After announcing that it is selling its SurgiBot assets to a Chinese-based medical equipment provider, shares of TransEnterix (ASXC -3.28%), a company focused on robotic surgery, rose as much as 12% in early morning trading on Monday. The rally has since cooled off but shares were still up about 5% as of 10:25 a.m. EST.
TransEnterix announced today that it is transferring ownership of the SurgiBot to Great Belief International Limited (GBIL).
Here are the key takeaways from the deal:
- GBIL will be responsible for manufacturing the system in China and will also be on the hook for obtaining regulatory approval. GBIL has already signed a distribution agreement with China National Scientific and Instruments and Materials Company to assist with the system's commercialization.
- TransEnterix will receive at least $29 million in total from the transaction.
- The first payment of $7.5 million will be received before the end of 2017 and another $7.5 million is expected by the end of March of 2018. This includes a $3 million equity investment in TransEnterix's stock at a price of $2.33 per share. That represents a 15% premium to Friday's closing price.
- The remaining $14 million in capital represents minimum royalty payments. Payment will be due once the SurgiBot System gains regulatory approval in China or in five years, whichever comes first.
- TransEnterix will retain the option to distribute (or co-distribute) the SurgiBot outside of China.
Here what TransEnterix's CEO Todd Pope had to say about this deal:
The relationship announced today with GBIL will allow us to advance the SurgiBot System toward global commercialization while significantly reducing our required investment and simultaneously leveraging 'in-country' manufacturing in the world's most populous country. This is a strong validation of the value of the SurgiBot platform.
Given the news, it isn't hard to figure out why shares are up today.
Once upon a time, the SurgiBot System was the main reason to own TransEnterix's stocks. However, that all changed in 2016 when the FDA rejected SurgiBot because it failed to show a "substantial equivalence" to an already legally approved medical device. In response, management was forced to throw all of its weight behind Senhance since it lacked the resources (and time) to continue developing both systems.
Fast forward to today and TransEnterix is in a much better place. The Senhance system went on to win FDA approval (and even recorded its first U.S. sale) and TransEnterix's balance sheet is in good shape thanks to a recent capital raise. Adding another $29 million to the mix only increases the company's financial flexibility in its fight against Intuitive Surgical.
That's all great, but the bull case for owning TransEnterix's stock from here still hinges on a successful launch of the Senhance system. On that front, I think it is still way too early to draw any real conclusions. That's why I continue to believe that caution is warranted.