Novadaq Technologies

NVDQ : NASDAQ : US$23.61
NDQ : TSX
BUY 
Target: US$26.00

COMPANY DESCRIPTION:
Novadaq develops and manufactures intra-operative
fluorescence imaging technologies used in a variety of
open surgeries, such as breast, head, and neck
reconstruction; tumor and bowel re-section; and coronary
artery bypass grafting (CABG). In addition, partner
Intuitive Surgical offers Novadaq’s FIREFLY imaging
system on the da Vinci robot. Founded in 2000, the
company’s products were used by 45 of the top 50
cancer centers in 2011.

All amounts in US$ unless otherwise noted.

Life Sciences — Biomedical Devices and Services
PILLAR II DELIVERS; EXPECT NVDQ
TO GO DIRECT WITH SPY IN 2016;
RAISE TARGET TO $26
Investment recommendation
We remain buyers of NVDQ, which we consider the most
compelling growth story in med-tech; possessing one of, if not
the largest TAM opportunities in our group, with a proprietary
imaging platform that could become ubiquitous in surgery. We
increase our target from $23 to $26, applying an 11x EV/sales
multiple to our 2016 revenue estimate of $118M (discounted
back to mid-2015), which is upwardly revised as we now expect
NVDQ to re-acquire US marketing rights for SPY Elite in Q4:15
and go direct thereafter, resulting in a much higher kit ASP.
Investment highlights
 Final PILLAR II results deliver – 139 patients who underwent
colorectal cancer surgery using PINPOINT imaging had a
1.4% anastomotic leak rate (vs. 12.6% published rate for LAR
patients); 8% of patients benefited from a change in surgical
plan via PINPOINT (0% leak rate). We expect results to be
published in a major surgical journal imminently.
 Next-generation PINPOINT system introduced at SAGES; will
launch in Q2. NVDQ will increase system ASP >30%.
 Expect NVDQ to go it alone with SPY. Our recent meetings
with management lead us to conclude the company will go
direct with SPY Elite once the agreement with LifeCell ends
in Sept. 2015. We increase our 2016 estimates to account for
a higher kit ASP.

 

 

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