stereotaxis Robotic Navigation
Source: www.roboticep.com/clinical-data
Furthermore, a new peer-reviewed publication was just released in August 2019 entitled “Robotic Navigation shows Superior Improvement in Efficiency for Atrial Fibrillation Ablation”. As per the publication, “the major finding of this study is that the magnitude of procedure time improvement was most explicit in RMN (robotic magnetic navigation) guided RF CA procedures. The progress made in robotic navigation guided CA has resulted that nowadays ablation and procedure times are comparable with CB and MAN guided CA. Furthermore, the RMN guided RF CA has the highest potential for future advance.” In addition to describing the significant procedure time improvement between 1st and 2nd generation Niobe robotic magnetic navigation systems, it also seems to be the first publication to show a head-to-head comparison of procedure time favoring the 2nd gen Niobe versus two competitive approaches, manual RF ablation and cryoballoon. Time of procedure is of immense importance and indeed was a major factor in loss of momentum for 1st gen Niobes in the marketplace. This improvement in procedure time is relevant to hospitals/EP labs, as well as the investment community, as this translates to increasing the bottom line for current & potential customers of Stereotaxis and superior patient care. As per Figure 2 of the publication shown below, mean procedure time improved most dramatically with robotic magnetic navigation between the 1st and 2nd generation Niobe systems:
Source: Robotic Navigation shows Superior Improvement in Efficiency for Atrial Fibrillation Ablation
Importantly, this publication notes robotic magnetic navigation still “has the highest potential for future advance” with respect to procedure time. Indeed this is likely to be enhanced further with the new Genesis system whose highly innovative architecture is faster, smaller, lighter and more flexible than the 2nd gen Niobe system, allowing for instantaneous responsiveness to physician control.
So, should Stereotaxis’ trifecta of clinical superiority, safety, and speed over manual approaches matter to potential acquirers? One would think so. What is interesting in the case of Corindus, which is being acquired for over $1 billion, is it seems they've yet to show many of these advantages consistently. For reference, here are two recent publications on Corindus’ robotic-PCI versus conventional-PCI that suggest the edge is not there yet in terms of cost, fluoroscopy time, safety measures, and clinical outcomes:
Cost and Efficacy Analysis of Robotically-Assisted Percutaneous Coronary Interventions - March 2019 – Paper compared Robotic-assisted percutaneous coronary intervention (R-PCI) to conventional PCI (C-PCI). Excerpt: “Direct costs for R-PCI and C-PCI in the out-patient setting were $5911±1738 vs. $5583.9±1702; p=0.195. Fluoroscopy time in R-PCI was longer compared to C-PCI 20.9±9.4 vs. 16.3±15.2; p=0.001”Link: http://www.onlinejacc.org/content/73/9_Supplement_1/1114
Complex robotic compared to manual coronary interventions: 6- and 12-month outcomes - November 2018 – Excerpt: "There was no difference between the two groups with regard to overall MACE at 6 months (R-PCI 5.8% vs. M-PCI 3.3%, P = 0.51) or at 12 months (R-PCI 7.8% vs. M-PCI 8.1%, P = 0.92). There was no difference between the individual components of the primary combined endpoint at either time point. No access site complications occurred in either cohort that met BARC III or higher criteria…At the 6- and 12-month time points following R-PCI, no difference in clinical outcomes or safety measures was observed as compared to M-PCI.” Link: https://onlinelibrary.wiley.com/doi/10.1002/ccd.27867
Taking into consideration Stereotaxis’ (1) superior clinical outcomes over manual approaches, (2) its excellent safety record, (3) its procedure time that is inline/better than manual and carries the most potential for further improvement, (4) its significant addressable market opportunity throughout the vascular system, along with (5) the continued M&A in robotic medical devices, and the possibility of Stereotaxis becoming a potential acquisition candidate continues to strengthen.
From a Buyout Perspective Stereotaxis Sits in a Unique Place between Philips, Siemens and J&J; Corindus Acquisition Creates Interesting Situation as both Philips and Siemens are Involved; Future is Brighter Today than Ever Before with its Current Active-Install Base, its New Genesis System, and its Next-Generation Proprietary Catheter on the Horizon
On paper, Stereotaxis looks like a potential robotic acquisition candidate for several major players in the medical devices space, but in particular for J&J, Siemens Healthineers and/or Philips (PHG). All three companies have a long history with Stereotaxis based on the promise of its unique “pull” magnetic robotic platform and synergies with their own devices. Prior to its IPO in 2004, both Siemens and J&J had invested in private placements in Stereotaxis, and Philips had agreed early on to make certain payments relating to the integration of its X-ray fluoroscopy system. Since that time, multiple agreements have been put in place or extended with all three companies related to either Stereotaxis’ Niobe systems via catheters & X-ray machines or its Odyssey video systems.
Shifting to today, (1) Stereotaxis’ newly FDA-approved and CE Mark Imaging Model S X-ray system can fill a nice space in the lineup for either Philips or Siemens Healthineers and carries significant upside for both well beyond another X-ray machine, and (2) Stereotaxis new proprietary catheter under development can energize J&J to look beyond just having a distribution/supply agreement and instead bring the entire platform along with its significant long term potential in-house. These points will be covered in more detail below.
Focusing first on Siemens Healthineers and Philips as potential acquirers, both have significant share of the world’s interventional cardiology and electrophysiology X-ray markets. Interestingly both are involved in Corindus; Philips through its ownership stake that dates to 2011 & distribution pact signed in 2012, and Siemens Healthineers through its recent bid to acquire the entire company for $1.1 billion.
Part of the messaging in the original press release in Philips’ distribution agreement in 2012 with Corindus centered on safety for clinicians, staff and patients through management of X-ray exposure: “X-ray fluoroscopy is generally accepted as the most suitable imaging technology for accurately visualizing the progress of the catheter and other interventional tools during the minimally invasive treatment of cardiac conditions. However, since interventional cardiologists perform many PCI procedures, over time clinical data has demonstrated that this can lead to health and orthopedic problems. As a global leader in interventional cardiology offering a comprehensive portfolio of imaging systems and advanced interventional tools, Philips is at the forefront of helping clinicians and staff to manage X-ray exposure for their patients, and for themselves”.
First, it should be noted here that Stereotaxis system can and has been used for percutaneous coronary interventions (PCI) procedures. Dating back from its inception through 2007, physicians had then used the slower, first-generation Stereotaxis system to perform over 2,000 percutaneous coronary interventions and other guidewire-based vascular procedures. Second, the need to manage X-ray exposure for the physicians performing cardiac ablation procedures, as well as their patients, is just as prevalent as for those involved with PCI procedures. Clearly Stereotaxis’ technology like the Corindus’ platform is designed to do just that; perhaps more-so-in-reality-than-design as detailed in the clinical data section above showing a major reduction of fluoroscopy time for Stereotaxis-robotic procedures over manual procedures as opposed to the higher fluoroscopy time for Corindus robotic-PCI versus conventional-PCI.
While this need to manage X-ray for the doctors and physicians performing cardiac ablation procedures is just as prevalent as for PCI, the press release regarding Philips and Stereotaxis extending their long-standing development collaboration in 2016 to enable interoperability between the Niobe ES and Philips’ cardiovascular X-ray system, Allura Xper FD10, carried a slightly different message of making such procedures “more effective and easier to perform”. The message on the partnerships page of the Philips website today also conveys a similar message of delivering “cutting-edge solutions that ensure effective procedures while optimizing clinician comfort and efficiency in the cardiac cath lab” under Stereotaxis. For whatever reason, Philips doesn’t call out the superior ability of the Stereotaxis robotic system to drive down X-ray exposure for doctors/patients like it does for Corindus on the very same partnership page. Regardless, it is evident that this benefit is one that Philips seems to be interested in.
With respect to Siemens, its long history with Stereotaxis dates to before its IPO in 2004. The initial Niobe system, which received FDA clearance for interventional cardiology and electrophysiology in February 2003, was designed to work with the Siemens Axiom Artis dFC digital fluoroscopy system. Over a decade since there have been extensions of the collaboration both on Niobe and Odyssey systems.
So with these long histories between Philips and Siemens, why would they look to acquire Stereotaxis now? Simply put, the launch of its Stereotaxis Imaging Model S system. This launch creates a new angle to be considered for these two major players in the world’s interventional cardiology and electrophysiology X-ray markets.
The Stereotaxis Imaging Model S is an advanced x-ray system specifically designed for electrophysiology, which is tightly integrated with Genesis and is also compatible with Niobe. It already has FDA clearance, CE mark, and is commercially available in the US, EU, and certain other global geographies. This strategic move by Stereotaxis to develop its own X-ray system is designed to dramatically reducing the cost & complexity of installation of its Genesis robotics system for EP practices and hospitals. In summarizing some of the key benefits of combining Genesis and the Stereotaxis Imaging Model S, the CEO stated on the Q1 call:
"By providing Genesis and Stereotaxis Imaging in a combined fashion, we have significantly reduced the cost of acquisition, the ongoing cost of ownership, and the complexity of installation of a robotic electrophysiology practice….We can now offer a full robotic EP practice for the price of a high-end biplane x-ray on its own. This is a type of affordability that no other robotic system in any surgical specialty offers… The size, weight and space requirements of the combined systems are dramatically less than Niobe with other x-rays, allowing for a robotic EP lab to be installed in labs previously never considered possible…It will support the replacement cycle at just our existing hospital customers of approximately $15 million annually, but more importantly, it's the first step towards a future, in which every electrophysiology practice will have access to a robotic system". In one final comment from the Q&A section of that Q1 call, the CEO stated, “I'm very comfortable that the replacement cycle will be real and that as labs are being replaced, there will be practically no lab that will stay a Niobe lab going forward”.
So knowing that these current 100+ Stereotaxis customers using either Philips, Siemens, or other imaging systems will need to replace their X-ray systems over time, either Philips or Siemens Healthineers can look to acquire Stereotaxis in front of this replacement cycle. By adding the Imaging Model S to their electrophysiology product line-up, this lower-end EP imaging device could be the gateway to a much larger high-margin robotic business for both companies.
One can imagine Stereotaxis being an accretive acquisition for either Philips or Siemens Healthineers well before calendar year 2023. With over 100 Niobe systems installed today, the majority of which are active, there is over $100 million in replacement Genesis sales alone, and as management has indicated they see $15 million in replacement sales annually. Then add in the potential for new Genesis system sales. Then add in the potential $20 million in additional sales from its proprietary catheter under development, on top of Stereotaxis high-margin (~80% gross margins) 'razor-blade' portion of their business model that has generated between $25.3 and $27.8 million in revenues since FY2011. Then throw in additional procedure indications within neurovascular, bronchial anatomy, peripheral anatomy, additional cardiac procedures, cancer, etc. Then throw in the potential synergies with either company’s large salesforce, marketing, and R&D teams. All in all, you get a very interesting combination.
Clearly on the heels of Siemens Healthineers $1.1 billion bid for Corindus, Philips seems the more likely of the two to potentially acquire Stereotaxis. In an emailed comment to Bloomberg on August 12th, a spokesperson for Philips said that they have no plans to counterbid for Corindus. That leaves Philips sitting on a nice gain on its 26.4 million share position in CVRS. Whether they decide to redeploy that capital strategically into another vascular robotics company will be interesting to see.
Moving onto Johnson & Johnson, similarly the upcoming launch of Stereotaxis’ proprietary catheter makes for an interesting situation from an M&A perspective. Despite a long-standing, positive relationship with J&J's Biosense Webster division for magnetic catheters (which was extended through December 2022 in Q2'2018), Stereotaxis has never had complete control over arguably the most important, profitable part of its business… catheters. That is about to change thanks to Stereotaxis’ meaningful new collaboration with Osypka, in which they are funding the development of a novel magnetic ablation catheter and will be its sole owner.
Stereotaxis management estimated on their Q1 call that using just their existing global procedure volume, a proprietary ablation catheter could generate "over $20 million in incremental high-margin annual revenue". That would lead to over ~$48 million in recurring revenue sales after the launch of the catheter, without adding a single new customer. They also stated that using the existing market of cardiac ablation procedures their own catheter "increases the addressable global market opportunity by over $2 billion". The move to design/develop/own a superior magnetic solution is a game-changer that will show the true earnings power of Stereotaxis' business model. It also makes their current installed base that much more valuable, and the improved performance of the catheter should fuel increased utilization and market share gains. Management also stated that the new catheter "may also serve to advance other meaningful innovations in the future". As previously mentioned, there are many additional procedure indications within the vascular system possible with Stereotaxis’ robotic “push” system, including bronchial anatomy indications as well as targeting cancer.
Therefore, any medical device company that sees the value in what J&J acquired in Auris, which uses a "push system" versus the safer magnetic "pull system" of Stereotaxis, may identify that an opportunity exists in bronchial anatomy, cancer, and much more with Stereotaxis robotic magnetic technology. The increasing awareness of how many places throughout the body that Stereotaxis robotic medical devices can be used should play a meaningful part in any future evaluation of the company. Given J&J’s recent meaningful step into the world of robotics in February 2019 with its +$5 billion acquisition of Auris Health, they are clearly bullish on the long-term opportunity of robotics. Whether they look to acquire Stereotaxis outright remains to be seen, but they’ve likely been thinking of that forward possibility for some time given its Biosense Webster division’s deal with Stereotaxis has a long-standing 'tell us if you're in serious talks to sell' clause.
With respect to other potential acquirers beyond these three, Stereotaxis’ future looks brighter today than ever before with its current install base of active systems, its new Genesis and Imaging Model S systems, and the launch of its next-generation proprietary catheter on the horizon. Any well-financed buyer of Stereotaxis could in one step acquire: (1) A robotic magnetic platform with a significant install base that has shown clear clinical evidence over manual platforms in cardiac ablation, that is now on a path to becoming immensely more valuable than it already is today with the new Genesis system and future in-house catheter; (2) A robotic magnetic platform that has broad regulatory clearance across the vascular system including neurovascular, peripheral anatomy, and coronary vasculature procedures; (3) A robotic magnetic platform that has unprecedented precision and stability to target the vascular system from head to toe utilizing the safer "pull" approach of magnetism versus the "push" approach of manual and other robotic catheters; and (4) A robotic magnetic platform that can reach areas far beyond the capabilities of manual catheters. With a larger balance sheet, an acquirer could more quickly capitalize on the massive opportunities in neurovascular, peripheral and other applications, and simultaneously continue to expand its presence in the huge cardiac ablation market.
Summary
As stated in the previous SA article, Stereotaxis' unique robotic "pull" mechanism of action and the ability of magnetism to precisely steer devices throughout the vascular system separates it from all other robotic medical device companies and manual approaches that use a “push” mechanism of action. As such, the company can be worth significantly more from a valuation perspective, especially when taking into consideration the opportunity at hand with just its existing customer base from the new Genesis system & its own proprietary catheter as detailed in this and the prior SA article.
Looking into the future to see what technology platforms will become standards is not an easy proposition, yet the facts show that Stereotaxis' robotic magnetic navigation increases patient safety, increases physician safety, is more efficacious than manual platforms, and has improved materially from a procedure time perspective with the most upside looking forward…those factors certainly increase the odds.
Notwithstanding the fact that investing in micro-caps carries higher risk, Stereotaxis looks significantly undervalued based on its unique positioning and should move meaningfully higher as it returns to revenue growth with profitability in sight, leading to greater recognition and appreciation by the street, especially after an up-listing to a national exchange which management expects to be achievable in the near term.
Disclosure: I am/we are long STXS, AVMXY. I wrote this article myself, and it ex
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