NxStage comparison
Dr. Chan in the recent past began something that I don't believe he has done much of before which is give some insights into his thinking of how the company might be valued, in light of other related acquisitions and even opened the door for possible private equity investment (without coming right out and saying it).
On the Q2 2017 call when addressing one of the analysts questions regarding hitting critical mass in sales and driving revenue growth, he threw out the comments below regarding a comparison with NxStage - a recent Fresenius acquisition. He provides the context of a comparison against NxStage which was growing exponentially in sales but still losing money, with CTSO and it's current track to achieving operating profitability, leaving you to make the comparison of how the valuations might differ. Fresenius paid roughly 5-6 x sales ($2B) for NxStage.
I don't think he made this comparison for purposes of suggesting they were open to an acquisition, but more to show how it is smarter to grow in the right way building the company's enterprise value, which is much more attractive to larger investors.
"Now, our interim target is to get the operating profitability. We think that that will be an important inflection point for our business, and we will significantly cut down on the cash needs of the Company, but also make our company much more attractive to a wide variety of different interested groups. And so I think that 20 million sales we're guiding that we will hit that in 2018, representing a doubling of sales of trailing 12 month sales from this point, that's nice growth. So I think that if you track the sales growth of other medical device companies for other companies in general, that growth is led to significant increases in market awareness and ownership of stocks across the Board.
I mean with greater resources that -- what we're trying to do is have a balance of strong growth but also the ability to achieve operating profitability. Growth obviously is the primary concern, but it's not growth in all cost. I think that you may have seen NxStage medical today. They've grown at a tremendous rate over the years. They had about 375 million in sales. Fresenius just bought them for $2 billion, but they were still losing money as a company. It’s a fantastic company, fantastic products. We know them. We've collaborated with them in DARPA, but nearing profitability, they are on the verge of profitability and they were taken out for roughly five to six time sales. So, we think that there is a lot of premium to be based on hitting that point. And again after we get the operating profitability -- that breakeven point, we expect a $0.50 on every dollar will drop to the bottom line. This could be very profitable company. So, there was the balance that we're trying to achieve between growth as well as profitability, but certainly we're adding as we see fit -- while we're adding headcount in key areas where we think it will have the biggest bank for the buck in terms of driving future growth in the Company and we're not afraid to make those investments that we've been doing so."
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