Today we have a high-potential new recommendation from Canaccord Genuity analyst Jason Mills. This medical technology company makes imaging systems that allow surgeons to view blood vessels near their operating area on a video screen, ensuring that nearby essential organs are still receiving blood and thus nearly eliminating one of the most common serious consequences of surgery.
“Novadaq Technologies (NVDQ, $12) possesses a unique technology that we believe could become a standard-of-care intra-operative imaging modality across multiple open and minimally-invasive surgical applications. We think the most appropriate relative comparisons to use to value NVDQ are other high-growth med-tech companies whose technologies possess similar attributes — i.e., established or emerging standard of care, addresses nascent growth markets, and is improving outcomes for patients. What’s more, we think NVDQ will supply more proof that its technology provides cost savings for the hospital, which is becoming increasingly important in today’s healthcare environment. We initiate coverage of NVDQ with a BUY rating and 12-month target of $15/share.
Who is Novadaq?
“Novadaq develops and manufactures intra-operative fluorescence imaging technologies used in open surgeries and minimally invasive procedures. Published literature and conversations with multiple key opinion leaders across several specialties suggest to us that fluorescence imaging provides better perfusion information of organs and vessels than other intraoperative imaging modalities. ... Novadaq’s ‘SPY’ imaging products, which follow a razor/razor blade model, are used in a variety of procedures, such as breast, head and neck reconstruction and colon and bowel re-section, among others. Founded in 2000, the company’s U.S. installed base exceeded 500 as of June 30, and its products were used by 45 of the top 50 cancer centers in 2011. ... Some of the initial U.S. centers that have adopted SPY imaging include the best brand names in medicine, including Stanford, Duke University, Cleveland Clinic, Mayo Clinic, MD Anderson Cancer Center and Johns Hopkins. According to the company, 90% of the top 50 cancer centers in the U.S. have adopted SPY imaging and still have significant room for higher utilization. ...
Premier partners add marketing muscle and credibility
“Novadaq has initially opted to sell its imaging products for certain applications through strategic partners. We think this has been and will continue to be a prudent and successful strategy for the company, particularly given the strength of its partners, LifeCell and Intuitive Surgical (ISRG). For instance, LifeCell, which is the market leader in biologics and tissue repair products used in reconstructive and abdominal surgeries, has strong, long-term relationships with practitioners in both of these specialties. Intuitive Surgical, which clearly has the largest installed base of robotic surgery systems, offers Novadaq’s fluorescence imaging technology, FIREFLY, as an adjunctive option for surgical procedures using the da Vinci robot – namely partial nephrectomy, colorectal, gynecological and thoracic procedures. Notably, on Intuitive Surgical’s recent conference calls, management has commented on the growing interest in FIREFLY, for which the installed base has grown markedly every quarter since its launch in Q2/2011. ...
“Of note, the aforementioned new installations do not take into account the opportunity presented by the emerging opportunities in laparoscopic [surgery, which are addressed by Novadaq’s PINPOINT system]. PINPOINT represents the most catalytic potential revenue and profitability driver, layered on top of existing opportunities with LifeCell and ISRG. PINPOINT combines Novadaq’s fluorescence imaging technology with a proprietary endoscope. While we are excited about the company’s future growth prospects in the aforementioned markets, we favor the company’s opportunity with the PINPOINT endoscopic fluorescence imaging system. We also like NVDQ’s decision to build a direct sales force to market PINPOINT in the laparoscopic market. ...
Financial Analysis
“We estimate NVDQ will produce compound annual revenue growth of 47% over the next five years, during which we expect revenue to increase seven-fold over 2011 levels to $107M in 2016E. The primary reason we are so bullish about the growth potential for Novadaq is the fact that the company has several attractive ‘shots on goal’ that are, in effect, mutually exclusive of one another. In other words, LifeCell’s opportunity in the reconstruction market with SPY ELITE is very large and attractive, but should not infringe on the company’s potential in MIS laparoscopic procedures, which should also not mitigate the opportunity KCI has in wound care or that Intuitive Surgical has with FIREFLY in robotic general surgery. Consequently, we see the potential for robust growth as each of these markets – which are at varying stages of development – layer revenue on top of each other.”
- Jason R. Mills, Canaccord Genuity Research, October 19, 2012