LDR Holding Corporation is a global medical device company focused on designing and commercializing novel and proprietary surgical technologies for the treatment of patients suffering from spine disorders. Their primary products are based on VerteBRIDGE fusion and Mobi non-fusion platforms (cervical disc), both of which are designed for applications in the cervical and lumbar spine.
Background
In August 2013, LDRH received approval from the U.S. Food and Drug Administration, or FDA, for the Mobi-C cervical disc replacement device, the first and only cervical disc replacement device to receive FDA approval to treat both one-level and two-level cervical disc disease. LDR was founded in France by Christophe Lavigne, Patrick Richard and Herve Dinville, who still own a significant part of the company.
According to the company, their VerteBRIDGE fusion solution offers a less invasive solution to patients, and it was used more than 80 000 times globally since 2007. Their major product and growth is Mobi-C, a cervical disc replacement device, with patented mobile design, made to replicate natural anatomical movement of the spine. It is also the only FDA approved device, to show clinical superiority to two-level traditional fusion. Here are the results of tests:
In other words, when you have problems with back or spine, doctors would put screws inside your body to fix it, which is not so comfortable and usually painful. With Mobi-C, the procedure is less invasive, and claims to offer patients better movement capabilities. The company estimates, that 30% of U.S. patients indicated for anterior surgery with symptomatic cervical disc disease may be candidates for disc replacement procedures.
LDRH has over 400 patents globally, out of which 33 are in US, with 100 global pending, 31 in USA. The U.S. spine surgery market is expected to grow at 7.5% for the foreseeable future, with the cervical disc replacement market growing much faster.
Financials
Background
In August 2013, LDRH received approval from the U.S. Food and Drug Administration, or FDA, for the Mobi-C cervical disc replacement device, the first and only cervical disc replacement device to receive FDA approval to treat both one-level and two-level cervical disc disease. LDR was founded in France by Christophe Lavigne, Patrick Richard and Herve Dinville, who still own a significant part of the company.
According to the company, their VerteBRIDGE fusion solution offers a less invasive solution to patients, and it was used more than 80 000 times globally since 2007. Their major product and growth is Mobi-C, a cervical disc replacement device, with patented mobile design, made to replicate natural anatomical movement of the spine. It is also the only FDA approved device, to show clinical superiority to two-level traditional fusion. Here are the results of tests:
- Overall trial success was 69.7% for Mobi-C and 37.4% for fusion, which represents statistical superiority (p < 0.0001).
- The rate of secondary surgeries at the operated level for Mobi-C was 3.1% versus 11.4% for fusion.
- The percentage of subjects who demonstrated adjacent segment degeneration (determined by x-ray) was:
- 2.9% of Mobi-C patients compared to 18.1% of ACDF patients at the inferior adjacent level
- 13.1% of Mobi-C patients compared to 33.3% of ACDF patients at the superior adjacent level
- Mean return to work time was 20.9 days shorter for Mobi-C patients compared to fusion patients.
- 78.2% of Mobi-C patients showed improvement in Neck Disability Index (NDI) based on the FDA success criteria versus 61.8% of fusion patients.
In other words, when you have problems with back or spine, doctors would put screws inside your body to fix it, which is not so comfortable and usually painful. With Mobi-C, the procedure is less invasive, and claims to offer patients better movement capabilities. The company estimates, that 30% of U.S. patients indicated for anterior surgery with symptomatic cervical disc disease may be candidates for disc replacement procedures.
LDRH has over 400 patents globally, out of which 33 are in US, with 100 global pending, 31 in USA. The U.S. spine surgery market is expected to grow at 7.5% for the foreseeable future, with the cervical disc replacement market growing much faster.
Financials
LDRH's revenue growth has accelerated, from 16% in 2012 to 26% in 2014, and 31% in Q1 2015. More importantly, revenues from exclusive cervical products segment (Mobi-C) grew 49% (47% in Q4 2014), which shows that the product is gaining momentum among physicians in US. Approximately 20% of revenue comes from outside America. However the company still expects to spend significant amounts of money for marketing and training of doctors, and probably will not generate any profits in the future.
LDRH has 65 million in cash as of March 31st 2015, and 56 mil. in total liabilities. Inventory and receivables are growing in tandem with sales.
Competition
Market for spine treatment medical devices is competitive and crowded, with Medtronic leading the herd. However, there are hundreds of different procedures and various defects, and many companies with individual products made specifically to address these problems. LDR Holdings is one of them, it has a superior product to traditional methods of fixing certain spine disorders, with no direct competition in sight (Medtronic is developing a similar device, it's approval and launch are a question of months and years). Also, the FDA approval creates a barrier to entry, because a potential competitor has to prove that his product is not only superior to traditional methods but also to Mobi-C disc.
Summary
LDRH stock trades at a P/S multiple of 7.3, with no profits or positive cash flow. It has a product with competitive advantage, and accelerating revenue growth. I believe the health care industry will grow for years to come, with the developing countries population aging, thus increasing spending on medication. Not to mention remarkable growth in emerging economies like China and India, where the health care spending to GDP is still at very low levels. Valuation of LDR might be high, but with growth accelerating and a competitive advantage, I believe this company has a lot of potential. If my analysis is wrong, I will take a small hit and find another great stock. However, If I am right, LDRH can grow significantly for at least next few years and reward it's shareholders.
LDRH has a Zack's rating 1 (Buy), and according to insidermonkey is also held by Richard Driehaus, father of momentum investing. I am going long at open today with a stop loss. Good luck in investing!
LDRH has 65 million in cash as of March 31st 2015, and 56 mil. in total liabilities. Inventory and receivables are growing in tandem with sales.
Competition
Market for spine treatment medical devices is competitive and crowded, with Medtronic leading the herd. However, there are hundreds of different procedures and various defects, and many companies with individual products made specifically to address these problems. LDR Holdings is one of them, it has a superior product to traditional methods of fixing certain spine disorders, with no direct competition in sight (Medtronic is developing a similar device, it's approval and launch are a question of months and years). Also, the FDA approval creates a barrier to entry, because a potential competitor has to prove that his product is not only superior to traditional methods but also to Mobi-C disc.
Summary
LDRH stock trades at a P/S multiple of 7.3, with no profits or positive cash flow. It has a product with competitive advantage, and accelerating revenue growth. I believe the health care industry will grow for years to come, with the developing countries population aging, thus increasing spending on medication. Not to mention remarkable growth in emerging economies like China and India, where the health care spending to GDP is still at very low levels. Valuation of LDR might be high, but with growth accelerating and a competitive advantage, I believe this company has a lot of potential. If my analysis is wrong, I will take a small hit and find another great stock. However, If I am right, LDRH can grow significantly for at least next few years and reward it's shareholders.
LDRH has a Zack's rating 1 (Buy), and according to insidermonkey is also held by Richard Driehaus, father of momentum investing. I am going long at open today with a stop loss. Good luck in investing!
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