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di Giancarlo Nicoli

Stereotaxis Inc., my ten bagger candidate.

ahrahr (99.20)
ahrahr beat the market on Friday

CAPS Rank: 479 out of 69524

With STXS, I’m down -33.57% since I selected it with CAPS, against a S&P -9.38%. My CAPS loss is -24.19.

This post is going to be entirely devoted to Stereotaxis, Inc. (Nasdaq: STXS), which designs, manufactures, and markets cardiology instrument control system for use in hospital’s interventional surgical suite or interventional lab to treat arrhythmias and coronary artery disease.

Before delving into commentary and analysis of the company my background first.

Under the ahrahr nickname there’s a community pharmacist. Warren Buffett famously said that you should invest in what you understand. Thank you Mr. Buffett, my studies and my job allow me to understand most biotechnology and healthcare equipment and supplies companies.

Truth is, a cyberpal back in 2006 (if I recall correctly) alerted me — on a message board, that is — about this company. I studied it since then, and bought my first shares early in 2008.

The Stereotaxis main product, whose name is Niobe, is a proprietary Magnetic Navigation System that’s designed to allow physicians to more effectively navigate catheters, guidewires and other magnetic interventional devices, through the blood vessels and chambers of the heart to treatment sites and then to effect treatment. This is achieved using computer-controlled, externally applied magnetic fields that precisely and directly govern the motion of the internal working tip of the catheter, guidewire or other magnetic interventional devices.

What do I like about the company? Their equipment is superior both to the manual intervention technique and to the only competitor that now exists (it is Hansen Medical, Nasdaq: HNSN).

Why is it superior? Because:

#1 – It takes less time to navigate the catheter into the heart (times are commonly halved);

#2 – It allows physicians go in the cardiovascular system in places that are very difficult or impossible to reach with manual or robotic;

#3 – It is a safer procedure for the patient. Only one adverse event (not fatal) reported to date, against a 2-to-6 percent adverse event ratio with manual. Robotic procedures (i.e. those done with Hansen equipment) experience an adverse event ratio similar to manual.

#4 – It is a safer procedure for the physician. With either manual and robotic, the physician (with his/her heavy lead dress) has to stay close to the patient. Thus they are exposed to x-rays anyway. A Niobe machine is operated from a different, lead-shielded room. The physician gets zero x-rays. And his/her movements are without the heavy lead dress.

#5 – STXS actually has FDA approval to do procedures with Niobe equipment and both in-house and partnered catheters. HNSN product, the Sensei, only has FDA approval for mapping, but not for ablations. They are doing these off-label.

There are some hard facts I like about STXS as an investment. These are:

#1 – Intellectual Property rights. If you want to go magnetic, it’s Stereotaxis’ IP.

#2 – Companies that have magnetic catheters (Biosense Webster, a division of JNJ) or that are developing them (STJ), must use those catheters with Niobes. STXS gets a royalty every time those catheters are used.

#3 Leading international physicians are endorsing STXS. You can check this via PubMed and other peer-reviewed publications. Soon every EP lab will want to have a Niobe.

#4 There possibly is a bidding war for STXS on the horizon. If you want to be in the catheter business, STXS is what you must own. Remember, STXS has the Intellectual Property. A Niobe machine can now use catheters from JNJ, Biotronik and, in the near future, STJ. Just imagine that one of these players wants all the pie: one has to buy STXS and shuts all the competitors out. Bidders might also be GE, MDT, Siemens, Philips…

Next post will be a comment of the recently released Q4 and FY2009 data.

Disclosure: I’m long STXS shares.

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