Uroplasty (NASDAQ:UPI) is a small cap medical device company focused on a large problem, urinary incontinence. With an aging U.S. population, and the lifestyle impact of incontinence, it is not difficult to comprehend the size of the potential market. Current treatments include drugs, and Medtronic (NYSE:MDT) has an implantable nerve stimulation device, but any implantable device is very invasive. Uroplasty has developed a neuromodulation procedure done on an out-patient basis in the doctor’s office.
In its form 10-K Uroplasty defines itself as follows:
“We are a medical device company that develops, manufactures and markets innovative, proprietary products for the treatment of voiding dysfunctions. Our primary focus is on two products: the Urgent PC® Neuromodulation System, which we believe is the only FDA-cleared minimally invasive, office-based neuromodulation therapy for the treatment of overactive bladder (OAB) and the associated symptoms of urinary urgency, urinary frequency, and urge incontinence; and Macroplastique®, a urethral bulking agent for the treatment of adult female stress urinary incontinence primarily due to intrinsic sphincter deficiency (NYSE:ISD). Outside of the U.S., our Urgent PC System is also approved for treatment of fecal incontinence, and Macroplastique is also approved for treatment of male stress incontinence, fecal incontinence and vesicoureteral reflux.”
The core of the investment case lies in the Urgent PC product. In the 10-K they discuss how the device works:
“The Urgent PC Neuromodulation System uses percutaneous tibial nerve stimulation (PTNS) to deliver to the tibial nerve an electrical pulse that travels to the sacral nerve plexus, a control center for bladder function. We have received regulatory clearances for sale of the Urgent PC System in the United States, Canada and Europe. We launched sales of our second generation Urgent PC System in late 2006. We have intellectual property rights relating to key aspects of our neuromodulation therapy.”
Uroplasty’s strategic focus is on growing their presence in the U.S. market. It has been a difficult path for the company as a result of reimbursement issues. But, with a new CPT code effective this past January, the company appears to have put the reimbursement issue in its rear view mirror and is beginning to ramp growth. In their 10-K they discuss these recent developments:
“Our sales during the past four years have been significantly influenced by the availability of third-party reimbursement for PTNS treatments. Sales of our Urgent PC System grew rapidly during fiscal 2007 and 2008 with rapid market acceptance of PTNS treatments that were reimbursed under a listed Current Procedure Technology (CPT®) code. However, during the first quarter of our fiscal 2009 the American Medical Association (AMA) advised the medical community that the previously recommended listed CPT code for reimbursement for PTNS treatments be replaced with an unlisted CPT code. As a result, many third-party insurers delayed or denied reimbursement for PTNS treatments, and sales of our Urgent PC System in the U.S. declined from a peak of $2.2 million in the first quarter of our fiscal 2009 to a range of $0.9 million to $1 million per quarter in the six subsequent fiscal quarters ended December 2010.
We sponsored several clinical studies, and supported by publication of clinical studies in U.S. peer-reviewed journals, we applied for, and the AMA granted, a listed Category I CPT code for PTNS treatments, which became effective in January 2011, the fourth quarter of our fiscal 2011. The AMA advised us of this decision prior to the effective date and we began to expand our sales organization in anticipation of increased reimbursement coverage.”
Fiscal Q2 2012 results, announced October 27, 2011, demonstrate that the growth phase has begun:
- Total sales increased 53% year-over-year
- U.S. Urgent PC sales increased 29% on a sequential basis
- Active customers for Urgent PC increased by 108 over the prior sequential quarter, from 401 to 490
- Number of lead set boxes increased 30% on a sequential basis from 1,985 to 2,579
- As of the end of UPI’s fiscal second quarter ended September 30, 2011 they have positive insurance coverage decisions from 10 of 13 regional medicare carriers and a growing base of private payers. In total they now have 115mm lives under coverage in the U.S.
The company now has 40 sales representatives. In the fiscal second quarter each sale rep generated annualized sales of $345,000. On their earnings conference call the company suggested that in the next few years could increase the sales force to 100 reps and expect each rep to generate $1mm in sales per year. The simple math then suggests $100mm of potential revenue. With $5mm of revenue in Q2 (a $20mm run-rate) there is a significant growth opportunity. They have also stated that breakeven should come at $25mm of revenue, which is close based on their current run-rate.
There are several ways for investors to benefit from an investment in UPI. With a $100mm market capitalization and a significant growth trajectory UPI, if they execute on their plan, should increase in value. Further, the company would make a nice bolt-on to Medtronic' or Johnson & Johnson’s (NYSE:JNJ) medtech offerings.
Disclosure: I am long UPI.