Invuity Inc. (NASDAQ:IVTY) - Sell or Short Recommendation - $11.25 Price Target
December 14, 2015 concludes the 180-day lockup period on Invuity Incorporated.
When the lockup period ends for IVTY, its pre-IPO shareholders, directors and executives will have the chance to sell their 8 million+ shares. The potential for a sudden increase in stock available in the open market may cause a significant decrease in Invuity shares and open a short opportunity for experienced investors.
Business Summary: Medical Technology Company that Produces a Variety of Surgical Devices
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Based in San Francisco, California, Invuity is a medical technology company that produces surgical devices used in certain surgical procedures in the United States. The company utilizes intelligent photonics technology via its platform to offer reusable, single-use surgical devices to enhance crucial intra-cavity illumination and visual complexities.
The company's product portfolio includes Eikon illuminated retractor systems used in oncoplastic, breast oncology, orthopedic and other surgeries; Breiten illuminated retractor systems used in spinal surgeries; Eika illuminated retractor systems used in thyroid and cervical spinal surgeries; Saber Yankauer, which is a handheld illuminators for breast, cardiothoracic, spinal and orthopedic operations; Saber Frazier, which is a handheld illuminator, which is another handheld illuminator for certain surgeries, among other devices.
The company markets its devices through its direct sales representatives and original equipment manufacturers of such systems. In addition, it sells directly to surgeons and hospitals.
Invuity notes in its SEC filings that it has transitioned from primarily research and development to the manufacturing and selling of its portfolio. Through March 2015, Invuity had a total of eight lines of illuminated surgical devices comprised of more than 40 separate appliances.
Recently Invuity introduced a new product called Hidden Scar, a program developed to address issues confronted by breast surgery patients. The company expects strong growth in this category.
The company was formerly known as Spotlight Surgical, Inc. and changed its name to Invuity, Inc. in 2007. Invuity, Inc. was incorporated in 2004 and is based in San Francisco, California.
Q3 Financials: Solid Growth, Steady Net losses
For the third quarter ended September 30, Invuity reported the following financial results:
- Revenue reached $5.6 million for the quarter versus $3.7 million for the same period last year.
- Gross margin was 63.6% (62.1% for the first nine months).
- Net loss was $9.1 million for the third quarter of 2015, or $0.69 per share, versus a net loss of $5.3 million, or $8.11 per share for the same period last year.
- As of September 30, 2015, IVTY held total cash and cash equivalents of $54 million.
Management Team Highlights
CEO President and Director Philip Sawyer has served as CEO since March 2010 and President since June 2012. In 1993, he co-founded Fusion Medical, where he served as President and CEO. Previously, he held senior positions at Stryker Endoscopy, Patricof and Company, E.F. Hutton, and Amgen. Mr. Sawyer received an MBA from Harvard Business School in 1991 and a B.A. in Political Science from Haverford College in 1986.
V.P. of Operations Douglas Heigel has served in his position since September 2014. He has held executive positions at Solta Medical, Thermage, BioMolecular Technologies, Argonaut Technologies, and MTI Analytical Instruments.Mr. Heigel holds B.S. in Mechanical Engineering from Oregon State University.
Competition: Lumitex, Stryker Corporation, Scintillant, and TeDan Surgical Innovations, Among Others
Invuit competes against a variety of well-established surgical device producers that market conventional illumination products, such as overhead lighting, headlights and fiber optic lighting. These companies include Black & Black Surgical, TeDan Surgical Innovations, Stryker Corporation (NYSE:SYK), Scintillant, and Lumitex.
Early Market Performance: Strong Start, Slightly Weaker Overall Performance
IVTY's IPO priced at $12 per share, below its expected price range of $14 to $16. The stock opened on the first day of trading at $12.75 and closed at $14.92, for an increase of 24 percent. Since then the stock reached a low of $10.36 on August 13. Currently, the stock at just above $12.00 (12.1.2015).
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Conclusion: Short IVTY Prior To IPO Lockup Expiration
IVTY's lockup period ends Dec. 14th, at which point a whopping 8 firms and 14 major individual stockholders will have a first chance to sell their 8 million+ shares, restricted from trading since IVTY's June 11th IPO. This is just over double the shares first offered publicly.
The event could lead to significant declines. Our firm has found abnormal negative returns for IPO lockup expirations to be over 4% in a 1-2 week window, leading up to, and shortly following the expiration date.
Price depression could be compounded by the fact that many savvy investors sell in anticipation of the event, and institutions that want to own the stock often wait for the lock up period to pass.
We strongly suggest that aggressive investors sell or short IVTY ahead of its IPO lockup expiration.
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