PauvrePapillon

Notes from Accuray Annual Shareholder Meeting (2009)

It is not unusual for revolutionary medical technology companies to do well coming out of the IPO gate as investors weigh the long-term implications of their product and then falter, stock price-wise, as entrenched interests fight tooth and nail to delay the adoption rate of these products.

Intuitive Surgical (ISRG) dropped into the $3s twice and languished under its IPO price for over four years before starting its march up to $350 per share and beyond.

In terms of biological failure rate (about one tenth of one percent), CyberKnife is the most effective treatment option for prostate cancer. It also has the lowest ED complication rate (about 10 percent) and incontinence complication rate (about one percent). It’s non-invasive and costs less than either conventional surgery or radiation.

Unlike neurosurgeons, urologists do not yet have a specific code for prostate radiosurgery – but they are working on it. With over 200,000 new cases of prostate cancer each year in the United States – and with an ever-expanding base of clinical data that shows CyberKnife to be the best treatment option for most all of these cases – look for CyberKnife sales and Accuray’s stock price to take off big time following the release of the new CMS code for prostate radiosurgery.

The situation for early-stage lung cancer is similar. Thoracic surgeons are working on their radiosurgey codes and that will further expand the market for this machine. CyberKnife has recently been used successfully in a cardiac ablation procedure. This is a smaller market than prostate or lung but another area into which CyberKnife will expand. CyberKnife is also getting excellent results with liver mets. At this point, there are probably other applications for this technology that are not yet even on the radar.

CyberKnife is able to deliver complex non-coplaner treatment patterns and compensate for patient and tumor movement in real time because its patented and proprietary miniature linear accelerator is small enough to be positioned and manipulated by a highly precise robotic arm. All other radiation delivery devices employ a much larger linear accelerator, which because of its weight must be mounted on a gantry. Hence, they can only rotate around the patient in a single plane. They operate in two-dimensions. Tumors exist (and move) in three dimensions.

The Gamma Knife employs a decaying radiation source (cobalt) encased in what you might think of as a giant, two-layer football helmet with holes drilled in the inner layer to let in the radiation. Its treatment pattern is thus preset. One size fits all, literally. The “aiming mechanism” is to bolt the helmet into the patient’s head (again, literally) and try to line up the preset holes with the tumor. The Gamma Knife is obviously limited to intracranial applications and no patient who is fully informed as to the capabilities of CyberKnife versus Gamma Knife will ever opt for Gamma Knife.

Accuray has the goods. CyberKnife is a huge improvement over both Gamma Knife and gantry-mounted radiation sprayers. In terms directly related to the patient, CyberKnife saves and prolongs lives and preserves a higher quality of life versus the results of other treatment options including conventional surgery.

The current state of the medical bureaucracy lags the current state of the medical technology with respect to CyberKnife. This is a temporary situation. The bureaucracy will catch up. The urologists, the thoracic surgeons and cardiologists will all get their CMS codes. CyberKnife adoption will accelerate and Accuray shareholders will get their multi-bagger.

Accuray's Success Still on the Rise

When the market (correctly) understood that CyberKnife was a truly unique and revolutionary technology, investors bid Accuray’s post-IPO shares up to an intraday high of $31.09 (9 February 2007). As Varian and others made repeated claims, in numerous press releases, interviews and conference calls, that their gantry-mounted machines could do the same thing as the robotically controlled CyberKnife, Accuray’s market cap shrank even though its economic fundamentals actually improved.

On 6 December 2008, Accuray, finally, fired back with the release of two animated videos that effectively demonstrate what CyberKnife is and why it is fundamentally different from gantry-mounted radiation sprayers. You can see them for yourself at www.accuray.com.

Since then, Accuray shares have gone up 46 percent. Varian’s shares have gone down seven percent. Tomo is down eight percent. Intuitive Surgical is down 18 percent. The NASDAQ has gone up and come down and settled yesterday (3 February 2009) essentially where it started back on 6 December 2008.

Are investors now beginning to rethink this space and conclude that Accuray really does have something?

From Breakthroughs That Will Change Lives in 2009…

“Cyberknife has the potential to replace surgery as the first form of treatment for cancer,” says Dr. Nick Plowman, director of clinical oncology at St. Bartholomew's Hospital.

www.dailymail.co.uk/he...

Is it just now being discovered by, and moving into, a huge market?

See WSJ’s Is CyberKnife Ready for Prime Time in Prostate Cancer?

blogs.wsj.com/health/2...

It’s making waves in Europe and Asial…

From ABC News London…

www.abcnews.go.com/Vid...

And most CAPS players like it…

caps.fool.com/Ticker/A...

And contrary to some reports, not everyone is putting off capital equipment purchases.


From “Hospital puts off building renovations to buy CyberKnife” Colorado Springs Business Journal (2 January 2009):

Margaret Sabin, chief executive officer at Penrose-St. Francis Health Centers, said, “We are buying a new CyberKnife program for the cancer center. We decided that that program directly benefited patients — it is state of the art technology. But to do it, we had to put off some building renovations. We decided to focus on health care and patient needs — the rest we’ll make do without.”

www.csbj.com/story.cfm...

If you look at Intuitive Surgical as a model for how a disruptive technology rolls out in the medical space, you would have to conclude that it’s a rocky road. Intuitive Surgical languished beneath its IPO price for more than four years and dropped into the $3s twice before taking off to $100 per share and beyond. Accuray will be two years post IPO next week and is still trading about $12 under its debut price of $18.

As clinical data emerges and public awareness increases, CyberKnife will become the treatment of choice for early stage prostate and lung cancer (two huge markets) as well many other cancers. There are not nearly enough CyberKnife Centers, either in the United States or abroad, to accommodate all of the patients that will soon be seeking this treatment. We’re still in the early stages of the adoption curve but this technology is coming mainstream. Not only is Accuray is special company with a special mission, it’s also a multi-bagger in the making.

3 Top and Bottom Market Sectors for This Week

Hospital puts off building renovations to buy CyberKnife

Margaret Sabin, chief executive officer at Penrose-St. Francis Health Centers, said, “We are buying a new CyberKnife program for the cancer center. We decided that that program directly benefited patients — it is state of the art technology. But to do it, we had to put off some building renovations. We decided to focus on health care and patient needs — the rest we’ll make do without.”

www.csbj.com/story.cfm...