- Intuitive Surgical (ISRG) and ResMed (RMD) have both executed flawlessly, leaving their counterparts in the dust - early investors have made out tremendously well.
- Up-and-coming BTCY could look similar in a short time. Their product launch is underway and appears to be ahead of schedule, and the market opportunity in cardiac monitoring is immense. Understanding their peers, the stock could be worth $10 with the right sales execution.
What makes a great investment among medical device companies? Companies that operate in large, gorwing markets, and can make the leap from development-stage to commercial-stage. This takes great execution.
Launching healthcare products like drugs and medical devices is no simple task. Many companies that are great at developing new products never make the leap to selling products successfully. The skillsets are entirely different, and without the right management and commercial teams in place, this gap never closes for some small-to-medium sized companies.
Intuitive Surgical, Inc. (ISRG) and ResMed Inc. (RMD) have been crushing the competition since their pivots from developing products to selling products a few years ago. These are impecable execution stories, and both stocks are at or near their all-time highs. For investors who identified these teams early, the returns have been tremendous.
Precision execution is the name of the game for the undiscovered medical device company Biotricity Inc. (BTCY), and this year the stock could be primed for a huge re-valuation higher. Compared to one of their closest peers, iRhythm Technologies, Inc. (IRTC) the stock could be undervalued by 200% or more. With the U.S. FDA approval of their first medical device in December 2017, they're now launching into the massive and growing cardiac care market. The company is ahead of schedule on their launch plans, with a rock star sales team, and this stock could be primed for a major move higher in 2018.
What Great Execution Looks Like
In the last five years, ISRG has risen an astounding 300%, from just over $100 to nearly $475. RMD shares have rocketed from $40 to $105, putting the bears in this name to shame.
What's worked so well for these medical device companies?
First, both are operating in big, growing markets
Intuitive Surgical developed one of the most popular minimally invasive surgical robots globally, called the da Vinci Surgical System. The system is expensive, at $1.5 million or more, but hospitals and surgical centers are apt to buy and use them due to the reduced operating and recovery times for patients, and often reduced follow-up appointments. Intuitive has expanded quickly the number of surgeries the da Vinci system can be used for, so that it's almost ubiquitous among out-patient interventions. As they come out with new add-ons and improvements, the market is almost limitless.
As a result, ISRG reported an astounding fourth quarter 2017 revenue of $892 million, up 18% from the year-ago period.
At the same time, ResMed (RMD) is benefitting directly from a damaging but powerful dynamic in the United States - the obesity epidemic - and the ageing Baby Boomer generation. For older individuals and the overweight, their airways can restrict during sleep in what's called "sleep apnea." A CPAP device like ResMed's (CPAP stands for constant positive airway pressure) helps keep the airway open at night, and patients sleep better. They're covered by Medicare, and screening is improving as we've learned more about the disorder, to the point that many older Americans are now using CPAP devices for better sleep and health. Of course, about 1 in 3 Americans are overweight. ResMed is producing great growth numbers as a result, growing revenue every year by 10-15%. Last year they produced $2 billion in sales.
Second, their commercial strategies have been executed perfectly
RMD and ISRG's revenue figures have grown consistently for the last 7-10 years as they've introduced improved add-on products, and new devices. Part of this has to do with the value-add of their devices, and that insurance and hospitals are quick to pay for the products. Both verticals can actually create more revenue for the providers using them: better margins for hospitals, with lower follow-up costs and sometimes even higher per-surgery revenue, and recurring visit fees for patients using CPAP devices.
With quality sales execution into large markets, these two have become powerhouses.
Why BTCY Could Look A Lot Like ISRG and RMD
Biotricity (BTCY) is an up-and-coming medical device company that's executing well on their current product launch. It could look a lot like ISRG and RMD in the coming years.
The company is in the middle of launching their first device, called Bioflux, into a huge market in cardiac care. Bioflux is a small remote monitoring device that can provide up to 30 days of near real-time ECG monitoring and allows physicians to understand a patient's early symptoms of arrhythmia to diagnose and provide proper treatment. The device is small enough that the patient can go home and about their normal life. Meanwhile, Bioflux records and transmits their ECG data to a remote monitoring facility where it can be accessed remotely by the patient’s doctor. Ultimately, this streamlines and simplifies certain heart rhythm diagnoses.
This little company has gone undiscovered by the public markets for the last year, but their technology could lead to outsized gains in the coming 12-18 months, and execution on the product launch so far has been great.
According to the Centers for Disease Control and Prevention, 11 million patients in the United States have a heart rhythm disorder or arrhythmia. Diagnosis relies on tests such as ECGs (electrocardiograms) to determine the severity of the disorder. Initially, this includes an in-hospital ECG, but arrhythmias can be sporadic, and keeping patients in the hospital hooked to an ECG for days or weeks at a time is expensive and inconvenient. The market opportunity for Bioflux is enormous.
Biotricity thought they'd be launching late in Q2 of this year, but already in April they signed their first major partner, the San Antonio Endovascular & Heart Institute (SAEHi). This kind of partner - a prestigious cardio-focused institute - speaks volumes, and says that Bioflux is the real deal. Importantly, the company has a plan in place to improve the economics for doctors who use Bioflux, where they receive more of the economics from prescribing the device when compared to traditional products out there.
The company has also been hinting at plans to quickly expand their product portfolio into other medical segments where remote monitoring could be transformative as technology goes mainstream in health care. With Bioflux, the company has now established that they can bring a device to market quickly and efficiently. With two or three more devices capturing $10-$50 million in annual revenue in a few years, BTCY could trade to multiples of its current valuation.
A similar device from IRhythm (IRTC) shows just how big Bioflux could be. IRTC is a $1.45 billion company, with just $99 million in sales last year from their Zio device, which requires being sent to a facility for processing, and does not transmit in real-time. This indicates a 15X Price-To-Sales multiple, one metric from which investors determine fair value for publicly traded companies.
A similar multiple on even $15 million in sales in the coming years for BTCY could justify a $300 million market cap for the company, or about 3X today's prices to as high as $10.
Biotricity is a micro-cap company and as such carries particular risks. The company will likely need to raise additional capital in order to finance its business, and Bioflux is entering a market where larger companies are already established. Healthcare investing is a volatile space, and drug/device companies are known for either being multi-bagger winners or complete zeroes; you could lose all of an investment in BTCY.
A well-executed launch underway and more product announcements later this year could send BTCY rallying in 2018, and like ISRG & RMD, early investors could be the biggest winners.
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