Description

Summary:

1.Stereotaxis is a turnaround story on the cusp of significant top line acceleration following a decade of declining revenues.

2.The company has the potential to disrupt how endovascular surgery is performed and simultaneously demonstrate the financial strength of its razor/razor-blade business model.

3.The current depressed valuation is in part due to poor market conditions and the eventual approval of MAGIC catheter alone justifies a substantially higher stock price.

4.Management has made several missteps and the pace of Genesis adoptions and installations have been very lumpy, but there are multiple positives which are being totally ignored by many investors.

Stereotaxis (STXS) is a turnaround story that is on the cusp of significant top line acceleration following a decade of declining revenues. Over the next 24 months, the company plans to introduce a mobile robot as well as a family of proprietary disposables (catheters, guidewires and guide catheters). The mobile robot will significantly reduce installation costs/complexity; permit Stereotaxis to offer lease options to hospitals; and enable the company to enter new markets such as neurology. The new disposables will significantly enhance profitability, further enabling the company to expand and invest in sales and marketing. Stereotaxis has the potential to disrupt how endovascular surgery is performed and simultaneously demonstrate the financial strength of its razor/razor-blade business model. As hospital labor constraints and the construction backlogs abate, and new products are introduced, the company’s prospects (and stock price) should brighten.

Background:

STXS manufactures robotic magnetic navigation systems (RMN): the Genesis (launched March 2020) and the earlier generation Niobe (2003). The company is currently focused on one specific application: cardiac ablation to treat heart arrhythmia, which entails sending a catheter into the chamber of the heart in order to burn specific parts of the heart muscle that are not performing as they should. The ablation arrests the arrhythmia and puts the patient into normal heart rhythm.

Cardiac ablations are a large (1.1 million annual procedures worldwide) and growing market (+10% annually) with several tailwinds (demographics, tech enabled diagnosis, and a move towards earlier treatment). Untreated arrhythmia lead to a significant increase in the risk of both stroke and heart failure, which in turn lead to an increased risk of death. Annually, STXS’ RMNs are used in approximately 10,000 ablation procedures, representing just 1% share as compared to manual procedures performed , leaving significant opportunity to expand robot usage. I am particularly positive on the company’s likelihood of increasing RMN usage in ventricular arrhythmia procedures (currently 90k ablations performed annually per AFIB 10K) and in complex arrhythmia cases (approximately 1/3 of the 475k total annual AF ablations performed annually). Examples of complex AF cases include persistent atrial fibrillation (AF); re-ablations following an unsuccessful pulmonary vein isolation (PVI); AF caused by non-PVI triggers, patients with distorted anatomy or extensively dilated cardiac chamber; patients with congenital heart defects. I also believe that there are many potential procedures, especially in ventricular arrhythmia, that are not currently being performed due to the limitations of manual ablations. Advancements in mapping systems over the past 10 years enable the rapid creation of comprehensive three-dimensional mapping of a patients’ hearts, but the ability to manually navigate the RF catheter through circuitous pathways close to a fluttering heart remains challenging for even the most skilled and experienced doctors. The precision of RMNs, in my view, expand the pool of complex cases that can be successfully ablated and represent a significant untapped revenue opportunity for hospitals.

The STXS system allows the surgeon to precisely move the magnetically guided catheter tip into the delicate chambers of the heart with a joystick with 1 millimeter precision. Once the magnetic catheter tip is in place, the surgeon ablates (and therefore inactivates) the electrical pathway in the heart that is malfunctioning and causing arrhythmia. The key characteristic of the ablation catheter include that the distal end of the catheter is soft and flexible. This tip is directed by 4 magnets creating 3 hinge points, allowing for unlimited degrees of directionality. Even with cardiac and respiratory motion, the magnetic field created within the patient can hold the catheter’s magnetic tip in constant contact with the endocardium with little to no risk of perforation. It is also less stressful for the operator when ablating near critical structures since the system can make small and precise movements. For further granularity, this case report exemplifies several advantages of magnetic navigation for the mapping and ablation of complex arrhythmia. The report can be accessed here: Repeat Ablation of Ventricular Tachycardia Using Robotic Magnetic Navigation

The Benefits of Robotic Magnetic Navigation:

On data from over 400 publications and more than 100,000 procedures, there are 72% fewer major complications while short & long term efficacy improves 6-8%. In sum, STXS robotic magnetic navigation leads to (1) a decline in major adverse events, (2) a reduction in minor complications, (3) higher acute success, (4) lower cardiac perforations, (5) lower fluoroscopy exposure, and (6) and superior freedom from recurrence. Robotic surgery also enables the “democratization of skill.” Even surgeons who have less than top-notch skills when performing manual surgery can be assisted by robotics to even out abrupt movements and move a catheter through narrow passageways near a beating heart. Strength and fatigue is also less of an issue with robotics, since a robotic system relieves the requirement of manual force, and takes a lot of strain off of a surgeon during long procedures.

A September 27, 2021 interview in Cardiac Rhythm News (Robotics in the EP lab: Pointing the way to the future - Cardiac Rhythm News) with Dr. Benjamin D’Souza, a cardiac electrophysiologist in the University of Pennsylvania system, clearly explains the benefits of robotic ablation from a user’s perspective. The doctor’s views on STXS are especially interesting as 1) he was initially skeptical armed with typical myths (2) works at a top tier institution (3) not only uses it but is broadening the use even further (4) appreciates the safety to patients and himself (5) thinks there is a long way to go in terms of usage.

STXS has no other significant robot competitors. Rather, the company’s main challenge is convincing hospitals and doctors that using a robot is a better option than performing an ablation manually. I believe that high-resolution real-time cardiac imaging and mapping systems (of which STXS’ robots employ an open-architecture, meaning the robots operate with a variety of mapping systems) , coupled with the precision, consistency, and safety of Niobe/Genesis , are spurring a paradigm change in how complex arrhythmia are treated and will drive rapidly increased usage of STXS robots (“razors”) .

Further, the introduction of a proprietary catheter (“razor blade”)  (currently STXS receives a $300/procedure royalty from a magnetic catheter co-developed with J&J) will substantially improve the company’s profitability, demonstrating the power of the company’s razor-razor blade model, while enabling the company to offer substantially improved financing options on STXS robots.

Unlike many promising technologies in medical treatment that have failed to show safety and efficacy in a large number of patients, STXS has over 100 global installations with 100,000 procedures that have demonstrated improvements in safety, outcomes, and ability to handle complexity. This is well documented in peer-reviewed journals. Patients benefit from both improved accuracy and complication avoidance, which drives better outcomes. Physicians also benefit as they can avoid the radiation exposure and orthopedic consequences (from wearing lead aprons) that result from the current, non-robotic procedures. Finally, hospitals can take on the most complex cases, which improves their reimbursement capture.

The Rebirth of Stereotaxis:

STXS’ previous management was good at getting placements, but not at driving utilization or developing important ancillary products to support usage. Niobe received FDA clearance in 2004, the same year STXS did an initial public offering. The problem was, customers weren’t actually using the systems once installed. There was a focus on capital sales and not on making sure once they made a sale that physicians were actively using the system and building a successful robotic practice. In addition, the initial generation of Niobes had a 3-second time lag between the movement of the joystick and the response by the catheter. A software update and some design changes to Niobe reduced the lag to 1-second by 2012, but the reputational damage was real. That, in turn, created a backlash against the company. Between 2009 and 2011, STXS saw many fewer placements. With sales below expectations, STXS cut expenses and issued dilutive financing. That caused the stock price to decline. The outcome was inactive units (approximately 60 unused Niobe robots out of 160 units placed), a lack of innovation, and a diminished financial profile. Mr. Fischel, upon becoming the CEO of STXS in September 2016, focused on 3 fundamental objectives, the first being financial clean-up. “You cannot build a successful company, commercialize well or build technology partnerships if you are a company that at the time had around $20 million in debt, $2 million in cash and burning $8 million per year. No one wants to work with you which is understandable.” Fischel paid off the company’s debt, implemented better corporate governance and improved corporate culture. Mr. Fischel also did not take any salary. The capital structure has been repaired and the organization is now rightsized. STXS has also burned very little cash the past several years despite virtually no new unit placements and relatively flat robot utilization between 2016-2019 . The company did, however, make significant investments in new product development and placed strong emphasis on physician training in robotics; thereby laying the foundation for rapid, profitable growth. An excellent article discussing STXS’ turnaround appeared in the June 2021 edition of MedTech Strategist and can be accessed here: https://www.STXS.com/wpcontent/uploads/2021/06/STXS-MedTech-Strat-Article.pdf

In 2019, STXS made several important product announcements. First, the company announced that STXS robots would be fully integrated with Acutus Medical (AFIB) AcQMap system ), and with pre-mapping systems from ADAS 3D and inHeart , showing the company’s commitment to advancing an open ecosystem where physicians and patients benefit from the broad integration of procedure data. Currently, STXS’ open-mapping software architecture is fully integrated with J&J’s CARTO and AFIB’s AcQMap and compatible with others mapping systems (e.g. ABT and BSX). The company made four other pivotal announcements: 1. The development of its next generation robotically-navigated magnetic ablation catheter, which will be fully owned by STXS; 2. The introduction of Genesis, a faster, smaller, lighter and more flexible next generation robot; 3. STXS Imaging Model S, a single-plane full-power x-ray system designed to be specifically available with the Genesis (x-ray systems used in robotic ablations need to be immune to the distortion from the magnets in the robots, but are otherwise functional in both robot and non-robot usages); and 4. the first graduating class of 18 doctors from its Robotic Electrophysiology Fellows Program. The Robotic Electrophysiology Fellows Program is designed to enhance the traditional electrophysiology fellowship by facilitating mastery of robotic magnetic navigation.

Covid Challenges, Macro Headwinds:

The stock price responded favorably throughout 2019 (appreciating from $1.15 to $5.29) as investors began to believe in the STXS turnaround. On March 6, 2020 Genesis earned FDA clearance. On March 10th , in conjunction with essentially break even Q4 earnings, the company announced its first 2 orders for Genesis ( a hospital in Finland and from Banner Hospital in Arizona) and anticipated “robust double-digit revenue growth in 2020 as commercialization of the Genesis RMN System was projected to drive a resurgence in system sales to new and existing hospital customers.” Unfortunately for STXS investors (and of course for the world at large), the pandemic struck in earnest the same month and throughout 2020 and early 2021, hospital capital spending basically froze and cardiac ablations frequently canceled as hospitals halted elective procedures while fearful patients chose not to undergo procedures. Cardiac ablations are considered elective, and drug treatments are often used as a front line defense against arrhythmia, but for many patients, ablation is eventually required to effectively treat the condition. In effect, the 2020 pandemic delayed by one year the STXS turnaround.

After successfully orchestrating a corporate turnaround, repairing the capital structure, successfully developing and introducing a new robot (Genesis, launched March 2020), and laying out an exciting product roadmap, the management team hurt its credibility with investors by misjudging the rate of the upgrade cycle from Niobe (launched 2003) to Genesis, which caused the company to lower guidance twice. These negatives, accompanied by an incredibly difficult stock market, have understandably impacted the share price, but I still maintain that Stereotaxis offers compelling upside opportunity.

The management team has laid the groundwork to change the future of the company by prudently investing in a pipeline of products that will allow for the first time in the company's history to truly capture the significant advantage of its magnetic robotic systems. The approval of Genesis in March 2020 (unfortunately at the exact time when Covid entered our lexicon) was the first of these planned innovations. Despite Covid and all its ensuing headwinds both on procedures and hospital capital spending, Stereotaxis sold a record seven robot systems during 2021, the majority to hospitals establishing new robotic programs. The restart of system sales played out globally with three of these in the U.S., two in Europe and two in China. Five of these systems were to hospitals establishing entirely new robotic practices. Total revenue was $35.0 m, +32% y/y with robot system revenue $11.2 million (vs $3.6 million in the prior year). Stereotaxis achieved its highest level of system sales in 2021 in years, but the stock price itself cratered in August 2021 after management, which had initially projected between $10.0-$20.0 m in system sales, withdrew this guidance. In the Q2/2021 press release, the company stated “Stereotaxis expects to continue delivering year-over-year revenue growth in future quarters. It now expects robotic system revenue of approximately $11 million for 2021 based on orders received to date. Orders received in the remainder of 2021 and early 2022 are expected to result in approximately a doubling of system revenue in 2022 compared to 2021 and contribute to robust double digit revenue growth in 2022.” The fact that the eventual $11.2 m in sales actually fell within the original guidance fell on deaf ears as investor’s began to question management credibility.

In the Q4/2021 press release (3/3/22), the stock price took a second major hit after management lowered the 2022 outlook from a “doubling of system revenue in 2022” and stated that it now “anticipates revenue growth for the year driven by continued commercial adoption of the Genesis RMN system and stable recurring revenue. System revenue for the year will be primarily recognized in the second half of the year based on current customer schedules”. Management stated on the conference call that 4 "imminent" replacement system sales were removed from the FY2022 outlook. The primary reason cited was construction delays at hospital customers due to labor and material shortages impacting construction projects. The company also stated that the upgrade cycle was progressing slower than expected. Management had originally believed that the X-ray systems used in conjunction with the robots would need to be replaced after 10-13 years. Given that Niobes were placed mainly between 2003 to 2013, Stereotaxis believed that 8-10 customers per year (out of a total 100 Niobe users) would replace the X-ray system and upgrade their robot to Genesis annually. However, as the X-ray systems (which are specially fitted to coexist with the magnets in the robot) are used less frequently than a typical X-ray system, many customers decided to defer upgrading, especially given the distraction and challenges of Covid. Ultimately, however, these customers will need to upgrade and there has been some evidence of this transition in FY22 given a greater percentage of upgrades (vs new sales) compared to FY21. Therefore, at least a portion of the stock price declines are really related to issues of perception as actual sales and orders of the robot, in a historically difficult macro environment, have been solid, albeit not as robust as management (and I) had expected when Genesis was launched.

In the Q2/22 press release (8/9/22), the company stated that “Stereotaxis’ current system backlog of over $12 million supports its prior guidance of overall revenue growth in 2022. While this guidance remains achievable, significant variability in hospital construction timelines suggests that a sufficient portion of backlog may be recognized as revenue in the following year, introducing caution to this guidance. Substantial and consistent revenue growth in the coming years is expected to be supported by new technology launches and an enhanced commercial organization.” Understandably, given the prior guidance reductions, there are investors who have lost faith in the company, but the company has secured the necessary orders which does fulfill the guidance it offered back in March. Whether the actual implementations (triggering revenue recognition) occurs in FY22 or FY23 really should not impact the stock as much as it has, in my opinion.

Brighter Days Ahead:

Notably, management has invested in a portfolio of catheters that when launched will significantly accelerate the company's high-margin recurring revenues. This will happen with the transition from Biosense Webster royalties to in-house catheters being sold into Stereotaxis' large & growing install base of 100+ systems worldwide. The initial in-house catheter is the MAGIC AF ablation catheter, which will be followed, via partnerships, by the single-shot Cryo-ablation catheter (currently expected to be introduced in Europe in 2023 and in the United States in 2024) and a Pulsed-Field ablation catheter (Europe: late 2023/early 2024 and in the US: mid 2024/late 2024) . PFA is currently a very hot topic in the EP field. Initially, PFA catheters are likely to be used in simpler PVI cases, but over time will likely be used in other types of cases as well. Because PFA requires short burst of targeted energy, some thought leaders believe a robotically guided PFA will be very effective, especially near the beating heart, as the robot ensures the catheter remains extremely stable when the pulse field is discharged. Sterotaxis is working with Acutus Medical (AFIB) . Little detail has been shared to date, but based on discussions with management, the deal is not exclusive. I believe that Stereotaxis could eventually “white label” the core MAGIC catheter so other PFA players could offer their own branded PFA catheter which would work on Sterotaxis’ robots.

Management initially announced MAGIC in 2019 and originally projected a European launch in 2022 (with a U.S. launch in 2023). Supply chain issues caused multiple delays at Osypka which had been hired to develop MAGIC. Finally, in July 2022, the company announced it filed a CE submission in Europe for MAGIC with approval anticipated by the end of 2022/early 2023. An IDE is expected to be filed in the United States in early 2023 which will allow human trials to begin. FDA approval is expected by 2H 2024.

Worldwide, Stereotaxis has approximately 30 hospitals in Europe, 70 in the United States, and 8 in China. Consequently, the customer base wont be fully converted to MAGIC until at least 2025, but it will eventually happen given MAGIC replaces a 17 year old catheter. The new catheter has better maneuverability and tip contact feedback than the old catheter. The tip contact feedback is a unique feature informing the EP of heart wall contact in real-time to help ablation effectiveness. With its unique low-flow irrigation design, Stereotaxis will pursue a MAGIC label with only 10mL of saline/minute flow rate or 30% below other irrigation catheter offerings. This is important because too much fluid can have a negative impact on patients, particularly those with renal issues common in arrythmia patients.

I believe that the current stock price is significantly undervalued based solely on MAGIC receiving regulatory approvals in the Europe and the United States. This assumes the “worst case” that the current number of hospitals and usage rates remain at 108 customers/usage 2X per week. My reasoning is as follows: The company’s current annual recurring revenue (disposables, service and accessories) is around $23.0 m. Once MAGIC replaces Biosense, Stereotaxis will forego its 10% royalty ($300 per procedure) from Biosense, but will capture the full $3k+ selling price of MAGIC. Given the current annual procedure run rate over the past 5 years has been 10k procedures/year, MAGIC will ultimately generate $27.0 m of incremental high-margin revenue. Added to the current $23.0 m annual recurring revenues, the company should have a minimal annual recurring revenue rate of $50.0 m@83% gross margin with minimal associated selling expenses. The company has approximately 125.0 m fully diluted shares (including full conversion of preferred stock) and $34.0 m in cash and no debt. Assuming MAGIC approval and 100% conversion of the the customer base from the Biosense catheter, Sterotaxis’ EV/sales multiple is currently 3.7X. Applying instead a 6.5X EV/sales multiple (in line with historical similar MedTech peer group), I believe that the stock price is substantially under valued based on MAGIC approval alone. Given how high the operating margins are on this revenue stream, one might even argue a much higher multiple should be applied.

The above assumes “worst case’, but the reality is that prospects are much brighter. First, there are approximately 95 existing Niobe customers that will likely upgrade eventually. Besides representing approximately $150 m in potential system revenue, Genesis customers, both those hospitals that upgrade from Niobe as well as brand new customers are using Genesis at higher rates than Niobe. According to management, as stated in the Q2 2022 press release, “During the first quarter, we successfully launched new robotic practices with physicians entirely new to our technology in each of the United States, Europe, and China. We are delighted to see utilization at these practices, and across the installed base of Genesis systems, far above global averages.” Ablations employing robotic navigation (of which Stereotaxis is the only player w/ a significant competitive moat including patents, +350 published studies, a 20 year safety record) have only 1% market share compared to procedures done manually. A legitimate argument against the Stereotaxis bull case is that despite a 20+ year record, the company still has very little share. I believe that the bull case does not require or assume that robotics will capture significant market share versus manual, only that usage rates will increase and that more hospitals will adopt the technology.

Despite its superior safety record (for patients and the physician), the robot does not save time or money (though it’s not at a disadvantage either) for non-complicated ablations performed. The robot shines in more complicated case because it is much more consistent in both the outcome and the time required to perform the procedure. There are robot evangelists (Banner in Arizona, Finland) who do virtually 100% of ablations using a robot, but many EPs who do currently use Niobe will only perform the more complicated cases using a robot. Because Stereotaxis does not yet benefit from having a 100% owned catheter, the company has been hesitant to build a large team where a rep would be helping to drive procedure volumes at each hospital. I am hopeful that once MAGIC is approved, the company will be much more willing to invest more in this area. Nevertheless, it does appear that more EPs (and hospitals) are beginning to appreciate that the robots are extremely helpful in complicated cases, which helps drive additional revenue (as these cases may previously not been ablated) and helps augment the hospital’s regional reputation as a center of excellence. The outcomes are also excellent. In a recent article EP Dr. Jarkko Magga from Oulu University Hospital in Finland stated, “With the help of magnetic control, we are able to examine and treat all Northern Finns suffering from severe arrhythmias in OYS, .In time, technology was introduced to ease the shortage of personnel. The technology made it possible for a demanding rhythm cardiology procedure lasting up to six hours to be done with one cardiologist instead of two. Thus, another doctor has been freed to perform other procedures. We are one of the top centers in Finland, because we use technology a lot, and thus our knowledge of the procedure is also solid.”

A perhaps more important development is the recent announcement of a Genesis order from Overland Park Regional Medical Center (OPRMC), which is part of HCA Midwest. OPRMC first established a robotic heart rhythm care program in 2019, and the medical center's robotic EP program is part of the Kansas City Heart Rhythm Institute led by Dr. Dhanunjaya Lakkireddy. The medical center will be the first U.S. hospital to double its robotic cardiac ablation procedural capacity with two STXS RMN systems. The medical center noted that STXS' RMN technology made complex ablations much more efficient by reducing the variability and timelines for those procedures. Dr. Lakkireddy is well known in the cardiovascular communities and the fact that a major hospital within the HCA network has achieved sufficient ROI to justify ordering a second robot is extremely encouraging.

Despite the technical superiority of Genesis over Niobe, the installation of a new Genesis remains a significant cost to the hospital and requires a room to be specially built and equipped to house the robot. It has proven to be a major obstacle in both acquiring hospital customers and in projecting when orders will convert into revenues. In addition, the installation is permanent. A potential game changer is the company’s forthcoming mobile robot. At a 12/12/21 Innovation Day presentation, Stereotaxis announced it was developing a mobile robot (current approval in Europe and United States expected Q3 2023), which will have similar functionality to Genesis, but will be smaller, more mobile, and will not require significant infrastructure investment (e.g., traditional electrical outlets are sufficient, system is on wheels).

The mobile robot will likely accelerate EP lab adoption because it provide Stereotaxis the flexibility to offer a shorter-term lease or even a zero down robot placement predicated on a minimal consumable sales commitment from the hospital. The approval of the MAGIC catheter, which will finally allow the company to capture 100% of its “razor blade” sale will further enhance the company’s ability to offer the robots at much lower upfront costs to the hospital since the benefits from the ongoing usage substantially improve Stereotaxis profitability from the recurring revenue stream.

The Innovation Day had virtually zero impact on the stock price, but there were other exciting reveals. The company is developing a family of guide wires and guide catheters which will work on Niobe, Genesis, or mobile. These products, along with the mobile robot, will enable Stereotaxis to expand its market to include ischemic & hemorrhagic stroke, tumor embolization, peripheral artery disease, coronary angioplasty, and abdominal aortic aneurysm. The guidewire is set for commercial launch in early/mid 2023 and the guide catheter in late 2023. These materially increase the total addressable market for Stereotaxis to over $10 billion annually (not including >$20BB TAM from system sales), and dramatically increases the likelihood of future system sales as the return on investment expands substantially for hospitals and specialized practices. The approval of the mobile robot is vital for the company to be successful outside the EP lab as the company’s vision is to enable the robot to be wheeled into different departments with minimal/no upfront cost and/or long-term commitment to the hospital. Given the mobile robot is based on Genesis technology, which was approved in March 2020, and the fact that the approval path is through a 510(K) , I believe that mid summer 2023 approval is achievable, albeit it would be comforting if supply chain shortages abate somewhat.

Another positive development basically ignored by investors was the August 2021 announcement that Stereotaxis and Shanghai Microport EP, one of the largest and most successful medical device companies in China, would embark on a broad collaboration to advance technology innovation and commercial adoption of robotics in electrophysiology in China. This includes efforts to get approval for Genesis in China as well as possible collaborations to develop catheters. There are currently 7 hospital customers in China, but Stereotaxis believes the market opportunity could allow “tens of systems to be sold annually” in China. Covid lockdowns have severely impacted procedure volumes in China in recent quarters, but on the Q2 22 conference call , management commented that “The MicroPort and Stereotaxis' collaboration continues to progress well and we view a comprehensive product ecosystem in China, coming together during the second half of 2023”.

Another positive development in August was the company’s announcement that it hired hired two veteran commercial leaders in MedTech robotics, including one who had previously helped lead ISRG’s efforts in Europe and will help lead STXS’ efforts in Europe, which should include the expected 2023 launches for the MAGIC RMN catheter and the mobile RMN system.

It was also encouraging that in May 2022 Director Paul Isaac, the GP of Arbiter Partners (which owns 2.5 m shares of STXS) acquired an additional 283,631 shares @$1.83. Ross B. Levin, the Director of Research at Arbiter, serves on the board of directors.

In sum, management has made several missteps and the pace of Genesis adoptions and installations have been very lumpy, but there are multiple positives which are being totally ignored by investors.  As hospital labor constraints and construction backlogs abate, and new products are introduced, the company’s prospects (and stock price) should brighten. 

Disclosure: I/we have a beneficial long position in the shares of STXS either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Catalyst

Catalyst:

Stereotaxis (STXS) is a turnaround story that is on the cusp of significant top line acceleration following a decade of declining revenues. Over the next 24 months, the company plans to introduce a mobile robot as well as a family of proprietary disposables (catheters, guidewires and guide catheters). The mobile robot will significantly reduce installation costs/complexity; permit Stereotaxis to offer lease options to hospitals; and enable the company to enter new markets such as neurology. The new disposables will significantly enhance profitability, further enabling the company to expand and invest in sales and marketing. Stereotaxis has the potential to disrupt how endovascular surgery is performed and simultaneously demonstrate the financial strength of its razor/razor-blade business model. As hospital labor constraints and the construction backlogs abate, and new products are introduced, the company’s prospects (and stock price) should brighten.

 I believe that the current stock price is significantly undervalued based solely on MAGIC receiving regulatory approvals in the Europe and the United States. This assumes the “worst case” that the current number of hospitals and usage rates remain at 108 customers/usage 2X per week. My reasoning is as follows: The company’s current annual recurring revenue (disposables, service and accessories) is around $23.0 m. Once MAGIC replaces Biosense, Stereotaxis will forego its 10% royalty ($300 per procedure) from Biosense, but will capture the full $3k+ selling price of MAGIC. Given the current annual procedure run rate over the past 5 years has been 10k procedures/year, MAGIC will ultimately generate $27.0 m of incremental high-margin revenue. Added to the current $23.0 m annual recurring revenues, the company should have a minimal annual recurring revenue rate of $50.0 m@83% gross margin with minimal associated selling expenses.