TransEnterix 2018 Key Priorities Still on Track
Posted on October 02, 2018 by Medtech[y] Staff
Writing about TransEnterix ($TRXC) has been fun in the past year as the company has consistently executed on the key priorities that CEO Todd Pope has laid out.
As mentioned in our TransEnterix SWOT analysis after their most recent earnings call, the fourth quarter would be "the tell" when it comes to understanding overall business health and growth of TransEnterix.
Well, on the first day of the fourth quarter, TransEnterix announced a corporate update that should give investors positive feelings as the busiest time of year for hospital spending begins.
“We made significant progress during the third quarter, including the continued adoption of Senhance, driven by the advancement of our sales and marketing strategy, the announcement of the MST acquisition agreement and the expansion of our instrument portfolio," said Todd M. Pope, President and CEO at TransEnterix. “As we look towards the remainder of 2018 and into 2019, we are focused on increasing the applicability of Senhance to more patients, surgeons, and hospitals and growing on a global basis.”
Before we get to the most recent update, let's review the company's key priorities:
TransEnterix Business Update Highlights:
- Announces four Senhance system sales in third quarter of 2018
- Preliminary unaudited revenue of approximately $5.4 million for the third quarter of 2018
- Preliminary unaudited cash and cash equivalents of approximately $82 million as of September 30, 2018
- Announced entry into acquisition agreement for technology assets and IP of MST Medical Surgery Technologies
- Received CE Mark for Senhance Ultrasonic Instrument System
Senhance System Sales
In the SWOT analysis, we mentioned system sales could be considered a weakness, but that the fourth quarter, and even first quarter of 2019, would ultimately be what determines if the company has built up strength in the market with the Senhance system.
On the contrary, the busiest quarter in medical device sales, including capital equipment, is the fourth quarter. This would be five quarters since Senhance clearance, meaning, if the sales team has been sticking to their processes, the company should see some of those pipeline targets start to fall in the fourth quarter of 2018 and the first quarter of 2019. If they don't, there should be reason for concern.
Here is what the company had to say about each capital purchase in the third quarter:
- In the US, UPMC purchased a Senhance Surgical System to be utilized at its Magee-Womens Hospital in Pittsburgh. Magee combines a wealth of specialty services with a focus on gynecologic and obstetric services. UPMC is a $19 billion world-renowned health care provider and insurer, which is focused on new models of accountable, cost-effective, and patient-centered care.
- In EMEA (Europe, Middle East, Africa), three systems were sold:
- A system was sold to Maxima Medical Center, in Veldhoven, the Netherlands, which is a member of a cooperative association of the 20 largest Dutch teaching hospitals that work together in areas of education and quality control, to guarantee the best level of healthcare.
- Two systems were sold to distributors, one of which was a demonstration system purchased to support territory marketing and regulatory initiatives.
Ultimately, TransEnterix will want to show more capital sales in the U.S. as investors will start to appreciate overcoming the strength of Intuitive Surgical.
In the SWOT, we mentioned the lack of U.S. sales could be considered a threat:
To further this point, TransEnterix is likely being kept out of hospitals by Intuitive Surgical as they've done such a great job locking accounts down. There may be one or two surgeons who really like Senhance but the Intuitive Surgical reps have done a great job convincing the other 10 surgeons at the hospital that the da Vinci is the way to go. Additionally, many community hospitals don't have the funding for multiple systems. Speed is key when growing, which is why getting traction with system sales in the U.S. is so critical. It will be fun to see this play out over the next two quarter
Again, there are rumblings that there are a couple of hospitals close to purchasing a system and we've entered the busiest time of the year for capital equipment sales at hospitals. Let this quarter (and even Q1 2019) play out.
Overall, the TrasnEnterix management team is sticking to their process, which is commendable considering all of the moving pieces involved in growing a robotic surgery platform like Senhance. While they would have liked more domestic Senhance sales by now, they are still within the timeframe set forth (four to six quarters) when Senhance was cleared in October 2017.
If they have truly been sticking to the process, and having the sales team stick to that process, the capital sales will start to fall at the end of the year. Pope admitted that's the time for sales and it is. Discretionary hospital dollars magically appear at the end of the year. It's up to each of those reps to get what becomes available.
MST Acquisition - Making Senhance More Than A Robot
During the quarter, TransEnterix also made an under-the-radar acquisition of MST Medical Surgery Technologies Ltd., an Israel medical technology company, in a cash and stock transaction with a total consideration.
MST is a leader in the field of surgical technology, having developed a software-based image analytics platform powered by advanced visualization, scene recognition, artificial intelligence, machine learning and data analytics.
Integrating MST's technology into Senhance helps protect TransEnterix from bigger and more well funded competition.
Look at the Johnson & Johnson partnership with Google, forming Verb Surgical. While a robotic system hasn't been launched out of the partnership, J&J realized they need software developers and the brightest minds in high technology to help be a leader in robotic surgery. They couldn't just launch a "dumb" robot because they realized the future is in machine learning and AI.
The below picture is an example of machine learning software integrated into Senhance, which can help surgeons identify anatomical structures during surgery. A simplistic way of looking at this is having navigation built-in to the Senhance system. Yes, surgeons know anatomy but there are always those stressful cases with a less than desirable field of view. Having deep learning software at a surgeon's finger tip is helpful to the surgeon and safer for the patients.
Instrument Portfolio Expansion
Ultrasonic Instrument System
- On September 6, 2018, the Company announced that it had filed its application for FDA 510(k) clearance for its Senhance Ultrasonic Instrument System, ahead of expectations. The Company expects to achieve an FDA 510(k) clearance in the first quarter of 2019.
- As announced on October 1, 2018, the Company received a CE Mark for its Senhance Ultrasonic Instrument System. The Company continues to expect to commercially launch the Ultrasonic Instrument System in CE Mark countries in the fourth quarter of 2018.
3mm Diameter Instrument Set
- The Company continues to anticipate receiving FDA 510(k) clearance for its expanded instrument set, including 3mm diameter instruments, by the end of 2018.
- The Company continues to expect to submit its application for FDA 510(k) clearance for its 5mm diameter articulating instruments during the fourth quarter of 2018.
- The Company continues to expect to receive CE Mark for its 5mm diameter articulating instruments during the fourth quarter of 2018.
Appointment of Chief Commercial Officer
In our experience with startups in the medical device field, a company is ready to take the next step in their growth when they decide to hire a Chief Commercial Officer.
On September 4, 2018, the Company announced that Eric Smith has been named Chief Commercial Officer, effective August 31, 2018.
In this newly created role, which reports directly to the Chief Executive Officer, Mr. Smith leads the company’s global commercialization efforts, with a focus on both strategic and tactical execution efforts in sales, upstream and downstream marketing, field clinical support and training with a focus on adoption and clinical excellence.
Typically, in small medical device companies, the VP of Sales reports directly to the CEO and is essentially second in command at the company. Hiring a Chief Commercial Officer changes things as TransEnterix can now leverage this position to work on strategic partnerships and marketing while the VP of Sales can solely focus on growing system sales and procedural volume once systems have been placed.
Strong Finish to 2018
The company also announced they have $82 million in the bank, which is enough cash to fund the business through 2020, assuming the funding of the $20 million in potential future debt tranches available under the Company’s existing debt financing agreements.
As we've mentioned before, the fourth quarter and potentially the first quarter of 2019 are when investors should start to expect capital equipment sales to start coming in. The management team is smart, and they realize the importance of closing more capital sales in the U.S. The rumors say they're close on a couple.
All indications point to this team doing the right things and checking off goals as they execute on them. This can't be over-stated. Some management teams don't understand sticking to processes. Others tend to drive sales without a plan, without an end goal.
TransEnterix has shown their commitment to executing a plan. Let's see how the fourth quarter plays out.