Robotic surgery underdog TransEnterix (ASXC 1.67%) and drug delivery specialist MannKind (NASDAQ: MNKD) are turning heads at BTIG, a big investment bank. Both of these healthcare stocks recently received buy ratings with eye-popping price targets that suggest they could more than double your money.
Both companies have disappointed a lot of investors over the past several years. Here's what you need to know about their chances to turn things around and deliver juicy returns in the foreseeable future.
1. TransEnterix: Ready for a quick rebound?
TransEnterix shares have fallen about 78% from a peak they hit around seven months ago. The stock keeps tanking because investors are less than thrilled with the ongoing launch of its only revenue-generating product, the Senhance robotic surgery system.
In October 2017, Senhance received approval from the Food and Drug Administration to cover 23 procedures, which was increased to 28 procedures around a year ago. Unfortunately, it doesn't look like anyone is using it to do any procedures in the U.S., where at least four Senhance Systems have been installed.
TransEnterix employs a razor-and-blade business model similar to that of Intuitive Surgical (ISRG 3.19%), its largest potential competitor in the robotic surgery space. During the first quarter, Intuitive sold $552 million worth of instruments and accessories that need to be replaced after each procedure, which was 20% more than a year earlier. During the same period, TransEnterix didn't report any instrument sales in the U.S. and instrument sales outside of the U.S. fell to just $546,000 which was less than half as much as a year earlier when there were fewer systems installed.
Sean Lavin at BTIG thinks there were extenuating situations at certain hospitals during the first quarter that were responsible for the apparent lack of interest. Despite the alarming warning signs, he thinks the market's reaction that pushed TransEnterix's market cap down to just $297 million was overblown.
If Senhance systems simply aren't as popular as they looked in 2018, when TransEnterix was able to sell 15 of them, there could be a lot more losses ahead. The company finished March with just $48.4 million in cash and investments after losing $24.5 million in the first quarter. If TransEnterix resorts to a share diluting secondary offering before we see clear signs that surgeons are using its only revenue-generating product, things will get ugly.
2. MannKind: Whistling through the graveyard
Less than five years ago, this champion of rapid-acting inhaled insulin was a $3.9 billion company. Now, MannKind is worth a bit less than TransEnterix with a $248 million market cap.
Earlier this year, Mankind began a direct purchase program for Afrezza, a tiny whistle-shaped device that delivers an inhalable form of insulin powder that's generally popular among the small number of people that have used it. Plenty of patients that tried Afrezza samples probably would have kept using it if they could get their insurer to cover it.
The ability to pay a reasonable price out of pocket will be good news to around 65,000 Americans that pay cash for their insulin each month, and it looks like they've been buying direct from Mannkind already. First-quarter sales of Afrezza came in 68% higher than a year earlier at $5.1 million. As a result MannKind finished March with just $59.8 million in cash after losing $14.9 million during the first three months of 2019.
MannKind has also been receiving significant revenue from United Therapeutics since last September for rights to a dry powder formulation of treprostinil, the company's blockbuster treatment for pulmonary arterial hypertension. United Therapeutics forked over $45 million up front and Mannkind's still eligible for another $37.5 million in additional milestone payments, plus a low double-digit royalty percentage of net sales.
Robert Hazlett at BTIG gave Mannkind stock a $3 price target, which is around 127% higher than where it sits at the moment. Hazlett's encouraged by the rapidly growing use of continuous glucose monitoring devices and thinks Afrezza's rapid onset advantage over injectable rapid-acting insulin brands could make it the go-to option for careful blood sugar control.
If Afrezza sales reach $350 million per year, which Hazlett thinks is possible, this would be a multibagger stock. The same could happen if United Therapeutics succeeds with an inhalable treprostinil device.
It's important to bear in mind that BTIG is where companies go when they want to raise money on the stock market, and the bank has already done business with TransEnterix and MannKind in the past. Negative analyst comments are a great way for an investment bank to lose customers, while nice buy ratings aren't quickly forgotten.
MannKind probably has a much better chance to hit BTIG's lofty price target than TransEnterix, but it still isn't worth the risk.