Robotic surgery upstart TransEnterix (ASXC) just reported its fourth-quarter results. Investors already knew that the company had sold two of its Senhance systems during the quarter, so there weren't a lot of financial surprises to report. Revenue of $3.4 million was roughly in line with what Wall Street had expected, and the adjusted net loss of $14.1 million, or $0.08 per share, was also in the ballpark of what analysts had predicted.
Instead, the most interesting takeaways came from TransEnterix's conference call with investors. Here's an overview of the important topics that were discussed.
Image source: TransEnterix.
The commercial team is growing
The foundation upon which the company will create long-term shareholder value will be a successful Senhance launch. But success there will be no small task, especially given that TransEnterix has to compete against an army of entrenched Intuitive Surgical (ISRG 0.71%) sales reps. To compete effectively, TransEnterix is going to have to significantly grow its commercial team.
Management stated that it made a lot of progress on that front in 2017. While the company started the year with only five people in market development, CEO Todd Pope was happy with the expansion that took place throughout the year:
At the time of clearance in October, we had a team of nine, we currently have a team of 17, including 15 direct sales reps covering the majority of the 20 largest MSAs in the country. Having spent a significant amount of my career building and managing sales teams, I'm pleased with the speed at which we were able to assemble this team and the quality of professionals we were able to recruit.
Product enhancements are coming
One way that TransEnterix plans to make Senhance more attractive to prospective buyers is to roll out new products. While these advancements include an "ultrasonic energy platform" and 5-mm articulating instruments, Pope seemed particularly excited about the potential for the company's new 3-mm instruments:
While most laparoscopic procedures are done today using five-millimeter instruments, we were seeing increased use of three-millimeter instruments as surgeons continue to push the boundaries of minimally invasive surgery. Surgeons typically do not need to close three-millimeter incisions. As a result, these tiny incisions make for virtually scarless surgery.
The company plans to submit the 3-mm instruments to the FDA by midyear, and believes that it should have approval decision in half by year's end. The ultrasonic energy platform and 5-mm articulating instruments are also expected to be sent off for regulatory review before the end of 2018.
Image source: TransEnterix.
Label expansion claims are coming
When Senhance won FDA approval in 2017, it was cleared for use in 23 different laparoscopic colorectal and gynecological procedures. Collectedly, those represented an opportunity of about 1.5 million procedures in the U.S. each year.
That's a big opportunity on its own, but Pope is already interested in finding new ways to expand the system's potential:
In February, we filed a 510(k) application to expand our indications to include inguinal hernia and gallbladder. These are two of the higher volume procedures with over 1.5 million procedures performed annually in the U.S.
If the company succeeds with those label expansion efforts, it will double its domestic market opportunity. Pope expects to have a regulatory decision on that by midyear.
On geographic expansion
Senhance is already approved for sale in the U.S. and several foreign markets, but the company is interested in moving into new countries. Right now, it is focused on Taiwan and Japan -- nations where it has already sold a system, but where it hasn't yet gained regulatory clearance.
Said the CEO:
We expect a regulatory clearance in Taiwan in the fourth quarter of 2018. We are concurrently working to file in Japan and could achieve regulatory clearance as early as 2019. Combined, these represent a large market opportunity for Senhance and obtaining these regulatory clearances would significantly expand our ability to meaningful penetrate these markets.
The balance sheet is in good shape ... for now
One of TransEnterix's biggest challenges will be acquiring the capital necessary to fund all of its growth objectives. The company made progress on this front in 2017, in part through a common stock offering at the end of the year, and also by the sale of its SurgiBot System. Pope said these moves provided his company with some much-needed breathing room.
With the proceeds from equity sales and the initial payment from the SurgiBot transaction, we were able to finish the year with approximately $97 million on the balance sheet, providing us with runway through 2019.
Will TransEnterix succeed?
There's no doubt that 2017 was a successful year for TransEnterix. The company gained FDA approval for Senhance, enhanced its balance sheet, built up its commercial team, and made moves that set the stage for future growth. For 2018, the focus is going to be on executing its ambitious game plan.
Will Senhance prove to be the commercial success that TransEnterix needs it to be? While it's still too early to tell, I must admit that I'm impressed with what I've seen thus far. However, I continue to believe that the company's situation is still far too dicey to consider putting my capital at risk. For that reason, I believe that caution is still warranted.
