**Call To Action
We Initiated A Very Small Speculative Starter Position in Mri Interventions, Inc. (NASDAQ:MRIC)- Bullish on Long-Term outlook Despite rich Short-term Valuation; Management has accepted our invitation to present the company’s story to GeoInvesting Premium Members.
I hope you are having a great start to the holiday season. I wanted to let you know that we are aggressively hunting for “moat” type medical device/test companies to actively track and potentially buy. Since we launched GeoInvesting in 2007, our coverage on the this space has been limited, but encouraging. On the bullish research side we have disclosed long positions on eight medical device/test stocks:
- Repro Med Systems, Inc. (NASDAQ:KRMD) (Home Infusion Therapy) has risen 2404% since our initiation of coverage in June of 2014.
- Semler Scientific Inc (OOTC:SMLR) (products include QuantaFlo, blood flow measurements to examine vascular conditions) rose 358%, when we sold the stock in january 2019, 6 months after we disclosed that we were long and is up 2300% since a GeoInvesting Premium Member, Jakewell Parker, published his bullish research exclusively on GeoInvesting on November 30, 2015.
- Pharmchem Laboratories Inc (OOTC:PCHM) (Drug/narcotics Testing Product) is up ~460% since we disclosed our long position and bullish research in December 2016. The company has also paid 4 dividends, totaling $0.28.
- Stereotaxis, Inc. (OOTC:STXS) (Robotic Heart Surgery) is up 155.8% since we initiated coverage in February of 2019.
- Electromed, Inc. (NYSE:ELMD) (SmartVest airway clearance) up ~41% since being added to our Mock Takeover Portfolio in August 2017, although we currently don't own the stock and sold shares too soon.
- Cas Medical Systems, Inc. (NASDAQ:CASM) (Measurement of oxygenation for cerebral tissue during surgery or critical care situations), was acquired at a modest premium of ~20% in March 2019, about 9 months after we disclosed we were long the stock in June 2018.
- Biomerica, Inc. (NASDAQ:BMRA) (Various Medical Diagnostic Tests) is flat, as the market waits for clinical results data on some of its products. Coverage began in May 2017.
On the bearish research side, $GBSN is trading at $0.02, for all intents and purposes down ~100% from its reverse split adjusted price of ~$6000.00 when we first shorted the stock and published our negative findings on the company.
New Medical Device Stock In Our Cross Hairs
MRIC is one of the 10 stocks on our interview list after my visit to the December 2019 LD Micro Conference.
As scheduled, we conducted our interview with Mri Interventions, Inc. (NASDAQ:MRIC) this past Monday. MRIC helps doctors see the brain when they are preparing and performing minimally invasive surgical procedures. MRIC is:
“a medical device company focused on the development and commercialization of technology that enables physicians to see inside the brain and heart using direct, intra-procedural magnetic resonance imaging (“MRI”) guidance while performing minimally invasive surgical procedures.”
The company’s current emphasis is to focus on the brain.
Detailed description from Company’s SEC filings:
“ClearPoint system, which is in commercial use in the United States, is used to perform minimally invasive surgical procedures in the brain. It provides guidance for the placement and operation of instruments or devices during the planning and operation of neurosurgical procedures performed within the MRI suite using MRI guidance. Our ClearPoint system is intended to be used as an integral part of procedures, such as biopsies and the insertion of catheters, electrodes and fiber lasers.”
Description from Company’s website:
“Our ClearPoint® system is the only surgical platform that provides real-time MRI guidance for a range of minimally invasive procedures in the brain. It is an integrated system of hardware components, disposable components and intuitive, menu-driven software.
MRIC operates a razor-razorblade model that is typical of medical device companies. The Razor is the Capital equipment that is installed at a hospital such as:
- Computer Workstation
- MRI-compatible Monitor
- Head Fixation Frame
- Software
The Razorblade includes disposables such as Equipment (SmartFrame trajectory device) and components, such as the company’s proprietary Cannula, to help guide and facilitate the MRI-guided neurosurgical procedure The interview went very well. The CEO, Joseph M. Burnett, conducted the interview from his car on his way to a meeting and didn’t miss a beat during the hour-long call. We were impressed by his knowledge of the industry and the very clear strategy he has implemented since joining the company in 2017.
Management has accepted our invitation to present the company’s story to GeoInvesting Premium Members. We are working on a date. In the meantime, we wanted to give you an early look at a few quick bullet points to outline some of the key aspects of the story and disclose that we will be taking a small early position in MRIC.
Key Points of MRIC Story:
- First class CEO with deep experience in the healthcare industry
- First class product that appears to be the only real-time solution to view the brain, which should help the company gain a bigger share of and expand the market.
- Razor-razorblade - Appears that disposable/recurring revenue accounts for roughly 70% of total revenue.
- Significant opportunity exists to gain market share
- Currently serving only 57 of 257 target hospital settings
- Currently targets two markets where they have significant market share opportunities
- Deep Brain Stimulation (DBS) - They perform about 500 procedures out of a 5000 to 6000-procedure total addressable market, an 8.3 to 10% market share
- Laser ablation therapy - They perform 300 to 400 procedures out of a 1200 procedures addressable market. 25 to 33% market share
- Significant opportunity exists to increase procedure counts in hospitals in which they currently offer services.
- Burnett makes changes upon his arrival in 2017:
- Focusing solely on the brain. Will come back to the heart, later.
- Abandons company efforts to develop therapies that would cost way too much to commercialize
- Rightsized the sales force
- Makes changes to create a platform solution. Before Burnett arrived, the company was generating sales from selling ClearPoint for use in approved surgical procedures developed by other companies. However, he is adding other revenue streams:
- Sell ClearPoint in clinical trials
- Sell more of the Razorblades
- Create their own therapy solutions
While we are developing an initial bullish view of the company, we do need to be aware of some important caveats:
- The company only has enough cash on hand to finance operations for 12 to 18 months. However, we think it’s quite possible that its pharma partners could provide the company with non-dilutive capital.
- $1.9M in debt comes due in late 2020.
- Doctors are creatures of habit and may resist change, according to Burnett.
- Since the commercial launch of its products in 2010, multi-year revenue growth was flat until 2015 when growth began to pick up. A clearer understanding on what happened in the early years might mitigate some of our concerns on this front.
- Of the 2 currently addressed procedures, one is only growing at a single digit percentage per year.
- During our interview, CEO Joseph Burnett indicated that his primary focus was on growing revenue. We'd like to dig into this objective further on how he views profitability as a goal, because this could alter our views on the Company's stance towards raising equity capital to fund growth in the future. However, it's worth pointing out that in his role with his prior company he was with for 15 years, one of his main objectives was tightening up cost structure to improve profitability. So, Burnett seems to have an understanding of what it takes to drive profitable growth.
Valuation
- MRIC Currently trades at a rich valuation at an enterprise to sales (EV/S) of ~9. However, we think a significant premium valuation may be justifiable based on:
- High amount of recurring revenue
- Tier 1 product that can quickly gain significant market share
- Potential for significant revenue contribution from several Pharma partner relationships offers some optionality
Still, we would be more comfortable adding to our position if shares pulled back. On the flip side, we feel there is a good chance that MRIC announces noteworthy progress with respect to its pharma relationships.
Disclosure: Long MRIC
~Maj & The GeoTeam
