When I first started covering 3D printing companies 3D Systems (DDD) and Organovo (ONVO) back in September 2012, I was intrigued by their disruptive potential as "futuristic" technologies that were only heard of in science fiction movies. Since, both companies have returned a combined 600% due to the market realizing the disruptive potential of 3D printing. Ironically, the next disruptive technology I am captivated by also originates from science fiction. Certain related events led me to read up more on this miraculous bionic technology which is on the brink of overcoming paralysis.
Earlier this week, Yahoo published an interesting article on a real life "Iron Man" suit the US military was developing called TALOS. I read this article around the same time I watched the new remake of Robocop in theaters. The inner super hero fan in me was stunned at how these pipedream ideas were becoming reality. Soon after, 3D Systems announced a partnership with Ekso Bionics (OTCQB:EKSO) on the first hybrid robotic suit. Such coincidental events caused me to look further into Ekso and their operations.
What is EKSO?
Ekso Bionics has developed a wearable bionic suit (see below) which enables individuals with any lower extremity weakness (paralyzed) to stand up and walk. The suit is used to train people with neurological conditions such as stroke and traumatic brain injury to walk again. To my surprise, Ekso's breakthrough story has been covered by nationwide providers like CNN and Bloomberg. I highly urge you to watch the linked videos as they explain the concept of how the technology functions (note: Bloomberg video covers Ekso at 8min mark).
The company is currently solely focused on supplying the rehabilitation market with these bionic suits as there are already 22 centers in the US, 8 in Europe and 1 in S.Africa using Ekso. However, for comparison sake, there are 3500 rehab centers in the US alone that deal with spinal and brain injuries that could use Ekso. This equates to a 0.6% penetration of the market. Increased awareness is crucial in accessing these other facilities and more worldwide.
As exposure and awareness are raised, secondary markets such as the military and home markets, also present upside for the company. Ekso's partnership with Lockheed Martin, the world's largest military weapons manufacturer, will eventually bring in royalties of 4-6% as the suit is modified for military use. These expansion opportunities are expected to be pursued once the company has a larger share of rehab facilities.
Pioneering a New Industry
Ekso is creating a new bionic industry with its wearable robot technology that changes lives. The bionic technology is still in its infancy stages so it will not replace any wheelchairs just yet due to its slower speed. However, the experience of being able to stand and move is far more gratifying. With four evolutions in just two years, Ekso is continually upgrading the technology with the dream of having a mobility device that overcomes paralysis.
Ekso's story is reminiscent of Organovo when I first started following the bioprinting company. Both companies share a newly public listing and a disruptive technology that is ahead of its time. At the time, Organovo's NovoGen MMX bioprinter was highly criticized as a futuristic toy with no real functionality. Some skeptics even questioned the validity of the technology, claiming it wasn't real. Nearly two years later, partnerships and technological advancements have validated the bioprinter as one of the hottest technologies in healthcare. Now, Organovo has developed countless partnerships with renowned research institutions that want to test 3D printed tissue. With Organovo's first commercialized liver cell assay, expected sometime in late 2014, the company is close to realizing revenues and potential bottom line. Not only that, but Organovo is expanding their printing capabilities to additional tissues like the skin and kidney. A lot of progress has occurred in a matter of two years.
Operations Will Be Driven With Increased Awareness
Keeping in mind their respective industries, I believe Ekso is further in development than ONVO was in its infancy. In the first nine months of 2013, Ekso had revenues of $2.51M and net losses totaling $9.1M. As expected, like any developing stage company, Ekso is running at a loss. To compare, prior to going public, Ekso had already generated three quarter of the revenues that ONVO has since their inception ($3.3M). At this rate, Ekso's FY 2013 revenues will be around the same figure as ONVO's since inception. However, what is even more promising is that CEO Nathan Harding expects the company to turn in a profit within the next two years. On an absolute timeline, it seems that Ekso may be ahead of the bioprinting technology due to a stable and growing revenue stream as the product is already commercialized.
As company exposure spreads, I believe Ekso will see a valuation premium due to its exclusivity and leader status in the bionic industry. This similar premium has been applied to both ONVO and DDD, respective leaders in their fast growing industries.
Luckily, Ekso's problems are such that any company would love to have. Demand is currently not being met due to supply constraints. According to The Street's posted article, Ekso has a back-log of 18 suits on order with a 10-week time line delivery. Currently, 40 suits are in use, with 34 in rehab centers and six used by individuals.
To expand the reach of their wearable robot technology in the medium term, Ekso needs to bring down the cost and increase manufacturing efficiency. Currently, the suit is sold for as much as $150k. As the technology progresses, this hefty price is expected to drop to levels of a "high-end motorcycle", as CEO Harding puts it (at least 50% assuming price of Ducati).
With their recent 3D Systems collaboration, the company is focused on printing customized parts to not only cut costs, but also increase product exposure due to their affiliation with 3D printing. In my opinion, this move is tailored to long term growth as the company prepares to make the Ekso suit a widespread personalized product that is efficiently manufactured. After all, it only makes sense for next gen bionic technology to use next gen manufacturing techniques.
Financials to Sustain Operations for Foreseeable Future
As of February 17, 2014, the company had $16.7M in cash and no debt on their books. During the next two years, Ekso expects to spend approximately $9M on sales and marketing and an additional $10M in general administrative and R&D. With these expenditures, Ekso anticipates an increase in sales to rehabilitation hospital customers which could bypass further dilution. Most likely though, the company will seek further dilution, however this is not expected to occur within the next year. According to these projections, Ekso's burn rate would be approximately $2.5M/Q, which would leave the company financed for at least the next 12 months or until Q3 2015.
Ekso to Follow Trajectory of 3D Printing?
As Ekso matures its technology, I could see the company becoming the leader in a newly formed bionic industry. As the technology becomes smaller, faster and more efficient, its uses will enable people to overcome paralysis. Similar to how 3D Systems and Organovo have given birth to new disruptive industries, Ekso could follow the same growth trajectory that will be an investors' ticket to the next hot technology.