“Wealth Care — The Next da Vinci”

By Travis Johnson, Stock Gumshoe, August 8, 2007

This one comes in promising to find us the “next Intuitive Surgical” — and as an ISRG shareholder sitting on 100%+ gains, that really strikes a chord with me. Sounds like it’s worth a sleuthing moment or two.

Intuitive Surgical, for those who don’t know, is the company that makes and sells the da Vinci, the surgical robot that’s taking over prostatectomies and is gradually expanding into other minimally invasive surgeries. Over the last few years it has climbed from $30-40 or so up to the current price that has spiked a bit over $200 on some great recent earnings and guidance numbers.

So yeah, let’s get us another one of them, shall we?

The newsletter doing the teasing here is Quantum Confidential from Brian Hicks — which is normally $600 bucks a year, though it s a bit less than $500 with a sale price now. Still, a little steep for a wee investor like me … unless this really is the next Intuitive Surgical we’re talking about here.

Then again, if it really is, then that $500 invested in this company would turn into about $2,000 in a couple years … so maybe that’s a better investment at the moment. Let’s investigate.

The leadup is a fairly typical one for your finer health care teasers — lots of talk about the baby boomers, how they’re getting old and will be spending millions on health care, and how they’re entering the prime cancer years (sorry, didn’t mean to put that so bluntly … but that’s essentially the “sell” here).

Brian Hicks calls this “Wealth Care” investing, which as I understand it is the need to be wealthy when you retire so you can afford all this expensive medical care.

And this particular teased company is a cancer fighting technology of some sort. They couch this in terms of the “Doctor’s Retirement Plan”, the idea of which we’ve seen teased before — basically, that doctors who invest get rich because they understand the new drugs and technology well before us laypeople do.

The guy he talks about, Dr. Mark W., who may or may not be fictional, made a bunch of money in ISRG and kept holding on even after stupendous gains that would have tempted many investors to sell, because he really understood how important the da Vinci was going to be.

So we learn all about Dr. Mark W. and his investing prowess, and how much money he made in Intuitive Surgical. Yay! And according to Brian Hicks, the inside knowledge gained from subscribing to his newsletter will enable you to hold on to your investments, like ISRG, well past the 50%, 100%, and 200% gains (fighting those profit-taking temptations) to enable real wealth building.

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I have no idea what Quantum’s record is overall — so far, I’ve seen teasers from Brian Hicks for DIVX and FRPT … DIVX (which is the only other Quantum Confidential pick I’ve uncovered here) is down about 30%, FRPT (teased for a different one of his newsletters) up about 40%, for whatever that’s worth (not much, I’m guessing). He does document in the ad several big winners that he’s had in the service … doesn’t mention any losers, surprisingly enough.

But moving on … what specific clues do we eventually get about this company?

“In just three and a half years, this tumor-tracking cancer killer has treated over 30,000 cancer patients suffering from nearly every type of cancer known … more than 2,000 lung cancer patients in just over three and a half years.”

This is some kind of radiation treatment device — but it allows pinpointing of cancer for better impact. Since breathing and moving make it hard to focus beams of radiation at a tiny tumor, this uses robotics to do the job (thus the allusion to ISRG).

“The new technology takes the slightest involuntary movement into account, adjusts for it, and homes in on the cancer.”

Then Brian tells us the success stories of several cancer patients who had this treatment and saw great results, or who are on waiting lists to get it.

Apparently, this device is the first radiation treatment that lets radiation be used on cancers outside of the brain (that’s news to me, I thought radiation treatment was pretty common for all kinds of cancers — but I’m definitely no expert on that). It’s apparently particularly great for treating lung cancer, which is still one of the more common and deadly ones.

Brian says the market should be pretty remarkably big — “three years from now, nearly one million cancer cases. Just about all of them treatable with the new miracle tumor tracker.”

The machine costs about $5 million clams … which even puts the da Vinci to shame (it’s just a bit over a million, but they get lots of part and instrument sales to go with that).

And according to Hicks, it’s being advertised by hospitals — so, like the da Vinci, hospitals may be using this expensive machine to differentiate their service and compete better.

Finally, the clues close with a few financial details, thankfully: “The company recently announced record revenues for fiscal 3Q 2007, up 129% from fiscal 3Q 2006. Sales are climbing. They’ve got a $559 million backlog.”

So what are we talking about here? This one brings the Cognitationizer down off the shelf, and after a few careful seconds we find that this “next Intuitive Surgical” is …

Accuray (ARAY)

The product they sell is called the CyberKnife, and if you look at the pictures on their website, it even looks a little bit like the da Vinci — a big futuristic beast hanging over an operating table. In this case, though, instead of little hands and lights and scalpels it’s just got one focused radiation beam that, apparently, targets in on a tumor and makes little adjustments to follow the tumor as it moves when you breathe, or hiccup, or whatever. Sounds like a pretty good idea.

If this is going to be the next Intuitive Surgical (bit IF), then perhaps this is an opportune time to get in. Growth is picking up — it was indeed 129% in the March quarter, and analysts foresee profitability in the coming year, which often provides a nice inflection point.

Their 2008 fiscal year began July 1, and the projected EPS for the current fiscal year of 50 cents gives them a forward PE of about 40 … but do note that analyst estimates have been falling over the year, not rising, and this is a newly public company, so there’s every opportunity for the analysts to be quite wrong (and their estimates are in a pretty wide range). Comparing to my own experience with ISRG, I bought shares ranging from $60-$113 and I don’t think I ever got a forward PE as low as 40.

Perhaps for that reason, the shares are well off their high of right around 30 back when these shares IPO’d at the beginning of the year. I expect we’ll learn quite a bit more about these folks next week, when they release earnings for last fiscal year on August 16th and, perhaps, talk about their forecasts. Unless one of you is an expert, perhaps?

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I think Varian Medical is way out in front of these people. They have a radiation projection device “IMRT”
which not only sends a beam that can give equal radiation to an irregular object but also, among other things, compensates for the patients breathing and other movements. VAR .
Best regards, Shoeless

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You might be right — they’re definitely cheaper! I think the IMRT makes somewhat less dramatic claims than does ARAY’s device, but I have no idea what the actual efficacy of each is in comparison to the other.

The point is well taken, though: Unlike Intuitive Surgical, which has a massive moat in its niche and no close competitors (there are no other general surgery robots, really), Accuray looks at least to have competitors with (to a layman, at least) somewhat comparable products.

Thanks for the comment.

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That’s a good one! http://www.isecureonline.com/Reports/OST/EOSTH801/Default.cfm?PAGE=3&PCODE=EOSTH801&ALIAS=Ethanol49.89 Company I: If I tell you the name of “Billionaire X,” I’m telling you too much. What I can share is this… In 1939, X’s parents fled Poland, barely escaping the Nazi tide. They landed in Chicago with nothing. But by sixth grade, X – a natural born moneymaker – was already building a business selling magazines. He graduated law school in 1966, but found law boring. So two years later, he got on the horn and rang up an old college buddy. They started an investment firm – real estate – and made billions.… Read More »

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I am guessing that the garbage stock is Covanta with Sam Zell as the billionaire

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