RE:RE:RE:RE:RE:Anything new worth mentionning?Thank you Jason for your analysis. This is the bear case every TSO3 investor should think about before investing in the stock--that the VP4 just doesn't sell, period (for whatever reason).
But I would refine the question a bit: WILL the VP4 sell, rather than DID the VP4 sell? This is the key to future stock price.
Obviously you all know I am on the long side of the trade, and here are my reasons to why I think VP4 will sell in the future:
- Getinge was disorganized, and they did not even pay ANY VP4 related sales commissions to its sales people until late 2017. We all know compensation drives behavior, and there were no incentives for Getinge sales people in trying to learn/sell something new, something that requires a lot of documentation because it is a large ticket, long life item with a new technology. We will see what their sales will be like with the sales commission, but those sales won't flow through until Q1 or Q2 this year due to the typical length of a sterilizer sales cycle
- Getinge is either #1 or #2 sterilizer player in the world. I am sure they did a thorough due diligence before signing up TSO3. Remember the MINIMUMS alone require them to buy 10+% of the sterilizer market by 2020, hence they must think the VP4 should at least do that much based on its specification and abilities--and that contract was signed before the colonoscope approval (and hopefully duo soon)
- Buying back inventory: I agree it looks bad, but it makes a lot of sense financially and strategically. TSO3's new sales force needs inventory to sell, and they are buying back these VP4s at a price LOWER than what they can make it for. On the other hand, Getinge can now entice TSO3 to get invovled directly in marketing, and the new TSO3's sales force can now assist with Getinge's own sales process and drive overall adoption. If TSO3 is buying back inventory at Getinge's prices, then it would be bad--but this is not the case
- Future sales: all things equal, I can't see why the VP4 is not at least competitive with Steris or JNJ's offerings. Things like cost, ability to sterilize new items (like scopes), ease of use, less error and legal liabilities, etc. are all pointing to VP4. The downside of needing a seperate room with oxygen tanks is now fixed with the recent 510k. I DEFINITELY think the product itself is not the issue. Then the question is the sales force. Despite Getinge's disarray, it did not become the large sterilization company it is now with repeated failures. With the proper incentive structure in place, I believe things will turn around.
- Regulatory tailwind coming: even though the timing is unknown, I believe everyone believes scope sterilization is (and should) coming. If VP4 is the only technology that can sterilize duos and colonos, this is a HUGE tailwind. Even if you think VP4 get ZERO market share for everything else, and VP4s will be sold exclusively to sterilize duos, the stock price is worth multiples of what it is today.
- Finally I would like to point out the capital equipment sales in large ticket items (with a disruptive technology) often saw a slow adoption initially, but sales will pick up very quickly once the "early adopter" phase is finished. No one can argue with the success of Intutive Surgical (da Vinci surgical robot) now, but if you look at its sales in the early 2000s, it stagnated for several years before taking off (it got FDA approval in 2000). I am hoping TSO3 follows the same path. So far, user testimonials would support that (I disagree with the 80% number Jason gave out for % of strategic partners' machines, as the 20 installs in Q4 alone would make that number invalid as there were no new strategic partners announced in Q4)
As I always say, only time will tell.
I appreciate Jason's feedback as I find it very useful--it forces me to rethink my investment thesis. This is why I always welcome all fact-based feedback to my analysis, both positive and negative.