TransEnterix could jump higher on any positive news

Posted on August 23, 2019 by Medtech[y] Staff

We've written about TransEnterix for a couple of years but have never opened a position in the company as we had questions about the technology and didn't want to muddy the water by owning stock in a company we've been writing about, regardless if we've always been very objective in our points.

With that being said, we recently decided to dip our toes in the water by opening a position with $TRXC.

This doesn't mean we are sold on the long-term viability of the company, because that's even more questionable than ever before.

Due to such a disappointing lack of capital sales in late 2018, and up to this point in 2019, we believe these low expectations will favor the stock with any news of a capital sale within the U.S.

Trxc Capital Sales
TransEnterix Investor Presentation

As we've mentioned on several occasions, surgeons and hospitals from outside the U.S.(OUS) look to the equipment and procedures that are being purchased and utilized within the U.S. and use that information for their buying criteria and operating techniques. One obvious way to see this in action is to go to one of the hundred surgeon specialty meetings each year and add up the amount of international doctors in attendance. For many meetings, the international attendees outnumber the domestic ones. Those doctors come here trying to understand what's happening in the U.S.

The lack of execution in breaking into the U.S. market will help give the TRXC stock a major boost if, and when, TransEnterix sells a Senhance within the U.S. The lack of past execution will help the stock in the short term on any press release of a sale. The long-term becomes more questionable but these low expectations are bound to help the stock with any domestic Senhance sale.

Long-term is much more questionable as the lack of execution and being able to break into the U.S. market is a huge concern. It's understandable that management is being cautious in growing their sales team too quickly, but when you compare their current team of 15 reps to Intuitive Surgical, who has thousands of capital sales reps, clinical sales reps and service professionals, it's no wonder TransEnterix hasn't been able to crack the code in the U.S.

TransEnterix CEO, Todd Pope, was asked about growing the sales team on the quarterly conference call and he did admit to needing to expand the footprint of their sales team:

"And then to your question more specifically about current headcount, we still have around 15 sales professionals in the U.S. I would think, as you think about most emerging med-tech companies, that's a very small number. So you've heard a little bit about expansion. All we're saying is when we feel like we've got the market development resources in, when our clinical utilization is clipping at a rate that we feel good about on our current installations, we certainly realized that to take advantage of a more national opportunity, you can't do that with 15 reps. You've got to expand that. And I think when the time is right as we look to next year, I think we have plans to expand that sales footprint so we can take advantage of the opportunities all across the nation, not in just a handful of geographies."

Additionally, it's obvious the company is lacking in capital sales execution which Pope also addressed as they have been bringing on more talent with capital sales experience.

"However, our team had limited experience navigating the capital selling process, making it even more challenging to convert surgeon interest into system sales. We believe that our sales team is best positioned for success if it includes a diversity of experience that includes laparoscopic, emerging robotic and more mature robotics companies. We have bolstered our sales talent by recently hiring a Vice President of Sales, who has a wealth of experience with emerging robotics technologies, and that supplemented our team with additional capital sales leadership and talent.

These new hires bring substantial capital robotics experience, including an intuitive surgical in the early years of their commercial launch, Mako Surgical and Blue Belt robotics and Medrobotics. One example of a recent success with our new approach is Hackensack Meridian Health at Pascack Valley, which began performing Senhance surgery in March, is now routinely performing over 15 procedures per month and frequently exceeds that number."

Why it took a lack of capital sales for the leadership team to realize they didn't have the right people in place is shocking. It seems painfully obvious that TransEnterix sales leadership should follow the sales structure that Intuitive Surgical has been so successful with as they started out having capital sales reps and then clinical sales reps to support cases and growth. The capital sales reps can then focus on pushing systems through each hospital in what is typically a larger geographic territory and the clinical sales reps can focus on growing procedures.

Saving money is one thing but not having the right people in place seems to have slowed the momentum Pope expected by this point.

Frankly, why they wouldn't copy everything from Intuitive Surgical's sales playbook from the start is head scratching. It does seem like they get it now as they have also implemented their market development program, which is a main reason Intuitive was able to grow like they have over the years.

The long-term prospects for TransEnterix are cloudy until management and the sales team can prove that they can execute a domestic capital sales strategy and then follow-up each sale up with a successful market development and clinical utilization plan.

With that said, there has been so much dissapointment from lack of capital sales, we believe any U.S. Senhance sale will give the stock a nice boost. What happens after that is up to TransEnterix and their leadership team.