But it ended up so long winded as I consolidated my notes and thoughts. @HuatBrother
Let's take a look at the latest 3Q17 results announcement.
P/L ... revenue up, due to Medtronic's commitment of orders, but still losing money.
Cash flow ... basically surviving on issuing of shares to GEM and also some payments from Medtronic for the supply of Chocolate PTA Balloon Catheter.
Group B/S (USD) 30/9/2017
Non-Current Assets -- 12,543
Current Assets -- 6,473
Total Assets -- 19,016
Non-Current Liabilities -- 1,096
Current Liabilities -- 25,713
Total Liabilities -- 26,809
Total Equity -- (7,793)
Needless to say, it looks bad. Negative equity!!
However, financial statements provide a snapshot of the past and the current financial position. Investing is forward looking. So let's go to Item 10 to look at the hyping. I've rearranged the points according to my train of thought.
1) Sale of Chocolate PTA
"The Company is constantly exploring various strategic options including, mergers, acquisitions, disposals, joint ventures and fund raising activities to optimise and/or unlock value for shareholders. The Company had recently received shareholders’ approval for the potential disposal of the Group’s non‐drug coated peripheral balloon, Chocolate® PTA to Medtronic for a sum of US$28 million (“Potential Transaction”) and on 2 November 2017, the Company announced that Medtronic has the right to exercise their option to purchase Chocolate® PTA as one of the option triggers has been satisfied by the Company."
Medtronic has 90 days to exercise the option. If this lapses, there'll be another 2 trigger conditions. If this transaction is completed, it'll give rise to an estimated gain of USD 25.2 mil. Equity should then turn positive.
Shareholders can't expect to see this money as it'll be retained for working capital.
Update : 2018-01-30
MEDTRONIC COMPLETES THE PURCHASE OF QT VASCULAR’S CHOCOLATE® PTA BALLOON CATHETER
2) Potential Sale of Coronary Assets
"The Company has received indications of interests from interested parties in relation to the potential transaction(s) for the Group’s non‐drug coated coronary assets with a possibility of an option to also purchase the drug‐coated coronary balloon, Chocolate Heart™ as announced on 15 October 2017."
The next possible catalyst is the sale of the non-drug coated coronary assets. There is no indication of price yet. Make a guess? Tens of millions?
"Lastly, the Group’s drug‐coated coronary balloon, Chocolate Heart™, completed two year angiographic follow up for its first‐in‐man (FIM) study in the Dominican Republic. The results of this follow up exceeded expectations, showing a negative late lumen loss at 24 month which even the best drug eluting stents are not able to show. The Group anticipates commencing a safety and feasibility study in early 2018, and following which, FDA approval will be sought for Chocolate Heart™ to be the first drug‐coated balloon approved for broad coronary use in the US."
The announcement back in June.
This note on Chocolate Heart sounds promising. Does this imply that a balloon can achieve better outcome than a stent? Interesting, but I have no expertise in understanding this.
Update : 2018-01-30
Dalian company invents new drug-coated balloon to replace heart stent
"According to the official website of the CFDA, it is the world's first drug-eluting balloon catheter approved for use in coronary bifurcation, offering a new therapeutic solution for the treatment of bifurcation lesions that are urgently needed."
3) The ultimate hype ...
"Peripheral arterial disease continues to be under‐treated. While stents are used on some patients, there is a growing preference for therapies such as drug‐coated balloons and atherectomy that do not involve placing a permanent implant. The rapid adoption of drugcoated balloons continues in the peripheral space. Sales of drug‐coated balloons are estimated to have surpassed US$300 million in 2016 in the US market and the global market will surpass $1 billion in sales by 2020. The revenue for CR Bard’s Lutonix drug‐coated balloon was US$120 million in 2016 growing to an expected US$150 million in 2017. CR Bard and Medtronic, the market leader, are not only seeing a rapid increase in sales for use of drugcoated balloons in the currently approved “above‐the‐knee” segment, but they are also pursuing new indications for drug‐coated balloons which include “below‐the‐knee” use and arteriovenous fistula. This bodes well for continued sales growth for these devices well into the future. Spectranetics just announced FDA approval for their drug‐coated balloon, Stellarex, which is the third drug‐coated balloon approved in the US market. Securities analysts now attribute a significant portion of Spectranetics market value (approximately US$1 billion) to the promise of Stellarex.
The Group is well positioned to benefit from the increased adoption of drug‐coated balloons. The Group’s drug‐coated peripheral balloon, Chocolate Touch®, had its first enrollment in the FDA approved pivotal trial. Upon completion of the trial and subsequent approval, this would make Chocolate Touch® the fourth such device to be approved in the US and the first with a differentiated platform and a clinical trial versus a commercially available drug‐coated balloon. The final results of Chocolate Touch®’s first‐in‐human trials were announced in 2016 and demonstrate data that are similar to the best‐in‐class devices."
Oh, I just realised something interesting. Spectranetics bought Stellarex from Covidien for USD 30mil in 2014. (Covidien was acquired by Medtronic before that.)
Spectranetics was acquired by Philips for an enterprise value of EUR 1.9 billion recently.
And it appears that the focus could be Stellarex.
4) Industry M&A Landscape
"Mergers and acquisitions (“M&A”) activity in the medical technology sector continues to ramp up in 2017 with major deals announced by Abbott, Phillips, Spectranetics, Medtronic and Cardinal. The key drivers behind this active M&A landscape include pressure on large players in mature markets to increase their top line growth and increased vendor consolidation in US hospitals which forces companies to broaden their product offerings. It is expected that this trend will continue and 2018 will also be active."
The industry for such devices are dominated by large players. Even if one can come up with the best device, it means nothing if it cannot enter the sales channel. So the game here is to try to get a large player to acquire the IP in the battle for market share. As mentioned, Chocolate Touch is expected to be the fourth such device to be approved in US. But this may still take a year or so.
For reference, the first 3 are
1. CR Bard - Lutonix
2. Medtronic - IN.PACT
3. Philips Spectranetics - Stellerax
A successful sale of Chocolate PTA to Medtronic, bringing in proceeds of over USD 20mil, will put it in a stronger position to continue R&D and to hold out for higher prices.
5) Settlement with Angioscore
This settlement with Angioscore came as a shocker as I thought it was already settled some time back. Finally, this closed the issue.
6) Capital Commitment Agreement and Market Cap
The company has increased the capital commitment from GEM by requiring GEM to subscribe for new shares.
"As at the date of this announcement, the issued and paid up capital of the Company is S$181,351,496 divided into 1,788,275,046 Shares (excluding treasury Shares). Assuming the achievement of the Revised Maximum Share Commitment and full exercise of the Warrants at S$0.10 per Share, this will increase the existing issued and paid-up share capital of the Company by S$10,972,016 to S$192,323,512, divided into 2,022,841,826 Shares (excludingtreasuryShares)."
Based on the latest issuance of shares, the number of shares has increased to 1,809,841,826.
For a company in such situation that need to issue new shares to raise funds, the per share figures and share price are not the good way to keep track. The overall numbers and market cap should be looked at instead. For ease of calculation, let's use 2 billion shares. At last closing price of 0.013, market cap would be SGD 26 million, or around USD 19 mil.
When share price dropped to the low of 0.007, 0.008, the market cap would have been SGD 14mil - 16mil. A party that benefited from such drop is GEM, since more shares had to be issued to raise the equivalent sum of money. It'll only make sense for GEM to exercise the warrants if share price is above $0.10, which implies a market cap of over SGD 200 mil.
I guess I'll have to make a disclaimer?? That this is not intended to induce buying or selling of shares? DYODD!
For short term trading, I'm not sure how to plan the trades as each price bid movement is about 8%. It makes more sense to count the bids. If buy 100,000 shares, one bid loss will be $100 plus 2 way commission. If buy a million shares, it'll be $1000 plus 2 way commission. Short term trading is more of a zero sum game. And watch out for events!
For investing, this is high risk, high reward idea, more like venture cap. Shareholders can only hope the company delivers the hype, hence delivering positive sum for those vested. But if nothing turns up, it can end up zero. How much can you lose? Or rather how much can you afford to lose? Can the management be trusted?
Investing in this kind of stuff is like investing in something that we hope we'd never ever need. But if we need it, we'd like to have the options available.
contraboy - Stock Estimation on $QT Vascular(5I0.SI)
Last round unsuccessful this rd gem got even more shares so high chance chiong again.. Read more at InvestingNote.com