MRI Interventions (OTCQB:MRIC), a commercial stage medical device company focused on creating platforms for performing the next generation of minimally invasive brain and heart surgical procedures, recently announced that it has been presented the 2012 Global Company of the Year Award in Image-Guided Neural Interventions by Frost & Sullivan, a global business research and consulting firm.
MRI Interventions' product, ClearPoint, is an integrated system of reusable components, disposable components and intuitive menu-driven software which provides guidance for the placement and operation of instruments during neurological procedures performed within the MRI environment. Utilizing a hospital's existing MRI suite, the company's FDA-cleared ClearPoint system has been installed at 16 hospitals in the United States and two hospitals in Europe. ClearPoint systems are in clinical use in connection with MRI scanners from the three major MRI scanner manufacturers, Siemens (SI), GE Healthcare and Philips Healthcare, as well as the two major interventional MR/OR platforms that are manufactured by IMRIS and Brainlab.
Advantages of Using ClearPoint
Traditional brain surgery does not involve direct visualization and has to be performed in an operating room. Patient are often awake during the surgery, and the procedure often takes up to eight hours. These complex procedures requiring extensive training and the services of specialized neurosurgeons of whom there are only an estimated 300 in the United States, which makes coordinating tough for both hospitals and physicians. ClearPoint offers direct, high resolution visualization and is performed in an MRI Suite. The patient is put under general anesthesia, and procedures typically take no more than three hours to complete. The procedure is simple and the training involved is brief. The procedure is not limited to specialized neurosurgeons. Any of the estimated 3,500 neurosurgeons in the United States can perform the procedure.
Year-to-date revenues from the sale of ClearPoint disposable products increased 265%, from $269,000 for the nine months ended September 30th, 2011 to $713,000 for the same period in 2012. Disposable revenues increased 40% from the second quarter to third quarter of this year, with $204,000 in the second quarter increasing to $287,000 in the third quarter. MRI Interventions is pleased to see continued growth in its revenues, with revenues of $3.2 million for the nine months ended September 30th, 2012, versus $2.7 million for the same period in 2011.
The company was also successful in reducing its operating loss, year-to-date through the third quarter, from -$4.6 million in 2011 to -$2.6 million in 2012. The company is spending heavily on research and development, particularly for marginal improvements to its visualization technology. The company was able to improve its cash position with an equity financing it closed during the third quarter, which resulted in net proceeds of $5.5 million. MRI Interventions had a cash balance of $3.8 million at the end of its latest full fiscal quarter.
Partnerships and product development
MRI Interventions has a co-development and co-distribution agreement with Brainlab, a maker of software-driven medical technology, relating to the ClearPoint system. Recently, the company announced that Tocagen had become a partner and would adopt the ClearPoint technology in association with its ongoing clinical trial for Toca 511, used in fighting the most aggressive form of brain cancer, recurrent high grade gliomas, including glioblastoma multiforme (GBM).
MRI Interventions is developing the ClearTrace system to enable MRI-guided catheter ablations to treat cardiac arrhythmias, including atrial fibrillation, a technology similar to ClearPoint, which would allow the company to enter the market of less-invasive heart care. MRI Interventions is also working with Boston Scientific (BSX) to incorporate its MRI-safety technologies into Boston Scientific's implantable leads for cardiac and neurological applications. It is estimated that there are about 124,000 invasive brain procedures in the U.S. annually, and the company has the potential to pull in millions annually in revenue if it captures that market share, as a new disposable component must be used for each case.
The medical device market
In the last few years, Thoratec (THOR) and Heartware (HTWR) have become billion dollar companies on the strength of effective medical devices, with the former now valued at $2 billion and the latter now valued at $1.22 billion. Intuitive Surgical (ISRG) has become a $21 billion company by making surgeries safer and allowing surgeons to perform minimally invasive surgery for ailments that previously required more extensive, invasive surgery. Edwards LifeSciences (EW) has become a $10 billion company on the strength of effective cardiac medical devices, including a minimally invasive alternative to open heart surgery. ClearPoint has a target population of about 2.2 million late stage neuro-patients, with indications across a span of neurological disorders. The company's prestigious partnerships and success to date are testimony to its impressive credentials. Investors looking for a high potential company in the biotech space should consider MRI Interventions.
Boston Scientific stock has risen recently because of the news that the FDA has raised new concerns about defibrillator leads (leads that connect an implantable heart defibrillator device to the heart) from St. Jude Medical (STJ), one of its biggest competitors in the Cardiac Rhythm Management (CRDM) market. St. Jude Medical is already struggling with the recall of its "Riata" leads last year, and Boston Scientific could profit from the fresh troubles for its competitor, as it has seen a sharp decline in sales within the segment due to weak demand in the market and regulatory issues. The company's Cardiac Rhythm Management division makes pacemakers and implantable cardioverter defibrillators (ICDs), which help in the treatment of abnormal heart conditions. It is the second biggest revenue source for Boston Scientific, with 2011 sales reaching $2.1 billion. Citigroup recently upgraded Boston Scientific, citing the potential benefit from a Durata withdrawal. Citigroup raised its price target for shares to $7.30 from $5.30. Citigroup believes Boston Scientific should benefit more than Medtronic (MDT) if St. Jude Medical's Durata is withdrawn from the market.
Boston Scientific reported sales of $1.735 billion and adjusted earnings per share of $0.16 for the third quarter ended September 30th, 2012. The GAAP loss of $0.52 per share was lower than previous guidance due primarily to the impact of an estimated $809 million (pre and post-tax) goodwill impairment charge associated with the company's U.S. Cardiac Rhythm Management (CRM) reporting unit. Reported sales of $1.735 billion showed a decline of 7% on a reported basis and 5% on constant currency basis. Adjusted EPS of $0.16 was at the higher end of the company's adjusted EPS guidance range of $0.14 to $0.17. Cash flow generated from operations was $271 million, and the company repurchased roughly 46 million shares under the 2011 share repurchase authorization, bringing the total shares repurchased to 169 million shares, or 11 percent of shares outstanding during the past 18 months.
Significant catalysts and regulatory approvals
In September, the FDA granted approval for Boston Scientific' s S-ICD System, the world's first and only commercially available subcutaneous implantable defibrillator with leads that are implanted subcutaneously instead of being directly connected to the heart. The global defibrillator market is expected to grow to $12.5 billion by 2017, and the largely unexploited markets of China and India will drive the growth of the market. But the FDA has also instructed the company to conduct a post-market study to evaluate the long-term safety of the defibrillator.
More recently, the company has received CE Mark approval and has begun the European market launch of the Precision Spectra Spinal Cord Stimulator (SCS) System, which is the world's first and only SCS system with 32 contacts and 32 dedicated power sources. It provides improved pain relief to a wide range of patients who suffer from chronic pain. Chronic pain affects one in five adults in Europe, or about 95 million people between the ages of 15 to 64. The company recently commenced a trial for its next-generation Ingevity pacing leads. The trial will establish whether Ingevity pacing leads are superior to standard leads currently available.
Boston Scientific has a price to book ratio of 1.12, an EPS growth rate of 141% for this year, and a forward PE ratio of 12.91. It also trades at a price/sales ratio of about 1. The company is undervalued at its current price of around $5.76 based on a discounted cash flow model, and, given the recent developments and catalysts described above, I believe investors should consider buying this stock.
Medtronic, a spinal technology company, has announced the launch of the latest addition to its cervical surgical technique portfolio at the 40th annual meeting of the Cervical Spine Research Society. The company has diversified its portfolio with Cervical FaceliftsM ID/S, a breakthrough surgical technique that stabilizes the cervical spine and decompresses the neural foramen indirectly. The placement of the Cornerstone Facet MicroGrafts in the posterior cervical facet joints act to support in carrying out the innovative technique. The product is expected to improve the outcome of cervical surgery.
The launch emphasizes the company's focus on the expansion of its product portfolio to overcome challenges in its spinal business, which is one of its key business franchises. The company has seen disappointing performance from spinal implants in the U.S. market because of pricing pressure and reduced procedure volume, which has in turn affected its overall performance. The domestic spine market (accounting for 14% of total company revenues) continues to be depressed by declining Infuse sales. The U.S. core spine market is showing signs of stability from the second quarter of fiscal 2013, and has shown a modest improvement over the past three quarters.
Medtronic announced financial results for its second quarter of fiscal year 2013 of $4.095 billion, an increase of 5% on a constant currency basis after adjusting for a $118 million unfavorable foreign currency translation, or a 2% increase as reported. Including a one-time, non-cash $245 million pre-tax charge related to certain litigation in the Structural Heart business, net earnings as reported were $646 million, or $0.63 per diluted share, a decrease of 26% and 23%, respectively, over the same quarter of the previous year.
After adjusting for this charge and other items, net earnings and diluted earnings per share on a non-GAAP basis were $902 million and $0.88, flat and an increase of 5%, respectively over the same period of 2011. Second quarter international revenue of $1.806 billion increased 8% on a constant currency basis, or 1% as reported, and accounted for 44 % of worldwide revenue for the quarter. Emerging market revenue of $464 million increased 18% on a constant currency basis, or 14% as reported, and accounted for 11% of total revenues.
The company also updated its revenue outlook and reiterated its diluted earnings per share (EPS) guidance. For fiscal year 2013, the company expects revenue growth in the range of 3% to 4% on a constant currency basis, which implies revenue growth of 2% to 4% on a constant currency basis for the second half of fiscal year 2013. For fiscal year 2013, the Company continues to expect diluted EPS in the range of $3.62 to $3.70, which implies annual diluted EPS growth in the range of 5% to 7%.
Future outlook and competition
Like Covidien (COV), Johnson & Johnson (JNJ) and a few similar companies, Medtronic has overcome the worst of the lull in growth and has several potentially major products in the pipeline. The results for Medtronic's three largest businesses were mixed and cardiac rhythm management was flat in constant currency terms while Cardio was up almost 13%, and Spine was down more than 5%.Smaller businesses delivered decent growth with Neuromodulation up about 10%, Diabetes by almost 6% and SurgTech up 17% (13% organically). The main concern to address is whether this growth is going to be sustainable.
Medtronic saw about 34% growth from its drug-coated stent business, and the launch of the Resolute stent appears to account for almost half of the reported organic growth. However, this kind of growth is unlikely to be sustainable with rivals Abbott Labs (ABT) and Boston Scientific certain to respond strongly, similarly the company has gained market share from Boston Scientific and St. Jude Medical in CRM and is seeing improved conditions in spine, Renal denervation still appears to be a multi-billion dollar opportunity, but St. Jude Medical, Covidien, Boston Scientific and Johnson & Johnson are not going to sit back and watch.
The long-term prospects for Medtronic remain strong, and the current price of around $42.68 is attractive on the basis of both current earnings multiples and the dividend yield of 2.40%. I believe that a fair price for the stock is in the mid-$50 range, and would therefore recommend buying now.