Look out Intuitive Surgical, Inc. (NASDAQ:ISRG), and step aside BioTelemetry Inc. (NASDAQ:BEAT). There's a new cardiac name in town, and its name is Stereotaxis Inc. (NASDAQ:STXS). This small company's stock is soaring today on the heels of encouraging news, though the prompt for the stock's strength has been brewing for quite some time. This nudge for STXS, however, may well mean it has a lot more potential than ISRG or BEAT do for the foreseeable future.
And that's saying something. BioTelemetry shares are up more than 200% over the past four months on news of an agreement with UnitedHealthcare, a glimmer of hope on the revenue and earnings front, and a new corporate structure that the market seems to like much better than the old one.
Intuitive Surgical, Inc. shares haven't had the same luck of late, still under pressure from a scare earlier in the year that robotic surgeries were going the way of the Edsel due to safety concerns that could ultimately crimp demand for its products. And so far, those fears haven't been unmerited. Last quarter's revenue from ISRG was noticeable weaker.
So what makes Stereotaxis Inc. such a superior investment idea now? Two things. One of them is Japan. The other is safety.
On the safety front, the STXS approach to treating cardiac arrhythmia is different than most procedures in that the catheter used to do the repair work is soft, flexible, and can reach further into the reaches of the heart in order to place the radiofrequency energy (which restores the heart's normal pattern of beats). Stereotaxis catheters are also guided magnetically, making them more precise in addition to farther reaching. Traditional heart catheters tend to be stiff, and therefore risky, as they can puncture the heart. And, traditional catheters don't offer the same precision placement of the RF treatment.
The quality of the product, however, is only part of the reason the medical community is apt to start gravitating toward safer and perhaps more effective options while steering clear of now-questionable robotic surgeries. Another reason may be that insurance companies and regulators see the value of this less-invasive yet more-effective approach supplied by Stereotaxis.
Enter Japan. The Niobe heart catheter system from STXS has been categorized in the highest reimbursement class of medical products in that country, meaning it's going to be readily easy to sell the product and approach to doctors and patients there. Japan's attitude toward the device, however, may just be a microcosm of how the rest of the world and its insurers are going to see Stereotaxis-made equipment.
Even beyond Japan, and even beyond the transition away from robotic surgeries and toward laparoscopic approaches, however, STXS has some key drivers in its future. The V-drive and its recurring revenue potential is one of them. That's $30 million worth of hardware/upgrade sales, plus all the follow-on revenue. Another catalyst is expansion into China if it can find the right partner. All told, the company could be penetrating what's a $1 billion robotic (and minimally invasive) catheter market that's still a little fuzzy, but rife with acquisitions.
Yes, STXS is overbought thanks to today's pop, but worth every penny in the grand scheme of things. The current market cap of $38.2 million in no way reflects the potential upside of its heart catheter surgery systems, now that they're proven, and now that the medical community is supporting them.
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