Friday, April 29, 2011

Analyst Call Summaries: Akamai, Celgene

Lots of thoughts on both the economy and individual stocks, but I'm really busy so for now let me just point out that I posted two summaries of analyst conference calls to this week:

Akamai Analyst Conference Call April 27, 2011 for Q1

Celgene Analyst Conference Call April 28, 2011 for Q1

Akamai showed the danger of owning stocks with high P/E ratios; just not growing super fast was a disappointment for some. Celgene is solid and has a great pipeline; revenues and profits should accelerate in the 2012.

More insights soon, keep diversified!

Monday, April 25, 2011

Hansen Medical strategy

Kevin asked why Hansen Medical (HNSN) entered the EP (electrophysiology) market first, and not the vascular market, since, the vascular opportunity is more than 10 times the size of the EP market. (See Hansen Readies Vascular Robots, April 11, 2011)

It's a good question, but with Hansen ending April 19, when Kevin asked, at $3.19, and today ending at $3.48, (up 9% in less than a week) hopefully Kevin bought without waiting for my answer.

I was not covering Hansen when the decision was made, but in a general way it matches the strategy often used by biotechnology companies that need FDA approval for their new drugs or medical devices. Management has to consider development costs and likelihood of a success (defined as an FDA approval to market). The first approval always involves a close FDA look at safety issues. These are relative to specific disease indications. A cold remedy has to be perfectly safe. A cure for an aggressive, malignant cancer that has serious side effects can sometimes get approval if it offers enough life extension to a subset of patients.

Going for vascular surgery for a first approval would have added the risk of surgery to the risk of having a new machine. The important thing for Hansen was to get the basic concept of a catheter robot approved. Since manual catheter EP is fairly safe as invasive procedures go, there was a good chance the only difference with robotic catheters would be more precise control of the catheter. Which is what happened.

Having a validated the Sensei surgical robot, Hansen gained experience in the field by having relatively large numbers of doctors perform EP procedures with Artisan catheters. In something as new as a robot for surgery, there is always room for improvement.

Each type of surgery needs FDA approval, and the tools at the end of the catheter would vary with the type of surgery. With the EP approval Hansen Medical received approval of the basic idea of a robot controlled catheter. When the FDA and EMA (in Europe) look at newer indications, they won't be worried about the basic Sensei system. They will worry mainly about whether there is benefit to doctors and patients from the new surgical procedure.

In addition, Hansen has proven its visualization technology. That has allowed it to raise a lot of cash by licensing that technology. All in all, in retrospect it looks very sensible. Hansen still has to increase its annual robot sales by a factor of about 10 to become profitable, but the technology is proven. If the FDA and EMA approve vascular surgeries, we could see quite a ramp in 2012. For long term investors like myself (I only started buying the stock in 2009), it is not even a vascular story. It is a platform story, with the ramp not being just robots and catheters sold, but whole new types of surgery approved by the FDA at intervals. I like platform stories.

See also:
Hansen Medical
Hansen Medical analysis at Openicon

Wednesday, April 20, 2011

Intuitive Surgical Sees International Expansion

My key take from yesterday's Intuitive Surgical (ISRG) Q1 2011 results release and analyst conference call was that the U.S. market for da Vinci surgical robots is no longer the main growth arena. While use of the robots in the U.S. will continue to expand as the FDA approves new types of surgeries to be conducted, and that will drive accessory sales, there are only so many hospitals in the U.S., and many already have at least one robot; a few have as many as six.

That is not true internationally. There is a vast space available for growth as foreign medical regulatory agencies approve the robots and national health services (other insurers) allow for reimbursements.

Q1 is typically a seasonally down quarter as hospitals finish up their capital spending budgets in Q4. The pattern held for Q1 2011. Revenues were $388.1 million, down slightly sequentially from $389.3 million, but up 18% from $328.6 million in the year-earlier quarter.

Net income was $104.1 million, down 14% sequentially from $121.2 million, but up 22% from $85.3 million year-earlier. EPS (earnings per share) were $2.59.

System sales, including upgrades to newer versions of da Vinci, were 120, with 31 sold outside the U.S. and 89 in the U.S.

Research and development continues. The FDA approved a fuorescent imaging system addition to the system. A proposal for vessel sealing surgery has been submitted to the FDA. A surgical stapler remains in late-stage development, as does Single-Site surgery.

For a complete summary, see my notes on the Intuitive Surgical Q1 2011 analyst call.

See also the Intuitive Surgical web site.

Monday, April 18, 2011

Analyst Calls this week: Intuitive Surgical, Gilead, Biogen, AMD

Earnings season begins in earnest for me this week. As usual I will be listening to analyst conference calls. All serious investors should, but then again that is time consuming. I take notes and post them on the web for my own and others references. Here are this week's calls and links for my summaries. The pages are up, so you can click on the links, bookmark the pages, and come back when the summaries are ready, often a few minutes after the conference ends, but sometimes up to a day later due to my work load.

Intuitive Surgical (ISRG) analyst call, Tuesday, April 19, 2011 at 1:30 PM

Gilead Sciences (GILD) analyst call, Wednesday, April 20, 2011 at 2:30 PM

Biogen Idec (BIIB) analyst call, Thursday, April 21, 2011 at 1:30 PM

AMD (AMD) analyst call, Thursday, April 21, 2011 at 2:00 PM

I currently have positions in Gilead, Biogen and AMD, but not in Intuitive Surgical.

Monday, April 11, 2011

Hansen Medical Readies Robotic Vascular Catheters

Recently I was asked for an update on Hansen Medical (HNSN), which I last wrote about on February 9, in Hansen Medical: Upgrade Due. Since then the stock rose from $2.07 to a high of $3.00, then retreated a bit to end at $2.76 today. During this period there was no substantial news, just investors digesting the $30 million royalty payment from Philips and the possible commercialization of Hansen's vascular catheter system.

Today some investors sold on the news that Hansen submitted a 510(k) application to the FDA for the vacular robotic system, which is a pre-market notification [See Hansen Medical Submits Vascular 501(k)]. The 501(k) is a good thing, it has to be done, but the real news will be when (or if) the new system gets FDA approval. In Europe it will need EMA approval. The submission of the application was expected; it does not change any equation.

In theory the flexible robotic catheter system (Sensei) developed by Hansen should have many medical applications, but since each one needs regulatory agency approval, and R&D for modifications to the system, it can seem like slow going. The only approved U.S. application for Sensei is with an electrophysiology mapping Artisan catheter. These systems have received some praise, but have not been on the front burner for hospitals with restricted capital equipment budgets. Sales actually slowed in 2009 and 2010.

The natural growth in this area should also be accelerated by the approval of the Lynx Robotic Ablation catheter in Europe last December. Ablation is the purposeful destruction of selected nerves in the heart, used to correct erratic heartbeats. This should make the system more attractive than when it only is capable of doing measurements.

With Sensei system sales at just 2 or 3 per quarter lately, the only thing I see that could cause a serious upward stock movement before the approval of the vascular surgery system is an uptick in system sales for the current electrophysiology/ablation robots.

Those with patience will see a good long term opportunity here. The electrophysiology system is getting increased usage where they are already installed. The vascular system has been demonstrated to work well, with 20 procedures performed under clinical test conditions. Once approved, surgeon will still need to be trained to use it. The hope would be that some time in 2012 a critical mass of doctors skilled in the use of robotic catheter systems will emerge. Then hospitals will find it easier to approve system purchases. Selling more robots per quarter should allow Hansen Medical to generate better margins and cash. Then other applications can be developed. If that happens (and things could go wrong, or be delayed) then Hansen could start rewarding investors the way Intuitive Surgical did during its ramping period.

I own Hansen Medical stock. Keep the risks as well as the opportunities in mind ... and keep diversified!

Thursday, April 7, 2011

ECB Good, Federal Reserve Bad

Today the European Central Bank (ECB) announced it was raising its interest rates from 1% to 1.25%. Given that the European economy, particularly the economies of Greece, Italy, Spain, Portugal, and Ireland, are supposed to be in poor shape, that may seem like a dramatic tightening of the screws. It is not. Interest rates are still very low in Europe. Any shortage of credit, or of takers, is not due to interest rates being too high. 1.25% should provide good support to further economic expansion.

In contrast in the United States of America the Federal Reserve Board (the Fed) recently left its benchmark interest rate at zero. That is right, 0%. I admit I would like to borrow some money at 0% interest, but the Fed alone lends to its member banks. The same people who charge you 15% to 35% interest on credit cards. This unprecedented low American interest rate did not make much sense even during the Panic of 2008. 0.25% or 0.5% would have been just as supportive to the economy and the banking system.

We are now in a pretty ordinary recession, except the prices of certain commodities have spiked due to global demand and limited supplies. The Fed's public argument is that the low rates are because a lot of Americans are out of work. One thing I know, the Fed does not care about the type of Americans who are out of work, unless they are banking CEOs. They are keeping interest rates low for the benefit of the banks, of the federal government (it keeps interest on the national debt low), and for large corporations that can currently borrow vast sums of money at huge rates. In my role as analyst I have not seen much corporate borrowing used for industrial or work force expansion. It is typically used to buy back stocks or mergers.

The dangers of these unprecedented low interest rates are so clear that even a few Fed board members have pointed them out. They can lead both to inflation and to more asset bubbles. We certainly already have a gold and silver bubble. Bubbles were the problem in the first place. New bubbles do not a sound economy make.

Meanwhile, ordinary savers are suffering from low interest rates. Retired people are having to eat their principle because they are getting almost no interest from CDs and bonds. The Fed says there is no inflation, but if your main discretionary expenses are gas and food, there is a lot of inflation. Other recessions were not met with such low rates.

Since 1952 the Fed had set interest rates below 2% for only a few brief periods, before 2008. [See Federal Reserve rate history] Given that the Fed should manage for the long term (not acting like Wall Street traders who can't see beyond the current quarter), the Fed's rate should already be at 2%.

Given that (at least in free market theory) private loan rates should be set by supply and demand, that should not budge rates for housing. Anyway, low interest rates have failed to provide an incentive for people to buy homes. Homes are seen as a bad investment; people want easy money, not assets that are taxed yearly (with real estate taxes) and need to be repaired regularly.

The Fed are cowards. They don't want to tick off Wall Street or Congress (Republicans want low rates for their business friends, Democrats because they don't understand economics). 2% is very supportive of economic expansion. If we had already gotten there gradually (or were near there like the ECB is now), then further gradual adjustments could be made, up or down, depending on the genuine need for credit for economic expansion, or on the danger of inflation.

If I were the President (fat chance) I'd fire the bums on the Federal Reserve and hire some people who can actually do the job.

Data: ECB interest rate press release April 7, 2011

Monday, April 4, 2011

AMD Llano APUs Shipping

In a analyst call today AMD mentioned that Llano APUs (Advanced Processing Units) are now "shipping for revenue," and should be appearing in computer systems later in this quarter (by June). This means that samples went out some time ago, sample systems were built, and the various computer makers are now moving to volume production.

Llano is interesting because it is outside the Bobcat and Bulldozer core paradigm most associated with AMD's Fusion program. Like the chips based on Bobcat and Bulldozer CPU cores, Llano also integrates a pretty high-end graphics processor (GPU) on the chip. However, Llano uses an updated Athlon (K-10) core. For most computer users that will make for a mean machine. Intel, AMD's bigger rival, is behind AMD in graphics technology. For most users graphics is now the bottleneck. Games and video need strong graphics processing, as does almost any content creation work. Llano-based computers should be very fast, very good with graphics, and very inexpensive.

For AMD investors the good news is that the profit margins on Llano chips are going to be better than those of older AMD chips. In effect, as older non-Fusion chips are phased out, everyone gets upgraded graphics computing ability. Gamers and other high-end users will still want to add a discrete high-end graphics card, but your everyday computer will have very good graphics capability without the expense of the separate card. In return the chip will be somewhat more expensive, and show a better profit margin. The impact on Q2 2011 will probably not be great. The computer industry is fairly seasonal. In Q3 there will be the usual seasonal ramp in production, getting ready for back-to-school and holiday shopping. OEMs will have Llano-based computer production in full tilt by then. Last-year's computers will be on fire sale.

Keep in mind that this puts what would have been, a decade earlier, a personal supercomputer on everyone's computer. These new PCs will have way, way more computing power than tablet computers based on ARM chips. Software makers are going to be able to do amazing things once they can count on APUs with parallel processing capabilities that can be used for many applications besides graphics. Many of these applications will make big computer screens even more desirable. Portability is great, but there is still a lot of future in big screens tied to truly capable computing machines.

Of course, rival Intel has a lot of marketing muscle. But the graphics capabilities of its new chips are seriously deficient, not even able to run the DX 11 graphics standard of Windows 7. That means for a good video or gaming experience anyone buying an Intel-based machine will also have to buy a graphics card based on AMD or NVIDIA graphics processors. Most consumers may not understand that, but the big OEMs do, and some of the sales people at Best Buy seem to understand that as well. Interestingly, Apple is currently building machines with Intel CPUs and AMD graphics chips, but I would not be surprised if Apple introduces Fusion based machines some time in 2012. Once the graphics leader, Apple can't afford to fall to far behind Windows in this race.

See also:

My main amd page

AMD Llano demostrated [October 19, 2010]