Corindus Vascular Robotics: A Strong Buy In The Emerging Surgery Robotics Industry

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About: Corindus Vascular Robotics, Inc. (CVRS)
by: Liumin Chen
Summary

CVRS is well positioned to seize opportunities brought by the growing robotic surgery market.

CVRS is on the right track for continued growth towards economies of scale.

Investors are recommended to buy CVRS at the current price.

The stock price of Corindus Vascular Robotics, Inc. (CVRS) has been steadily climbing up during the past year. It has gone up by 87% for the past year, reaching $3.00 as of June 2019. This is a rare success considering the US equity market has been declining since the latter half of 2018, due to geopolitical risks of Brexit and China-US trade war and global economic slowdown. What are the factors that drive the price increase of CVRS? Going forward, will CVRS be able to maintain the momentum for growth?

Source: CVRS Stock Information

Business Analysis

CVRS was founded in 2002 by Rafael Beyar and Tal Wenderow. It seeks to use remote control and robotics to perform heart surgeries. Specifically, the company's CorPath® System, which has been cleared by the FDA, is the first medical device that allows cardiologists to manipulate guidewires and balloon/stents from an interventional cockpit.

CSRV is at its early stage of corporate development. From 2017 to 2018, its revenue went up by 12%, while the net loss went up by 2.5%. The company has a huge amount of fixed costs on research and development. Besides that, as its CorPath® System is still an emerging technology, it has to spends heavily on selling and marketing to acquire new clients, which significantly weighs on its profitability.

Source: CVRS 2019 10-K

Starting in 2019, CVRS shows stronger momentum for growth. Its revenue grew by 104% in Q1 FY19 compared to the same period one year before. At the same time, its net loss decreased by 4%. This shows that CVRS is on the right track, that the growth in business is gradually offsetting its heavy expenditure before starting to make profits.

Source: CVRS 10-Q, May 08, 2019

Market Potential

Robotic surgery uses robotic technology to allow doctors to perform complex procedures with more precision and flexibility compared to conventional techniques. Besides that, robotic surgeries are minimally invasive, which greatly reduces the recovery time and risk for patients.

The robotic surgery market has experienced significant growth in recent years. With procedure volumes rapidly rising, this market is currently valued at over $3 billion and is expected to surpass $7 billion by 2025. Although this segment does not account for the majority of the health care market, it exhibits the highest overall growth rate at over 25%.

As the only company that owns the robotics technology to manipulate guidewires and balloon/stents from an interventional cockpit, CVRS is very well positioned to seize the opportunities brought by the growing market size. Its advanced technology and a track record for providing premium service in the cardio robotics market lay a solid foundation for growth for the next few years.

Economies Of Scale

The key issue for CVRS is when it can reach the status of generating stable positive income. At this moment, it is still at the early stage of commercialization. There is a long way to go before CVRS reaches the economies of scale and starts to make profits.

The classic economies of scale mean spreading the fixed costs across a greater volume of patients to lower base per unit costs. In the case of CVRS, the fixed costs are mostly research and development costs as well as sales, general and administrative costs. In the first quarter of 2019, CVRS already manages to keep the fixed costs mostly unchanged while growing its revenue by 104% compared to Q1 2018. At this moment, the market for cardio surgery robotics is far from being saturated, and the major focus of CVRS is still to expand its client base. However, CVRS already shows strong potential for growth and going forward, the economies of scale effect will become increasingly significant, resulting in higher margins and profits for CVRS in the following years.

In the meantime, there are some roadblocks that CVRS has to clear, including discussions with the FDA regarding any system updates and closely monitoring competing technological and market developments. Although CVRS currently has the most leading technology in the relevant field, it has to try hard to maintain its first-mover advantage, meaning ongoing efforts in research and development.

Investor Takeaway

At this moment, the market capitalization of CVRS is small since the company is still at the early stage of commercialization. Going forward, the huge market potential and the company's strong momentum for growth gives CVRS plenty of advantages to reach economies of scale and generate stable profits. At its current price of $3.00 per share, investors are recommended to buy CVRS.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.