Brian Marckx, CFA
Vicor Technologies (VCRT) – Our 2011 Preview
While 2010 ended up being somewhat of a disappointment for Vicor from a revenue perspective, we are optimistic that this will not be repeated in 2011. We look for approximately 50 units placed through the end of 2010 but for this to significantly accelerate through 2011 (we model an installed base of 230 units at FYE 2011). We believe several catalysts will fuel this more rapid placement rate during 2011 – which should in-turn accelerate utilization revenue:
• Bigger, Productive Sales Force: Vicor stumbled out of the gate early in 2010, hoping distribution could be handled by a small physician practice in the Southeast. This proved ineffective with few systems placed. As a result Vicor changed tactics and hired (Sept 2010) a national sales manager with a long and successful history in medical device sales. He quickly beefed up the sales force and spread the geographical footprint throughout the country. This already appears to be paying dividends, with the news that 8 units were placed in December alone. Vicor expects to continue to increase the size of its domestic sales force throughout 2011 – from 26 as of September 2010, to 50 (expected) at December 2010 to 70 by the end of 2011. This should, in-turn, help to accelerate the rate of unit placements.
• Acceptance: Overwhelming evidence supports that PD2i works as Vicor claims and that it has significant and important clinical utility. A better mousetrap does not always translate into rapid acceptance, however. This is especially true in the medical field where optimizing patient care is often weighed against other considerations such return-on-investment or just plain skepticism. It’s easier to commit to a new technology if your neighbor tried it first and had a great experience. We think physicians that are using the Analyzer are finding real utility for it and are finding that the economics work. We believe this should help PD2i gain traction as physicians tout its benefits to colleagues.
• Leasing option: Agreement with equipment leasing company signed in early 2011 allows companies to obtain the Analyzer without the upfront cost.
• International Distribution: Deal signed for distributor in Asia. Vicor currently negotiating contracts for distribution in Middle East and Europe. We expect several new international distribution deals to be in place during 2011. Depending on the rate of acceptance, the international market could offer significant upside to our current forecasts.
• Experienced Domestic Distributor: Vicor may supplement its own sales efforts with the use of a domestic distributor. “Once Bitten Twice Shy” – management learned from their mistake in early 2010 so if and when a domestic distribution agreement is penned, expect it to be with an experienced firm that will deliver results.
• Cardiac Death Indication: 510(k) submitted in July 2010. While we hoped Vicor would have received FDA clearance for this indication already, the delay does not dampen our expectation that it will come in 2011. This would allow Vicor to broaden its marketing message and could significantly increase interest in the Analyzer (especially with cardiologists). And we remind investors that any physician can already use the Analyzer for any indication they feel it is useful for – FDA clearance of specific indications allows Vicor to explicitly market for those indications.
• Normal Range Study: Should be concluded in 2011 followed by a 510(k) filing for the determination of abnormal heart rate variability in patients at rest and during exercise. FDA clearance should be a catalyst in driving utilization of the Analyzer for the diagnosis of diabetic neuropathy – a huge potential market.
• Trauma Indication: Following FDA clearance for the cardiac mortality indication, Vicor expects to pursue a claim for diagnosis of patients at imminent risk of death from trauma.
• Ongoing Studies: Vicor is also studying PD2i in applications other than trauma and cardiac death including for the detection of blood loss from internal bleeding and the prediction of adverse cardiac events in college athletes.
• Exposure to the “Right” People: PD2i has only very recently begun to get noticed by the larger medical community. Exposure through presentations at prestigious events and publication in prominent journals is one of the most influential forms of marketing and Vicor is now doing both tirelessly. We expect this to be a continuing theme throughout 2011 and result in greater exposure to people that understand the significance of the technology. This will hopefully be another catalyst to sales growth.
• Higher Utilization: Additional indications coming online along with greater exposure of the technology through presentations at prestigious conferences and in medial journals should help drive greater utilization of the Analyzer. Combined with a growing installed based, Vicor’s “printer / printer cartridge” business model can significantly steepen the rate of revenue and earnings growth.
We model revenue and EPS of $189k and ($0.19) in 2010 and $1.8 mllion and ($0.14) in 2011. We are maintaining our Outperform rating on Vicor and our $1.07 price target.
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