“Healthcare’s Next Big Game-Changer”

A Quick Look at an Andy Obermueller teaser for Game-Changing Stocks

By Travis Johnson, Stock Gumshoe, February 13, 2014

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%.

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“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”

And …

“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.

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February 13, 2014 11:08 am

I will look into this one. A thing that has dogged ISRG (which I have been long in since soon after its debut) are all the rumors of competing robotic systems being devised. I am aware of some preclinical Japanese work in this regard, but still am not aware of a serious threat overall to ISRG. ISRG is nowhere near its all time highs because of some disputation in the literature, that maybe patients with it have no better outcomes. I feel that recenter publications are laying to rest those fears. Last I read, ISRG had acquired a cosmetology application as well.

February 13, 2014 11:44 am

……because of some disputation in the literature, that maybe patients with it have no better outcomes. I feel that recenter publications are laying to rest those fears……….
Man, I got all swolled up at them thar lines, karma.

👍 1039
February 13, 2014 12:31 pm
Reply to  edski

Dear Ed:
I love Gumshoe for many reasons, and read comments when time permits. Your very amusing comment on the already funny formulations of the language, reminiscent of Gollum’s style from The HOBBIT, is truly hilarious and made my day. I just wanted to tell you. Lots of tears here, from laughing. Thank you.

👍 4
February 13, 2014 11:46 am

Even if MZOR does not follow ISGR’s path to greatness and follows a more slower and problematic path like MAKO did, MAKO surgical was still bought out in the end for three times their share price from $10 to $30. Looks interesting to me. Thanks Travis and as usual, thanks to Dr. KSS as well for looking into this first.

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February 13, 2014 12:20 pm

i am following MZOR for over two month it is a israeli compagny wich is starting to get somme concurrence from a french compagny wich as already developed and sold few brain surgical robot and are now developing a new robot for spine surgical the compagny is medtech and you can find it on the euronext . another french compagny as developed a artificial heart not much biger than a natural one and is working on a men since last december you can see it on their site http://www.carmatsa.com.

February 13, 2014 12:44 pm

Their fair value is a negative figure but their chart will fulfill my technical criterion when the stock hits 25.65 per share. I too am intrigued. I am much more comfortable when fundamentals and technicals agree. If I buy a few shares at 26.5 I will be setting my stop at 23.4. That is where I think major support is and if it goes through that I want out. Technicals for me predict a slow rise.

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February 13, 2014 7:34 pm
Reply to  Solyom

It makes sense, double top and dropping MACD. Wait a bit.

February 13, 2014 12:52 pm

Having learnt so many interesting things from Gumshoe and its frequent commentators,I would like to give something back: I have a very interesting prospect to share,which is in my line of work.I am talking about OPHT,which is in phase III trials of an injectable PDRGF(platelet derived growth factor) for Age Related Macular Degeneration.The current standard of therapy is antiVEGF injections,Lucentis from Genentech/Novartis and Eylea from Regeneron/Bayer.Lucentis grossed around 4 bil.last year,while the newer contestant Eylea made more than 1 bil.and rising.Both,as well as the off label used Avastin,are anti VEGF drugs,and despite the phenomenal decrease in vision disability they have brought,in certain cases reach a plateau,and don’t seem to help the patients after a number of injections(they average 7-8 inj.per year).It seems that they inhibit only the endothelial cells of the pathologic neovascular membrane,that is the culprit of the disease afflicted millions of elders,but cannot inhibit the pericytes,that form the framework of the vessels.That’s where fovista showed exemplary results in the phase II studies.If approved,it will likely be injected along one of the antiVEGF drugs,and maybe will result in less overall injections to achieve membrane inactivity and regression.The approved antiVEGF substances sell for over 2000 each,and Fovista will surely command a similar price.
It will also make OPHT an ideal buying target for each of the 2 major players,since if one acquires it and manages to formulate both factors in one injection,it will create a monopoly of this huge market.
The scientists behind OPHT are top notch retinal specialists,and despite being a novice in investing,,I feel that this is one company with tremendous potential…I would like Dr.Kss opinion on that (although I gather it’s out of his field of expertise,but still I have been greatly impressed from his veery advanced knowledge).
I have initiated a small position in it,and already regret not having bought more below the 30$ mark.
My gift to gumshoers…


Eye MD

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February 15, 2014 5:02 pm
Reply to  Squarelogic

Thanks SL, I’m going to read up about this. Any idea when the phase III trial will be finished? I’m also in the medical device for ophthalmology business and it’s good to get share tips for companies close to home

February 15, 2014 6:55 pm
Reply to  Robert

Phase III has already started…primary endpoint visual gain in 12 months…

February 13, 2014 1:26 pm

why are these stocks always touted when they are at their highs???