Stereotaxis (NYSE: STXS) is the global leader in innovative tele-robotic technologies designed to enhance the treatment of arrhythmias and perform endovascular procedures. The company’s surgical robotic system has been used by hundreds of leading physicians at over 100 hospitals globally and has treated over 100,000 patients with their technology. Their cutting-edge Genesis RMN® system paired with the Model S and Odyssey Vision™ system is a leap forward in Robotic Magnetic Navigation technology facilitating such procedures as congenital cardiac ablation of which not been treated as accurately in the past. According to the company’s Chairman and CEO, David Fischel “Our vision is to positively transform endovascular surgery with robotics in a similar fashion to how Intuitive Surgical transformed laparoscopic surgery.”
On the morning of February 25, 2021 Stereotaxis reported their 2020 full year financial results. The company beat both expectations of Q4 GAAP EPS by $0.01 and $0.79M on revenue. Even more impressively, on the 2020 Q3 call Stereotaxis announced only one outstanding order and issued extremely conservative guidance. Now, on the 2020 Q4 summary the company announced that there were now actually 5 capital orders outstanding for robotic systems, four of which were generated in the period since their last call. That is a striking increase in order growth per quarter but since I have been investing in the company their guidance has been consistently conservative. Stereotaxis also ended 2020 holding $44 million in cash and no debt with Mr. Fischel adding “2021 is expected to be the start of a multiyear period of growth, and we reiterate our guidance of robust double-digit revenue growth in 2021 with Genesis system revenue of between $10 million to $20 million. We continue to invest in the team, infrastructure and projects that are critical for success but are proud that we are able to do so while maintaining financial discipline. A robust balance sheet allows us to reach profitability without the need for additional financings.” Stereotaxis closed the day at a price of $7.46 per share, a one-day share price increase of 32.3%. What a great day for myself and understudy, Jin Kwan, to have the opportunity to sit down with Fischel for a discussion about the evolution of the company, the benefits of surgical robotics along with having the privilege of personally test driving the Genesis RMN® Surgical Robotic system.
I began by asking Mr. Fischel, upon becoming the CEO of Stereotaxis in September 2016, what were the first steps that he took to turn the company around. He explained that he focused on 3 fundamental objectives, the first being financial clean-up. “You cannot build a successful company, commercialize well or build technology partnerships if you are a company that at the time had around $20 million in debt, $2 million in cash and burning $8 million per year. No one wants to work with you which is understandable.” Fischel paid off the company’s debt, implemented better corporate governance and realigned corporate cultural interests. The company switched the boards compensation from cash to stock based compensation, Mr. Fischel did not take any salary. He trimmed a layer of middle and senior management that were ineffective. The implementation of these strategic changes began to pay off in the first year. They were able to secure additional financing and cleanup the balance sheet to the sustainable position it is in now.
The second objective in the company’s turnaround was revitalizing their commercial infrastructure to ensure that existing robotic practices can be successful. They incentivized and adapted the sales team to focus on existing customers. They offered simulators as well as a fellowship program to train the physicians prior to install. I asked Mr. Fischel how the company’s marketing strategy was structured. Was it more beneficial to focus on marketing to the physicians or directly to the hospitals? His answer was that the strategy, instead of focusing on one or the other, was a balanced ecosystem of buyers and that marketing to both the physicians and directly to the hospitals are equally important. He gave examples of situations where physicians were very interested but the hospital was not motivated and also situations where the hospital was highly motivated but there was no physician to champion the use case so the interest dissipated. Stereotaxis combines a highbred approach to sales by both marketing to the hospitals while engaging the physician directly and offering the fellowship program.
The third objective in the company’s turnaround was constant internal innovation in order to provide the best product to its customers. In order to do so he redirected the firm’s focus towards retaining an economic advantage by increasing independence from using outside technology providers. Stereotaxis is currently in the preclinical testing stage for their proprietary robotically-navigated magnetic ablation catheter. Currently the Genesis uses a 3rd party catheter but Stereotaxis anticipates regulatory submissions for CE mark and an FDA IDE trial in the summer of 2021. During the earnings call Mr. Fischel stated “We’re also cognizant that all of our technologies can be improved further, and our third wave of innovation is designed to be the most impactful to our revenue growth, both within electrophysiology and in expanding our robotic technology into several multibillion-dollar adjacent markets. We have been spending significant effort on this third wave and expect to be in a position to showcase key aspects of this third wave at the end of this year.” I was interested to learn more about these “adjacent markets” and whether that meant that there were additional procedures coming to the pipeline. Would this be an expansion of cardiovascular procedures and/or an introduction into neurovascular intervention? Mr. Fischel explained that he feels there are a range of clinical applications, although he has not given much color on these in the past. He did further mention that he was referring to procedures that involve very complex anatomy, delicate tissues, situations where the surgical safety is improved by using Stereotaxis’ electromagnetic technology which pulls catheters rather than the traditional method of forcing/pushing from behind. In response to neurovascular intervention Mr. Fischel explained that the market has recently grown into the billions and using the Genesis system to address such procedures could be vitally beneficial to the patient. As far as a timeline is concerned Stereotaxis focuses on years of clinical data from testing before commercialization but it seems that they are keeping such plans close to the chest. When looking at the regulatory approval for the Genesis you will find that it talks about compatible navigation of compatible interventional devices in multiple cardiovascular and even neurovascular applications.
Now moving into production, being that there were 4 additional orders in Q4 that had not been expected, I asked about potential capacity constraints. Mr. Fischel stated that as orders increase, he would reorganize/resize the manufacturing floor without the requirement of additional equipment and in addition, he would hire additional shifts. Manufacturing a surgical robot is not done in the same way as produced in an automobile production line. These are complex systems that must be assembled by humans which is a standout example that robots are not going to take all jobs away from humans but instead will create new jobs. Apparently, this was a timely question because on page 2 of the company’s 8-K filing dated March 1, 2021 we learn that Stereotaxis has secured a new 43,100 square foot space that will serve as the company’s new principal executive and administrative offices and manufacturing facility. Stereotaxis is also constantly working with their sub-manufacturers to steadily increase the supply chain capacity. Mr. Fischel also explained that their greater focus is on continuous innovation, quality and improvements that can be made to their products rather than attempting to just build as many units as they can.
At this point of the tour, I was fortunate to have some up close and personal time to test drive the Genesis system. The state-of-the-art Genesis RMN® system utilizes electromagnetic fields to pull catheters to areas in the body previously unreachable as well as manipulating the catheter during the procedure. This allows for advanced robotic precision and increased safety for the patient. The system also protects the physicians from radiation being that they do not need to physically be in the lab. This is one of the most impressive aspects of the tele-robotic system, the physician does not need to be in the operating room, on-site, in the same state or even the same country. This opens the door to many examples of improving human life through remote surgery. One example would be if there were a situation that a physician in, we’ll say in Cleveland, was unexpectedly unavailable for a time-sensitive mandatory procedure the patient could still be in the operating room in Cleveland but a physician located at the MAYO in Minnesota could sit in the cockpit and perform the procedure while retaining the increased precision of surgical robotics. Tele-robotics paired with the electromagnetic technology of the Genesis system is truly game changing, I was about to experience this firsthand. Due to COVID-19 we were forced to conduct the interview and tour virtually via Zoom. As seen in the following video after brief instruction from Mr. Fischel, located at my office in Minneapolis Minnesota I am given full control of the Genesis system which is located in St. Louis Missouri. It should be noted that the procedure is being performed on an artificial heart so there is a limited amount of damage that I can do.
Discounting my non-existent surgical experience, the remote manipulation of the system was seamless. With only a mouse in hand I was able to control the electromagnetic fields which the catheter automatically aligns itself with. The 3D environment allowed for easy adjustment and visualization of multiple orientation. The catheter moved forward and back with the scroll wheel on the mouse. The real-time x-ray image on the right shows the actual movement of the catheter inside the heart. The Odyssey Vision™ system interface was customizable and extremely robust. If paired with the Odyssey Cinema™ system it allows the procedure to be broadcast to conference rooms, physician’s offices, training rooms and live case transmission scientific sessions. The Genesis robot is one of the most incredible machines that I have ever seen. The visualization and controls were stunning with incredible ease of use and manipulation.
In summary of my tour of Stereotaxis, I was left with some significant takeaways. First that Mr. Fischel’s ability of turning around the company’s balance sheet, corporate governance and company culture in such a short period of time is truly impressive. Next, the company’s focus on constant innovation and R&D should provide a robust product pipeline for years to come. Stereotaxis understands the delicate marketing environment and focuses on sales to both the institutions as well as physicians while offering initial and ongoing training to their market. They are committed to providing and maintaining the best quality products to both existing and future customers rather than a singular focus on the quantity of units that can quickly be pushed out the door; this assures continued trust and dependability from the client base. The cutting-edge technology of the Genesis system and their other products are being rapidly adopted by both hospitals and physicians around the world. Their electromagnetic technology provides both a higher level of safety and a higher level of precision than previously available. Lastly, the tele-robotic abilities of their systems are currently and will continue to revolutionize efficiencies and availability of care to patients without geographical constraint. Stereotaxis is a financially prudent company equally dedicated to innovation and customer satisfaction positioning them for significant adoption and growth over the coming years.
Brian Gahsman | Portfolio Manager
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