Friday File: Sandstorm, Fosun, Iconix and Transenterix
by Travis Johnson, Stock Gumshoe | April 1, 2016 4:38 pm
Thoughts and updates on a few companies in our stable
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Source URL: https://www.stockgumshoe.com/2016/04/friday-file-sandstorm-fosun-iconix-and-transenterix/
Got a couple quick question about those TRXC options, particularly put options, so I thought I should probably give an example for those who aren’t used to hedging (or speculating) with options.
If you believe that the FDA will provide their response before April 15 (which is not guaranteed), and you want to speculate on the price move that might happen in TRXC shares, here are a couple illustrations:
Think about downside first. If TRXC gets very bad news from the FDA and the stock falls to, say, the December 2015 lows at about $1.70, what would happen?
If you own the stock at $4.40 today, then that means your holding would fall in value by $2.70, or about 60%. (This is just a hypothetical, there’s no particular reason to use the December low price as a target). If that possibility is of a concern you could buy a put option that allows you to sell the stock at a set price anytime before the close of the market on April 15 (that happens to be the options expiration day for April).
If you insist on protecting your $4.40 price, that will be pretty expensive — you’d have to pay probably 60 cents for the closest strike price, $4.50 (so, $60 plus commission for one options contract — each contract represents 100 shares). That would mean you can sell 100 shares (per contract) of TRXC for $450 ($4.50 per share) anytime before the market closes on April 15. After that day, the option is worthless (though your broker might exercise it for you if it’s “in the money”, it’s always important to be proactive with options and warrants — don’t let the expiration date pass you by without taking action to either sell the contract to close it or otherwise exercise your right).
If the stock is trading below $3.90 the option would end up being profitable (the $4.50 strike price minus the 60 cents you paid) … so if the stock really does fall to $1.70, that option gets you a substantial return — you paid 60 cents for the option, it’s now worth $2.80 (you could buy TRXC for $1.70 in the open market after it falls, then force the option seller to buy it from you at $4.50… $4.50 minus $1.70 is $2.80. Though, in reality, you’d probably just place a “sell to close” order for the option at roughly the same profit). So assuming you sell the option to close it and don’t actually exercise your option right and sell your shares, you end up with a $2.20 profit per share on the options ($220 per contract), and are also still sitting on TRXC shares that have fallen by $2.70, which means you effectively only lost about 50 cents per share (roughly 10%) on your whole TRXC position even though TRXC shares, in this hypothetical scenario, fell by 60%.
That’s the general idea, you can just think through the hypotheticals of what possible prices might come, and what it would cost to buy the option contract that makes sense. Buying closest to the current price means you’re closest to a pure “hedge”, but it also costs more — if you just want to make sure you don’t lose more than 30% of your position in the next two weeks, for example, you could probably buy a $3.50 put option for something like 20 cents, a smaller outlay and a larger chance that it will be wasted “insurance” money if the stock doesn’t fall by a dollar or more on or before April 15.
And for call options, it’s all the same except you’re speculating on the stock moving UP in price — or, perhaps, hedging against a short stock position. Buying a $4.50 call option on TRXC for an April 15 expiration would probably cost you 40 cents or so today, which means you’re making money on that if the stock rises by a bit more than 10% in two weeks (it would have to go over $4.90 for the call option to net you a profit, $4.50 for the strike price plus 40 cents for the cost of the option contract).
Hopefully that helps. I’m not suggesting a particular price or strategy, just trying to give an illustration of how it works. This is an unusual situation, because there’s a solid chance of meaningful news coming at exactly the same time as options expiration, and both are within two weeks so the premium prices for call and put options are much lower than they would be if you had more time for your scenario to play out.
Most of the May expiration options (giving you 45 days or so instead of less than 14) will cost you more than twice as much as the April 15 options and give an extra month for the FDA answer or investor reaction to come (who’s to say it won’t come on April 18, for example, or even April 15 after the close when it’s too late for you to do anything with those options — all Transenterix said in their press release was “The Company has updated its timing expectations and now expects to receive a decision from the FDA by mid-April, 2016”).
My question centers around the company touted by Money Map. Has anyone considered Fortimedix? It has a 501K FDA application in the works, and a $500K laparoscopic triangulation machine.
I have 4400 shares of TRXC. It said they would give me margin of 75% instead of 50% margin. I had about 11,000, I could carry overnight. So, I went half and bought an additional 1000 shares on margin. It was around $5500. I think going for broke is the answer. I feel strongly in my gut that this stock will hit. I’ve written to TRXC, CEO 4 times, and the FDA once. I’m covering all bases. My contention is this: do we in the United States want to be leaders in robotic surgery or followers? I put my money where my mouth is!! Todd Pope, this is a stand for America!! TRXC all the way!!!
I took moderate profits on a portion of TRXC fri. thinking FDA approval might be baked in, hoping to add to my position on the dip after approval, the old sell the news thing. I hope I’ve got this right partly based on a post from another site that I think is spot on re: montizing their product.
“I’ve worked in admin at a couple of different large medical centers and that’s how it tends to work. An Admin’s job is to balance quality of care, risk, and operational efficiency. Being able to do a greater number of billable procedures without having to permanently incur the cost of a full-time surgeon (or, conversely, get the most bang out of your surgery buck) with lower risk (one port vs. two port) multiple use, faster recovery times and less surgical complications? That wins in all of those categories, and the price is right. A $500,000 machine amortized over 5 years is well within the reach of even smaller clinics. And with the SafeStitch tie-in as part of the procedure, I can see a dramatic decrease in post-surgical infections, a leading cause of malpractice suits.
I haven’t seen anything yet about TransEnterix ideas about purchase vs. leasing options in their marketing plan, but that seems a smart way to go in some healthcare markets. Giving a clinic a one-year lease on a machine with option to purchase/convert to a 5 year would be smart, as it doesn’t commit the admin to anything until they see what it can do. Of course, once the machine is installed and operational and everyone gets trained on it, no one is going to want to see it go. Also, the difference between the US and the public health systems of the rest of the first world demand that kind of flexibility in approach, which I think they’ve realized as seen by their acquisition of the ALF-X.
Leasing the machines offers several advantages. So would giving one on “permanent loan” to a few choice top-end med schools, so that the next generation of surgeons is trained on them out of the gate. There are a lot of potential marketing possibilities here, and more ways to increase income streams with this than direct sales.
Just a few idle thoughts.”
TransEnterix opens $44M equity facility as it awaits FDA go-ahead to launch surgical robot
February 10, 2016 | By Varun Saxena
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TransEnterix’s Surgibot system–Courtesy of TransEnterix
TransEnterix aims to take on entrenched incumbent Intuitive Surgical ($ISRG) and its da Vinci line of robotic surgery devices. The behemoth recently announced that da Vinci procedure volume is up 15% year-over-year to around 700,000, leading to $2.4 billion in 2015 revenues.
The aspiring market player said it has raised $18 million under its equity sales facility since September 2015, as it seeks FDA clearance of its Surgibot System.
It announced the creation of another “at the market” (ATM) equity sales facility that gives the company to option to raise up to $43.6 million in equity until January 2017. The money is needed to support commercialization of its four-armed Alf-X in Europe and single-port SurgiBot in the U.S., assuming FDA clearance.
Class II medical device labelers are working feverishly to meet the FDA’s September 24, 2016 UDI compliance date. What should they know about the efforts of other device labelers so far? Reserve Your Spot Today!
In an interview CFO, Joe Slattery said ATMs enable “enable a lot more flexibility as to the timing, price and amount of equity that you can raise” and enable better pricing on equity sales.
On the regulatory front, company said it has completed its response to the FDA related to the SurgiBot’s 510(k) submission.
“We are pleased to have completed our response to the FDA and strengthened our balance sheet,” said TransEnterix President and CEO Todd Pope in a statement. “We continue to expect FDA clearance for the SurgiBot System in the first quarter of this year, and our cash position allows us to accelerate our transition to commercializing both the ALF-X and the SurgiBot.”
Slattery said that the announcement was intended to ensure investors that everything is on track, and added that some of FDA’s questions required additional testing. Clearance is crucial because 80% of robotic surgery sales occur in the U.S., he said.
The small-caps’ stock sells for around $4, up from below $2 in mid-January, but has lost about 40 cents on the announcement as of midday.
During a previous interview Pope said the CE-marked Alf-X has many features that da Vinci lacks, such as eye-tracking software and haptic feedback, enabling surgeons to regain the sense of touch and pressure feedback that they currently have to forgo.
The Alf-X has been commercially available for the last two months. Slattery said the company expects to achieve its first sale in the first quarter, but cautioned, “It’s multi-million piece of capital equipment. It’s not a decision that hospitals can make quickly.”
Meanwhile, the Surgibot will allow surgeons to be in the sterile field, Pope said, meaning that they can stand beside the patient rather than behind a console. It will also have a smaller operating footprint than the da Vinci and use a combination of reusable and disposable instruments, according to the CEO.
In addition, Toronto-based startup Titan Medical recently unveiled its single-arm Sport robotic system to investors, with a goal of FDA clearance and a U.S. launch by mid-2017.
But Intuitive CEO Gary Guthart warned during Intuitive’s latest earnings call that taking on the only established robotic surgery company won’t be easy: “So it’s easy to think just about the robotic system, because that’s the most visible part. But there is the systems, the instruments and accessories, advanced instrumentation like stapling, imaging systems, fluorescence imaging, training technologies like simulators and dual console, clinical validation, training courses offered by academic surgeons that number in the dozens. That whole set of products and ecosystem we think is important, and so as competitors enter they have to choose, can they show that value in terms of outcomes and price? And can they offer the set of ecosystem elements that are going to be useful?”
Related Articles:
Intuitive CEO bats away future robotic surgery competitors
FDA nod for synchronized motion table for Intuitive Surgical robotic surgical system
Medtronic CEO ambivalent about competing with Google, despite budding robotic surgery rivalry
Robotic surgery attracts new entrants in minimally invasive surgery quest
Robotic surgery player Titan licenses tech from Mayo Clinic
Robotic surgery to see new entrants Medtronic and J&J/Google, but Intuitive still miles ahead.
What I saw on one website was a May 4th reporting date for TRXC.
My option speculation didn’t work out, unfortunately — the FDA decided this week instead of before April 15, so my options position closed out with a loss. Sure did cause a big move in the stock, however. I’m actually a little bit surprised that the shares are only down 50%, which indicates that there’s some substantial hope that Transenterix will get the SurgiBot approved after they undergo a more strenuous FDA approval procedure.
That’s two push-backs from the FDA so far for SurgiBot, I think, and I expect there were probably thousands of shareholders who were in the stock only for the pop that the very active Money Map ads promised, so I would have thought the stock could drop more like 80-90% if the SurgiBot was rejected (though that was assuming a more “final” rejection — the word from the company so far holds out some hope for eventual success with a different regulatory submission).
Wondering what the response will be from the Money Map folks, and what they’re recommending their subscribers should do, but hopefully we’ve at least seen the end of those incessant ads for a while.
So, now that $ICON is trading at 0.71 is it likely to recover?