The market has been acting better lately, and many small-cap MedTech stocks have made significant moves over the last two months. Let’s look at three leading players that have been on my radar for some time and try and determine which of PROCEPT BioRobotics (PRCT), ShockWave (SWAV) or Axonics (AXNX) is the best small-cap MedTech stock.
Small-Cap MedTech Stock #1: Procept BioRobotics (PRCT)
Procept BioRobotics (PRCT) invented the AquaBeam Robotic System, an advanced, image-guided, surgical robotic system for use in minimally invasive urologic surgery. Procept’s current focus is treating benign prostatic hyperplasia (BPH).
The AquaBeam system gained FDA clearance in 2017 and is primarily sold to U.S. hospitals. Revenue is derived from sales and rentals of systems and related software (66% of revenue), recurring sales of handpieces that are consumed during each surgery (31% of revenue) and, to a much lesser extent, services (3% of revenue).
Aquablation therapy is covered by Medicare and is also covered by many of the large commercial payers.
The company is growing very quickly on the back of new coverage decisions and an expanding sales force. In 2021 revenue surged 347%, to $34.5 million.
Second-quarter earnings were reported on August 4. Revenue of $16.7 million was up 97%. Management increased full-year guidance by $7 million, to a range of $66 - $68 million (+91% to +97%).
The Q2 beat continued a steady string of beat and raise quarters for this small-cap MedTech stock. Sales teams are out in force trying to get new systems into place as they will drive growth in consumables (i.e. handpieces). They sold 23 systems in the quarter and handpiece revenue was up 250%.
Small-Cap MedTech Stock #2: Shockwave (SWAV)
Shockwave (SWAV) is a medical device company with a new solution to treat calcified cardiovascular disease.
Its approach – called intravascular lithotripsy (IVL) – combines traditional balloon angioplasty and lithotripsy. It can treat calcified artery disease and calcium build up in both the inner (intimal) and middle (medial) layers of peripheral arteries and coronary arteries.
Treatment is achieved with use of a device that combines a small generator, a connector cable and an intravascular lithotripsy catheter.
Shockwave claims its IVL can treat the most complex calcified anatomies while minimizing common complications from other technologies, including high-pressure balloons and atherectomy, which can lead to dissection and perforation and have steeper learning curves.
What’s exciting now is that, on the back of FDA approval and better payment reimbursement, Shockwave launched coronary in the U.S. in February 2021 (coronary was already approved in select international markets). Growth is happening overseas as well.
That all means revenue is surging.
Revenue jumped by 250% to $237 million in 2021. In Q2 2022, just reported on Monday, revenue jumped 116% to $120.8 million (beating by $22.9 million). EPS was $0.68, up from a loss of a penny in the year-ago quarter.
With another strong quarter in the books, management raised full-year 2022 guidance by $25 million (at the midpoint). The company now sees revenue growing by 96% to 100% to a range of $465 - $475 million.
Small-Cap MedTech Stock #3: Axonics (AXNX)
Axonics (AXNX) is developing disruptive solutions for patients that suffer from overactive bladder (OAB), Urinary Retention (UR) and Fecal Incontinence (FI). These ailments are often the result of abnormal communication between the brain and the bladder and bowel.
A proven treatment option is sacral neuromodulation (SNM). SNM involves implanting a programmable stimulator in the body to send low-amplitude electrical stimulation to the sacral nerve, thereby restoring normal control of the bladder and bowel.
Historically, the SNM market has been dominated by Medtronic (MDT). But Axonics built a better mousetrap. It now has three solutions.
The Axonics R15 System is a miniaturized, long-lived rechargeable neurostimulator that works for up to 15 years. It is MRI compatible. Charging is required after one to two months.
The company also just released the F15 this spring. The F15 is the only truly recharge-free SNM therapy option and works for ten to twenty years.
Early indications are that the F15 is a home run. Some practices say they are switching over their entire SNM volume to Axonics and its F15. It’s not out of the realm of possibilities that the F15 could take over half the market in a few years.
Axonics is also enjoying huge success with Bulkamid, a best-in-class urethral bulking agent for women with stress urinary incontinence (SUI). Bulkamid was acquired for $35 million in February 2021. The solution is very synergistic with both the R15 and F15 solutions and may become a front-line option (replacing sling /mesh surgeries) for patients, some of whom may later progress on to an implanted SNM solution.
Axonics grew 2021 revenue by 62% to $180 million. EPS was -$1.81.
In Q2 2022, reported on August 1, revenue grew by 50.3% to $69 million while EPS of -$0.47 beat by $0.07. Full-year revenue guide increased to $253 million (+40%).
Following the report, Axonics launched a secondary offering in which it raised approximately $129 million. The offering was priced at 63.9, roughly 10% below the current price. In other words, the offering was well received by the market.
Which Small-Cap MedTech Stock Is the Best Buy?
Procept is the smallest of the three (market cap just under $2 billion) but is growing the fastest. It is not profitable and won’t be for a few years. The stock reacted well to earnings but hasn’t broken out to a new all-time high.
Axonics is slightly larger (market cap near $3 billion) and is posting impressive growth, but it’s the slowest grower of the bunch. It is not profitable and won’t be for a few years. The stock reacted well to earnings but, like PRCT, hasn’t broken out to a new all-time high.
ShockWave, with a market cap close to $9 billion, is easily the largest of the three. It is growing nearly as fast as Procept this year (estimated 2023 revenue growth near 90%) but then will grow by “just” 30% in 2023. It is the only profitable company in the group. The stock reacted well to earnings and has busted out to a fresh high.
All three play in very specialized markets, and they’re all doing something better than the competition. Management and sales teams all seem to be executing well.
Adding it all up, I like all three companies for risk-tolerant investors. It’s more a matter of how to build positions, especially given both AXNX and PRCT could be bumping up against resistance and SWAV has recently surged to new highs.
The best “one size fits all” advice is to average in. Start with a quarter or half-sized position, give it a few days or weeks, and add or reduce shares as seems appropriate based on the broad market and stock-specific action.
In the short term, all are likely to be impacted macro inflationary and Fed factors, which is another reason to take things slowly.
Do you own any small-cap MedTech stocks? Let us know in the comments.