Description

Opsens is a manufacturer of medical guidewires (OptoWire 1,2,&), used to measure blockages in coronary arteries, and to place stents, as required. The company’s guidewire is unique in its dual purpose, as most competing products are not designed to carry a stent, requiring the surgeon to use a second wire. Guidewires are only used once, and are disposed of after a procedure. As a result, the use of OptoWire reduces cost and waste, as well as time and medical risk, given that the introduction of each additional wire carries some risk.

Opsens’ wires use leading fiberoptic technology to measure blockages based on arterial pressure. The only other company with comparable technology is Boston Scientific, whose guidewire is based on technology developed previously by Opsens’ founder. Opsens management believes their wire is superior. That said, if Boston Scientific draws more attention to fiberoptic wires, Opsens would likely also benefit. At present the global market is dominated by less versatile guidewires manufactured by Abbott and Phillips.

Explanatory guidewire video for additional reference: https://www.youtube.com/watch?v=sLvAWKOdh8Q.   

The guidewire market for Coronary stenosis is $600 million globally, with half of that in the US. Opsens current market share is about 4%, with the US representing a small part of that. Abbott and Phillips dominate the global market with 90% share. Opsens management believes it has been slow to gain traction in the US due to lack of relationships with GPOs, but recently signed a deal with Vizient, a large US GPO serving roughly a third of US cardiologists. The company has just begun to sell products as a result of that agreement. Opsens is targeting 10% global market share by 2025, which I think is conservative given their product advantages. However using that assumption as a base case, and assuming the global market has grown to $700 million by 2025, would imply $70 million in coronary product revenue.

The company also earns revenue through the sale of fiberoptic sensors, most of those to Abiomed. Management projects $20 million in sensor sales by 2025. The company also owns an industrial sensor business will likely be sold at an opportune time. That business does roughly $3 million in annual revenue, and potentially could be sold for roughly $10 million.

Looking ahead, the biggest opportunity for Opsens is in its guidewire for Trans Aortic Valve Replacement (TAVR), currently in late-stage trials. TAVR procedures, which are less invasive than surgical valve replacements, are the fastest growing segment of cardiology. Management believes its TAVR guidewire will be the best-in-class product by a wide margin. The market for aortic valve guidewires is currently $400 million, but is expected to exceed $600 million by 2025. Opsens TAVI wire has similar attributes to the OptoWire as far as providing best in class measurement data while also transporting and placing a valve. There are no other guidewires with this capability for TAVR, and indeed the current protocol requires a guidewire, echocardiogram and in some cases a pacemaker, resulting in a lengthier, more costly and invasive procedure. Opsens estimates it will charge $1,000 for its guidewire, comparable to existing guidewires, but it will eliminate $500 of peripheral equipment costs. In effect the company will be offering a better solution at 2/3 the overall cost.

The product will begin in human observation this summer in twenty patients. Because this is a measurement and delivery device, regulatory authorities are not interested in comparative data beyond a demonstration that the product works as intended. The regulatory focus is on safety. Based on lab and animal studies, as well as its experience with Optowire, Opsens’ management is confident the product is safe. That said, until there is an actual approval, trial completion is a risk.

In TAVR Edwards Lifesciences represents the dominant provider of valves with 60% shares. Unlike in coronary, Edwards has no proprietary wire (in coronary Boston Scientific and Medtronic both have proprietary guidewires). It’s possible Edwards will be supportive of the Opsens product given it should lower risk and improve outcomes.

Opsens is targeting just under 10% market share for its TAVR product, or roughly $50 million of revenue by 2025. Given the quality of this product, as well as the different customer mix, I think there is a reasonable chance their market share is considerably higher, potentially as high as 50%.  

In management’s base case scenario, the company will earn $110 million in revenue by 2025, divided as follows ($millions): $50-$60 Optowire (coronary), $40-$50 TAVR, $20 sensors (Abiomed). In that scenario, assuming 56% gross margin and 27% SG&A cost margin ($30 million), the company would earn $32 million of operating income and $0.19 of EPS, on 110 million outstanding shares (106.6 mil currently outstanding). I believe that would likely justify a share price of around $4, or more than 100% above current levels, given the growth profile and defensiveness of the company’s end markets.

In what I think is a more likely scenario, the company would reach 15% market share for coronary intervention and 20% share for TAVR, representing roughly $250 million of revenue. Assuming 56% gross margin and $45 million SG&A I calculate EPS of $0.60. In a blue-sky scenario where the company reached 20% share of the coronary intervention market and 30% of the TAVR market, I calculate revenue of $350 million and EPS of $0.90. I believe both scenarios would support a stock price more than 5x the current share price.

In the event the company suffers a setback on the TAVR approval, I think there is downside to $1 per share, based on revenue and earnings prospects for the company ex-TAVR, as well as the likelihood the 

Catalyst

Share gains on Optowire w GPO deal (2021), launch of TAVR guidewire (2022)