We’re well on our way to piling another foot of snow here atop Gumshoe Mountain, so I’ll keep today’s missive brief — there’s sledding to do, after all, and little Gumshoes out of school and craving amusement.
I was skimming through a recent teaser pitch by Andy Obermueller for his Game-Changing Stocks letter, and it’s one of those “laundry list” teaser presentations that talks about an almost endless roll of companies that will change the world and make you rich. I’m not going to tell you about all of them, partly due to lack of time and partly because you can figure most of them out on your own, but here’s a rapid rundown before we get to today’s “main event:”
“The Biggest Game-Changer On Earth” — the one that’s going to topple the “big three” carmakers, is Google (GOOG), with special attention paid to Google Glass and their driverless car program. I own Google stock and think it’s a wonderful investment (if no longer super cheap at the moment), but mostly because it’s the world’s best advertising platform — that other stuff won’t mean much for a while.
“This Company Could Kill the Gasoline Engine” — that one is Westport Innovations (WPRT), with their natural gas fuel injectors that let big rigs run on nat gas and get the same kind of power as diesel engines. This one will always be teased and touted, it’s a great story but also an over-promise and under-deliver management team and a story that has churned through hundreds of millions in R&D and other costs but still needs subsidies and massive outside investment in infrastructure to make their technology scalable.
“The Second Industrial Revolution Is Under Way” — that’s about 3D printing, which finally took a lump this month as the very clear overvaluation of all of those stocks finally hit their shares. I won’t go into 3d printing in detail, I love the long-term potential but the stocks got way, way ahead of themselves, but the three companies he hints are are almost certainly the major duopoly of 3D Systems (DDD) and Stratasys (SSYS), plus relatively new ExOne (XONE), though there are other new contenders taking advantage of investor enthusiasm (like Voxeljet, VJET) and will be more IPOs soon even after — this story will likely keep exciting investors for a while despite recent setbacks. I suggested taking profits in DDD and SSYS in January 2013, for what it’s worth, because I thought they were getting unsustainable way back then after doubling in six months — we’ll see how it shakes out.
And then we get to the healthcare one that I hadn’t heard of, and wanted to take a look at — here’s how Obermueller teases it:
“Healthcare’s Next Big Game-Changer
“Forbes ranks a company called Intuitive Surgical as the world’s third most innovative firm. It’s easy to see why…
“It makes a revolutionary surgical system called Da Vinci that has mind-blowing technologies….
“Thanks to this game-changing device, Intuitive Surgical is up 1,900% since it went public in 2000. The S&P has advanced all of 20%.
“And given its expanding footprint, I think Intuitive Surgical looks like a solid long-term investment.
“That being said, I think the company’s earth-shattering gains are behind it. It’s pretty well-known, and it’s expensive.
“So instead of putting a lot of money in Intuitive Surgical and hoping for a 5% increase every year, I’d rather make a small investment in a company that looks a lot like Intuitive Surgical before it took off.
“That’s where a company I call ‘Healthcare’s Next Big Game-Changer’ comes in.”
Intuitive Surgical (ISRG) is one that I sold way, way, way too early a few years back, too, so I’ll try not to be too bitter as I sniff out the stock he’s teasing with the implication that it’s the “next ISRG” … how about some more clues on this one?
“It’s a true ‘ground floor’ opportunity… and I’m confident that the triple-digit gain it’s posted since I first recommended it in February will be just the beginning.
“Like Intuitive Surgical, its specialty is robotics.
“In fact, it is the only company with FDA approval for robotic spinal procedures. In other words, it basically owns the market. And it’s not a small market — about $14 billion.
“The company’s robotic system uses 3-D image models and tiny tools to work very close to the spine.
“To date it has a 100% safety record. In no documented case have the robots caused permanent nerve damage. That is particularly impressive given that the company’s case volume has grown by more than 500% in the past four quarters alone!
“These amazingly precise robotic instruments decrease the need for re-operations by HALF. That is very important, because under new Medicare rules, if a patient is readmitted for the same reason within a certain length of time, the hospital must eat the cost of the second surgery.”
OK, so I’ve got an inkling of this one — any more little tidbits for us to chew on?
“It increased its user base from 39 hospitals to 54, which is a huge increase given that each system costs about $1 million….
… it got its first repeat order”
“This company was only added to the Nasdaq in May”
So…. who is it? This is … Mazor Robotics (MZOR)
Which is indeed a May IPO on the Nasdaq as they raised money and awareness for their expansion goals, though it was publicly traded before that in Israel. And it has graced the pages of Gumshoe before, just not by me — we had a commenter suggest it back in November. It’s up more than 25% since then, and has been on a ride almost straight up (albeit with some real volatility) since the Nasdaq listing last year.
This is now a $400 million company, and their business model is extremely similar to Intuitive Surgical’s — they sell a machine for roughly a million dollars to the hospital, then sell their proprietary disposable tools for each surgery performed with the machine. The “robot” is essentially a combination of a 3D imaging device and a mounted minimally invasive portal with probes that can go into the spine and make adjustments or put in screws or implants or whatever it is that these surgeries require. It looks like they have a very high level of accuracy, 98%+, and the key arguments for use of this device include the reduction in the amount of radioactive imaging fluid required (which would theoretically cut down on the cancer risk), the improved accuracy, and the ability to make some surgeries less invasive, which would be expected to cut down on infections that are a major cause of re-admission after spine surgery.
It’s awfully early to tell if it will take off with mass adoption, but they’re doing quite well so far and seem to be focusing on the right things — focused geographic expansion, a good direct sales force, and making the advantages clear through published studies. Spinal surgeries are not as simple or common as prostatectomies, which was the surgery that drove the da Vinci from ISRG into wide acceptance, but they have high reimbursement levels already so cost might perhaps be less of a concern for hospitals … and I’ve seen at least one ad for the “spine robot” that was aimed at consumers, so it’s possible that they could ride the wave that really led to rapid adoption of da Vinci (that wave being consumer demand, driven by really effective marketing as well as by sometimes disputed clinical results, which made hospitals compete with each other to offer robotic prostatectomies).
If Mazor follows an adoption curve similar to that of Intuitive Surgical — which looks possible but far from certain, I have no idea what other competing systems might exist — then it would be expected that they’d continue to be quite volatile over the next couple years as the results fluctuate dramatically due to the unpredictable and lumpy nature of system sales that drive revenue in the early years. Using this business model, you can’t hope to get somewhat smooth and sustainable revenues until the installed base is large enough that the sale of disposables and ongoing service contracts make up a bigger chunk of their cash flow (right now system sales are approximately 70% of revenue). They’re small enough that they’re still seeing meaningful jumps in revenue by selling just a few new systems each quarter, so the real question is whether the adoption curve steepens and they start to sell a lot more systems and see a lot more procedures done in the next few years. This isn’t going to be a profitable company in the next year or two, but they might post some strong revenue growth numbers — and if they are able to boost system sales substantially with the expanded sales force, and then successfully launch their newer brain application for deep brain stimulation, particularly for Parkinson’s Disease, the sky could get a bit bluer.
That’s about all I know on Mazor right now, and I don’t know much about the competitive landscape for spinal surgery systems just yet, but color me intrigued so far — you can see their latest CEO letter here, and their latest investor presentation here if you want to get started on understanding the company.
Got an opinion on Mazor or any of these other stocks, or any other faves? A big game-changer of your own for 2014? Let us know with a comment below.