This medical device company—despite COVID-19 headwinds—is expected to grow by more than 100% annually over the next five years.
Silk Road Medical Inc (SILK)
From Argus Weekly Staff Report
We are reiterating our BUY rating on Focus List selection Silk Road Medical Inc. with a revised price target of $60, reduced from $70. We see solid long-term growth opportunities for Silk Road given the safety and efficacy advantages of the company’s TransCarotid Artery Revascularization (TCAR) treatment over traditional procedures. The company is also expanding its salesforce and continues to train surgeons in the TCAR procedure. Based on SILK’s risk profile and relatively high valuation, we see the stock as appropriate for risk-tolerant investors.
Silk Road Medical faces near-term headwinds as more elective surgical procedures - including the company’s TCAR procedure - are deferred due to the Delta variant surge and rising COVID-19 hospitalizations. The company cut its 2021 sales guidance after the number of TCAR procedures performed in 3Q21 fell short of management’s target. However, we believe that Silk Road has strong long-term growth prospects given the advantages of its TCAR procedure over traditional carotid endarterectomy (CEA), which has been the standard of care for more than 60 years.
The company has presented clinical evidence that patients treated with TCAR have less cranial nerve damage, lower risk of stroke and heart attacks, and shorter recovery times than those treated with CEA, an invasive procedure that involves cutting open the carotid artery.
The TCAR procedure is currently approved by the FDA for the treatment of patients with high surgical risk. These are patients who are considered at high risk for adverse events during carotid endarterectomy. In seeking to expand its addressable market, SILK has submitted a supplement to its premarket authorization (PMA) that would expand the TCAR label to include standard risk patients. An expanded indication would enlarge the addressable market for TCAR by 50%.
On November 8, the company reported a 3Q21 GAAP net loss of $13.9 million or $0.40 per share, compared to a net loss of $10.3 million or $0.31 per share a year earlier. Revenue grew 23% to $24.7 million. About 3,400 TCAR procedures were performed in 3Q, up 20% from the prior year. However, management noted that staffing shortages and limited hospital capacity, caused by the surge in new coronavirus cases, disrupted inpatient procedures in certain parts of the U.S. In the South and Midwest, which were severely impacted by the Delta variant, TCAR procedures per physician fell 13% sequentially in 3Q. By contrast, in the mid-Atlantic and Western states, regions with higher vaccination rates and fewer coronavirus hospitalizations, procedures per physician grew roughly 10% sequentially.
Despite current headwinds, the company continues to train physicians in the TCAR procedure, and expects to exceed its goal of training at least 200 new physicians in 2021. It is also on track to add at least 50 new sales territories by the end of the year. The company plans to grow through new product launches and expansion into Japan and China, where it is seeking regulatory approval for the TCAR procedure. It is also developing a new Transcarotid guidewire and a Transcarotid balloon catheter, and expects to receive regulatory approval for these products in 2022.
Another market expansion effort is the NITE-1 feasibility study, for which Silk recently received an investigational device exemption (IDE) from the FDA. The study will assess the role of transcarotid access and flow reversal in a new procedure called neuroprotection in transcarotid embolectomy (NITE) in the treatment of acute ischemic stroke. TCAR will be used in a procedure for clot removal after ischemic stroke.
Based on the significant impact of the Delta variant on hospitalizations and elective surgical procedures, Silk has lowered its revenue guidance for 2021. It now expects revenue of $99-$102 million, representing growth of 32%-36%, down from a prior forecast of $104-$109 million.
Key drivers for revenue growth are market expansion through physician training, international expansion, and new indications for the TCAR procedure. Based on the updated guidance, we are widening our loss estimates to $1.20 per share from $1.10 for 2021 and to $0.70 per share from $0.50 for 2022.
Valuation based on P/E is meaningless given our loss estimates for 2021 and 2022. However, given the large addressable market for TCAR procedures, both in the U.S. and overseas, we think the company has solid growth opportunities. Despite near-term pressure from COVID-19 on hospital procedural volumes, we see a strong long-term growth profile for SILK.
Our rating is BUY with a revised price target of $60.
Jim Kelleher, CFA, Argus Weekly Staff Report, argusresearch.com, 212-425-7500, November 26, 2021