AGM Summary Notes
Robotic surgery market opportunity for SPORT
- Opportunity to target various surgeries: Cholecysectomy, Appendectomy, Bariatric, and Benign Hysterectomy
- Currently $3.2 billion, expected to grow to $19.9 billion by 2020
- Hospitals have shifted to ‘clinical efficiency’ models
- Looking for mobility, flexibility, affordability, agility, and versatility
- And at the end of the day: ROI clinically, financially, and operationally
- ‘Perfect Storm’ right now in the U.S. with the move to clinical efficiency, and the Obamacare encouraging accessibility, coupled with affordability
The company “Scoreboard”- stock performance, financials, and development Y/Y
- Shares price up 245% Y/Y today
- They were extremely disappointed and concerned this the PPS and volume in November 2013, but are quite satisfied with how the shares have been trading throughout 2014
- This time last year there was only ~8 months of cash remaining, as of April 30th, 2014 Titan has over $40,000,000 cash or 30+ months of funding
- No need for any further financing
- Development never wavered, management achieved all milestones and is on track for future success
As far as the Business Model is concerned:
Composed of three key revenue drivers –
1) System Sales (One-time)
- Currently about 6,000 hospital placement opportunities in the U.S., and probably as many if not more ambulatory surgical placements in U.S. That’s not including Europe or the rest of the world
- They estimate the unit cost of SPORT to be ~$800,000
2) Disposable Instrumentation
- They estimate that each SPORT unit could generate ~$400,000 per year
3) Service Agreements
- They estimate 10% of the capital costs
I’m not familiar with the projected operational life-time of each SPORT, but I don’t think that ultimately generating $5 million from each unit is unrealistic whatsoever.
- They played yesterday’s video (the chicken video) while Dr. Fowler explained the technology
- The only new detail I took out of it was the fact that the instruments can be swapped out in mere seconds
- Joe Taloricco then discussed the opportunity of the SPORT unit, elaborating on the various surgical procedures I previously listed and their future capabilities of the SPORT unit
- Joe went on to introduce the Ximedica team, and like I commented in a previous post, mentioned that there are 40 full-time employees (software engineers, biomedical engineers, electrical engineers, etc.) all dedicated to SPORT
- SPORT was nothing more than a concept on a piece of paper roughly 24 months ago. The video released yesterday was the culmination of 24 months of work.
Management is extremely pleased about the speed, efficiency, and means by which they’ve placed the product in 24 months - virtually unheard of in the medical equipment industry
Corey from Ximedica discussed the Product Development Strategy (including many of the technical aspects of the development and design and the entire pathway to commercialization and beyond)
- Having a clearly defined strategy is very important – they’ve spent a lot of time ensuring this has been done correctly
- I didn’t take any photos (just audio for notes) but there was a good Image of it:
TIER 1 –
Instruments
Controllability
Visualization
TIER 2 –
Integration and clinical functionality
Less critical surgeon and user interfaces
Lens cleaning
Strength and reprocessing
TIER 3 –
Aesthetics
Mobility and adjustments
Custom instruments
Current Instruments:
- Needle driver
- Hook cautery
- Curved dissector
- Atraumatic grasper
- Developed controllability benchmark system
- 3rd generation camera lens
- 2nd generation portal design
- 1080p
- 3D image
Corey pretty much elaborated on each of those items. If anyone wants any further details, feel free to ask
Reiza then gave general updates on Titan
Some comments I took out of his discussion:
- Initiation of tissue testing
- Titan, led by Dr. Fowler, has begun the clinical/pre-clinical regulatorary approval process with the FDA and the notified bodies for Titan’s countries of choice in the EU
- Next year, plans to initiate outside US approval process and commericial launch (lead by Hargrove, given his background with JNJ) and is well underway. On track to submit the FDA 510(k) in the 2nd half of 2015 and have a product done and ready to go to market in the US
Moved on to discussing the competition:
Transenterix Surgibot
- Inferior vision system (2D glasses)
- Much less dexterity
- No longer a computerized console
- Worse ergonomics (among other things, users must stand)
- Cost should be about the same as SPORT, but management believes it offers a lot less value proposition
- Targeting end of 2015 launch
Intuitive Surgical da Vinci SP (single-port)
- Announced April 11th, 2014 the launch of the unit – quite an unusual announcement as historically, the customer has only ever known when the product has been for sale
- They just went through a bad quarter, sales were down 24%
- Timeline for commercialization is at least a year from now
- The very small size of the camera raises questions whether it was deliver comparable vision to its MP unit
- Will it be compatible with older models and technology?
- Will probably cost around $2 million / unit
Hargrove, who is the CEO definitively (for those who were wondering), had a few compelling comments which I think we can all appreciate
-He discussed the actual size of the market, which I personally underestimated
- There are 6,000 hospitals in the US
- 2,000 currently have a da Vinci unit & 4,000 are underserved and can’t afford one
- As many if not more ambulatory surgery center placements in the US
The implications for these numbers are where the value really is. Today’s market cap for ISRG is $14 billion. Assuming all goes according to plan and the milestones are achieved, taking 10% of Intuitive’s market cap should be simple. Not to mention all of the negative publicity now hitting the mainstream media regarding the class-action lawsuit against Intuitive (I saw a feature on CNN a couple of nights ago). Now consider the additional 4,000 hospitals in the US that were previously underserved because they couldn’t afford a da Vinci unit. And consider the 6,000+ ambulatory surgical centers that Titan can market the SPORT to.
So, say they sell 1,000 SPORT units year 1. Factor in life-time revenue of $5 million / unit and apply a standard industry metric, I would give them a $1 billion valuation all day long. Conservatively.
When I look big picture, compare the Surgibot and the da Vinci SP to SPORT, I would say that Titan has 2 years from when SPORT goes to market before anyone else can compete
Back to Hargrove…
-Referred to the current market opportunity as the “perfect storm”
- Affordable Health Care Act (“Obamacare” now in full-motion)
- People currently have a lack of healthcare options
-Told an anecdote about a case study with a group purchasing organization that bought a da Vinci unit for $2.1 million
- Once it was installed in the surgical room, it was there to stay – it’s not mobile
- The year before, the room did 4 procedures a day, 260 workdays a year, or 1,040 procedures (94% efficiency)
- The year after installation, the room only did 160 procedures
- That’s a displacement of 880 patients
In my opinion, Titan is developing a very exciting Product Line.
-Drive future revenue
- Already being planned
- Had a brief discussion about military applications (John is a West Point man and was recently at the Pentagon discussing Titan technology). Also discussed the possible application to deploy with MASH units)
- Hepatic feedback
- Adding an arm
- Internet I/P
I expect this to have piqued the interest of many, it certainly got my attention.
Financials
As at Mar. 31st, 2014
Cash: $15,584,466
Burn Rate: $452,350 - $633,290
Market Cap: $166,524,701 ($179,416,755)
Management Ownership: 7.9%
As at April 30th, 2014
Cash: $40,384,108
Burn Rate: $452,350 - $638,890 (Going to start ramping this up shortly)
Market Cap: $177,608,000 ($182,825,312)
Warrants
- If all of the warrants get exercised, that will generate ~$80 million
- $18 - $20 million if they went to term
