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Thursday, September 25, 1997
Conceptus, Inc.
(Nasdaq: CPTS)
Phone: 650-802-7240
Website: http://www.conceptus.com.
Price (9/24/97): $7 1/2
HOW DID IT FIND TROUBLE?
In most of our other Daily Trouble columns about medical device companies we have treated readers to stories about devices touted but not approved. However, in the case of Conceptus, the concepts are sound and the FDA has given the company eight 510K clearances to market its products. So what's the problem?
In what could be described as an incessant drumbeat, the company's last three SEC filings contain the following quote: "The company has generated only limited revenues, primarily from sales in international markets for clinical trials, and to domestic and international distributors, and does not have experience in manufacturing, marketing or selling its products in commercial quantities."
Ooops... FDA-approved products but limited sales equals trouble.
BUSINESS DESCRIPTION
Conceptus specializes in the development of minimally invasive medical devices for reproductive medicine applications. There is a focus on microcatheter devices for the diagnosis and treatment of fallopian tube disorders (a frequent cause of infertility) and on non-surgical sterilization techniques.
The company has licensed the technology it uses from Target Therapeutics (recently acquired by Boston Scientific), which is a 15% owner of the company.
In addition, with the purchase of Microgyn, the company has technology for non-surgical endometrial ablation procedures and also has approval of its resectoscope for urological problems. Significant competitors include Storz, Olympus, Circon and Wolf.
FINANCIAL FACTS
Income Statement
12-month sales: $1.2 million
12-month income: ($14.1 million)
12-month EPS: ($1.58)
Profit Margin: N/A
Market Cap: $69.8 million
Balance Sheet
Cash: $13.5 million
Current Assets: $25.5 million
Current Liabilities: $1.6 million
Long-term Debt: N/A
Ratios
Price-to-earnings: NA
Price-to-sales: 58.2
HOW COULD YOU HAVE SEEN IT COMING?
There has been little fanfare associated with this stock. Since its IPO in early 1996 the stock has generally trended downward. Analysts following the stock have never forecast a profit and each new FDA approval is greeted with little enthusiasm for the stock.
While Conceptus products have interesting applications and seem to perform as promised, there has been limited demand for them. In the 10-K and 10-Qs there is no talk of order backlogs or moves to improve manufacturing capacity.
In the world of medical technology there is sometimes a "Bermuda Triangle" for devices that are just not quite interesting enough or useful enough to warrant the expense of purchase. Conceptus, at this point, has that type of product. Compare Conceptus' results with what Target Therapeutics was doing with the same technology but for a different diagnosis. Last winter, before being acquired by Boston Scientific, Target Therapeutics had annual sales of over $100 million or 100 times those of Conceptus.
Any holder of Conceptus stock could have avoided trouble by noting the continued erosion of analysts' earnings estimates and the inability of the company to meet estimates. Losses have been even greater than anticipated.
WHERE TO FROM HERE?
In general, Conceptus appears to have an interesting technology and, even though it has very substantial competition, the company's microcatheter technology seems to have the edge, particularly in the diagnosis of tubal disorders. That said, it appears to me that the company needs to progress in a few areas before investors will be rewarded.
First of all, the company needs to complete trials and get FDA approval for treatment applications (as opposed to the diagnostic applications it currently has approval for). The recent approval of its ERA Resectoscope for uterine surgery is a step in the right direction.
Secondly, the company needs to show investors it can do some serious selling. Currently, revenues are less than $1 million on a trailing 12-month basis. Nothing to write home about. There needs to be demonstration of an improved marketing and sales force. Without sales, the stock has nowhere to go.
Finally, the company needs to demonstrate that it can bring increased sales revenue to the bottom line. Over the past few quarters sales have indeed risen but losses have widened substantially.
In this Fool's opinion, at this point, there are better places to look for capital gains.
- Mark Weaver, MD, MWEAV@aol.com
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