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Another Chance For TransEnterix

|About: TransEnterix, Inc. (TRXC)

Summary

With many positive signs in the company's recent conference call, I make the claim that TransEnterix is an attractive investment opportunity today.

I argue that ALF X commercialization in Europe will be a success, which will drive the company's future expansion.

I also argue that the company has a good chance to receive FDA regulatory clearance on the ALF X here in the US.

An Introduction

As an investor with a special interest in TransEnterix (NYSEMKT:TRXC), I hope to lay out my thesis on the company today and open up what has been recently a rather quiet dialogue on the company's long-term success. With SurgiBot clearly on the sidelines at this point in time, it appears many investors have cut their losses on the company and see TransEnterix as a lost cause. However, I would like to provide maybe an unpopular picture that highlights the many remaining strengths the company possesses, and explore how it can use its current position to penetrate both the US and European markets.

The Remaining Upside

I encourage investors interested in TransEnterix to listen to the company's Second Quarter 2016 Financial and Operating Results Conference Call. Here I hope to lay out the company's upside as Todd Pope articulates in the call and argue that at its current share price (~ $1.40), TransEnterix is an attractive investment opportunity.

Right now, the most important question when it comes to the company's future is whether TransEnterix can continue to commercialize the AFL X system in European markets and achieve its regulatory clearance here in the US. About two weeks earlier, the company announced its first ALF X sale, but it's clear that investors see this accomplishment as a more short-term and perhaps less symbolic moment when it comes to the company's future. However, I believe to have that reaction is to ignore the infrastructure and relationships the company has built in Q2, which underlie what I consider to be a serious milestone.

The Specifics

Here are important specifics about the company's recent developments in Q2 that have me enthusiastic. First, the company has made the decision to bolster its AFL X sales force and develop its presence in the U.K., France, Belgium, the Netherlands, Germany, Switzerland, the Middle East and Asia. The move clearly demonstrates that the company has made strong progress in its game plan to increase market penetration in Europe with ALF X.

Furthermore, the company's tactic that it uses to attract interest in the ALF X system has proven lucrative. The company pitches the ALF X system to executives or surgeons at these hospitals, and then provides a hands-on demonstration to any hospitals that show interest. The company made 10 demonstrations in Q1, while in Q2, the company made more than double that number, reaching 21 demonstrations. And it makes sense that with a larger sales presence in Europe, the company will continue to attract hospitals and provide demonstrations at a more attractive rate in the future.

While greater interest is certainly a positive sign, it is equally important to assess whether the company can increase AFL X sales. On the conference call, I believe Todd Pope articulates the selling points nicely, and he also lays out the general response via hospital administrators and surgeons on the AFL X system while he was in Europe the past month. One quick point is that the system provides particular technological assets to surgeons while at a competitive price (I do not plan to explain the technology here). A more important comment made in the conference call is that the company's key pipeline accounts are eager to have choices when it comes to surgical robotics systems and like the clinical support that comes with the AFL X system.

Wait… There's More

A big question mark is whether the AFL X system will receive FDA clearance here in the US. And while many investors parallel AFL X with SurgiBot to denounce its potential approval, I don't believe this is an honest comparison. The AFL X system already has the CE mark in Europe, which means it meets the necessary requirements to be sold in the European market. But the most important distinction is that the ALF X comes with extensive published clinical support that will undoubtedly help it in the FDA approval process. And lastly, the company has already seen one approval process go south with SurgiBot, and Todd Pope mentions on the call that this surprise has provided him with further insight and perspective on not only how the company should proceed with SurgiBot, but also how it should handle the ALF X when it comes to FDA clearance.

In short, I believe TransEnterix is an attractive investment opportunity as it stands today. With good reason to believe ALF X commercialization in Europe and its FDA approval process in the US will be a success, I believe any investor should reconsider TransEnterix as a long-term buy.

Disclosure: I am/we are long TRXC.

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.