Asensus Surgical (ASXC): A New Name Can’t Change a History of Failure, Evidence of a Failed Commercialization, and Enormous Losses

• ASXC is attempting to commercialize its Senhance surgical robot and break Intuitive Surgical’s hold on the surgical robot market. But revenues peaked at $24 million in 2018 falling to $3 million last year.

• Financials tell the same story: Since its inception the company has burned $740 million in capital, revenues have fallen from $24 to $3 million from 2018 to 2020, and the company has lost an average of $100 million a year since 2016. one industry executive wondered how ASXC was still in business. 

• Failure is in the company’s DNA - several prior examples suggest what looms in the future. The company’s SurgiBot robot was rejected by the FDA in 2016. Prior to 2015, it was commercializing a manual surgical system called the SPIDER System, which generated minimal sales and was wound down at the end of 2014.

• ASCX has admitted that this commercialization also was not successful, slashing sales staff and taking an inventory write-down in Q4 2019.

• After a name change this year, ASXC’s shares would be touted by an investor and newsletter writer that paid over $30 million after the SEC brought fraud charges in 2017.

• With fierce competition incoming, a turnaround is extremely unlikely. Despite a new leasing model to lower up-front investments, the pace of installations has continued to slow. We see continued heavy losses and a return to where the stock was in 2019 for this perennial loser.

Introduction

In February 2016 we published research on a company called TransEnterix (TRXC). We highlighted the paid stock promotion which had sent shares up 150%, the pending dilution, and questioned the logic of a surgical device that had been on the market in Europe for five years suddenly gaining commercial traction just because it was approved in the U.S. At the time TRXC had a $400 million market cap and traded at $48/ share (split-adjusted).

Soon after the FDA rejected the company’s SurgiBot device in April 2016, and shares would fall 54%. A year before this rejection, the company had acquired an ALF-X robotic-assisted surgical device from Sofar SpA in Italy for $100 million. They would rebrand the ALF-X as the Senhance, and the U.S. approval of that would in October 2017 would create the next leg of the story, as investors bet on commercialization and the stock began to rise again. The Senhance is supposed to compete with Intuitive Surgical’s (ISRG) Da Vinci, a market they have controlled for twenty years. But that commercialization has come and seems to have been a conclusive failure. Revenues would peak at $24 million in 2018, falling to $3 million by 2020, industry executives and sales-reps are openly speculating about how the company is still in business. The company itself admits the results have been disappointing, slashing sales jobs and taking a write-down on inventory.

These events and the rocky start to commercialization would cause the stock to fall 95% since our initial article to under a $20 million market cap by the end of 2019. But it would rise again. In February 2021 it announced a name change to Asensus Surgical (ASXC).

Asensus is Latin for “moving upward” and move upward ASXC would. Caught up in the speculative fervor around really anything this year, ASXC shares peaked at $6.25, representing a market cap of over $1 billion. While shares have fallen from their YTD peak, the stock is still up 175% year-to-date, and the market cap is still $550 million.

We think degenero would be a more appropriate for the company, Latin for fall-off or decline (we had to Google). ASXC is going up against competitive juggernauts, and it simply cannot be expected to succeed.

A Second Bite At The Same Apple: A New Name Doesn’t Change Anything For Asensus Surgical

In 2016 paid stock promoters began speculating that ASXC (then known as TransEnterix) would quickly be acquired by Johnson and Johnson.

Besides the rumored acquisition, ASXC was supposedly about to commercialize their surgical robot, known as the SurgiBot. The SurgiBot had been approved for sale in Europe since 2011, but did not achieve its first sale until 2013. It would not generate any revenue in 2013 or 2014, and only $77,000 of revenue in 2015. The story hinged on a successful U.S. approval and commercialization of their SurgiBot device. But in April 2016, the FDA rejected the robot. Shares would fall 54% that day. Shares would continue in a down-trend until October 2017.

At that time, the FDA approved the company’s Senhance surgical robot (previously known as ALF-X), with shares rising 80% that day. This would kick off a new uptrend, as investors were excited about the roll-out and promise of market share to be taken from Intuitive Surgical.  

The stock would continue rising until September 2018, when the early cracks in the commercialization began to emerge.

Hospitals were slow to adopt the machine, and ASXC was offering a robot at a comparable price to the Da Vinci without the deep pockets to fund the support, training, and ongoing education of the surgeons using the device. Industry insiders spoke to quality control issues, unused machines, and painted a generally grim picture clearly reflected in their financials. Sales would fall to $8.5 million in 2019, and to $3.1 million in 2020. CEO Todd Pope would resign from the company in November 2019 “amid company’s financial struggles.” 

Interestingly, Pope would quickly start a new venture called UV Innovators which was acquired by Ireland-based WellAir, a maker of indoor medical-grade air purifying devices and other disinfection devices. After the acquisition Pope would become the CEO of WellAir.

ASXC would address these commercialization stumbles and issues in Q4 2019. In Q4 2019 ASXC began slashing the headcount in their sales and marketing department, which would continue through March 2020.

“During the fourth quarter of 2019, we announced the implementation of a restructuring plan to reduce operating expenses as we continue the global market development of the Senhance platform. Under the restructuring plan, we reduced headcount primarily in the sales and marketing functions and determined that the carrying value of our inventory exceeded the net realizable value due to a decrease in expected sales. The restructuring charges amounted to $8.8 million, of which $7.4 million was an inventory write down and was included in cost of product revenue and $1.4 million related to employee severance costs and was included as restructuring and other charges in the consolidated statements of operations and comprehensive loss, during the fourth quarter of 2019.

Future payments under the restructuring plan are expected to conclude in 2020.During March 2020, we continued our restructuring with additional headcount reductions which resulted in $0.8 million related to severance costs which are expected to be paid in 2020 and 2021.”

ASXC would call their sales disappointing but cutting sales and marketing expenses is not how you grow your revenue as an upstart company trying to break into a tough market. Sales would continue to fall in 2020.

“Despite the number of advances and regulatory clearances received in 2018 and 2019, our Sehance System sales in 2019 were disappointing. Adoption of new technologies, particularly for capital intensive devices such as the Senhance System can be slow and uneven as market development and commercial development is time-consuming and expensive.”

ASXC’s stock price would reflect this failed commercialization, shares would fall 96% from their high in September 2018.

A History of Failure In The Corporate DNA  

We note many examples of failure in the company’s very DNA. The failure of the Senhance device to achieve market traction is one thing, but there are many other examples. There is the FDA rejection of the SurgiBot, supposed to be a low-cost competitor to the Da Vinci, was rejected by the FDA, and the assets later sold to a Hong Kong entity.

Prior to 2015 the company was developing and commercializing a manual surgical system called the SPIDER System, which was approved by the FDA in 2009. But they struggled to commercialize the system (sound familiar), and they ceased commercialization efforts by December 2014.  

Going even further back to the corporate entity that they reverse-merged into would bring us to SafeStich Medical. In 2009 SafeStitch announced FDA approval of its AMID Stapler medical device, over the next three and a half years it would only generate $55,000 in revenue.  

But hope springs eternal, and ASXC’s stock has once again risen. The hope of what exactly remains unclear, as things don’t usually just magically improve.  

While the promotion is not paid this time, it is still happening. This year it has been Louis Navellier’s InvestorPlace website, which has written bullish articles on Asensus Surgical this year. While it has not been paid for these articles, it has touted Asensus as “a bet on the future of robotic surgery.”

While this promotion isn’t paid for by anyone, investors should be aware of who is publishing this research. Louis Navellier is a long-time money manager and investment newsletter writer. In 2017 Navellier was charged with fraud by the SEC for breach of fiduciary duty to their clients with false performance claims in advertising materials. The SEC would obtain a partial summary judgement in February 2020, obtaining a total judgement of $37.9 million including interest.  

Industry executives disagree with Navellier’s claim that ASXC is a bet on the future of robotic surgery.

Industry Insiders: How Is This Still In Business?

The Senhance system is supposed to compete with Intuitive Surgical’s Da Vinci surgical machine. Companies have been trying to attack the monopoly of the Da Vinci device for years. According to one former Intuitive Surgical executive is “99.95% of the entire robotics market.”

One competitor’s sales representative said that Da Vinci would sell 150 units in a quarter which Asensus would be lucky to sell two. This same sales rep expressed surprise that the company was still in business.

According to one transcript of an interview with a former executive of an ASXC competitor we reviewed said:

“Now the two competitors I mentioned who are on the market already, Asensus, I don’t know how they are still in business. I don’t know how they will remain in business four years from now, unless they are being sent tons of money and innovating some device that’s not their current device.”

They would go on to discuss why the machine has not done well:

“Because their current device takes up too much room in the OR. It requires staff to dance around the moving arm. The instruments don’t articulate, don’t articulate in any useful fashion. They have no advanced instrumentation. They’re obviously burning more than they are selling. They’ve sold some robots, placed some robots, but they’re not getting what we call sustainable users.” 

We spoke to other industry insiders that all told similar tales. One former employee told us that there was effectively no commercial sales team left after the previously mentioned headcount reductions that were part of their restructuring.

Searching the industry-gossip forum CafePharma yields similar insights. Some examples below.

In response to a 2019 question asking for any feedback about the robot:

“Senhance is being poorly received. There are no mixed reviews.”

“Just heard from an account who is trying to leverage [ASXC] against Intuitive that they are lowering their price to under $1m for the purchase of a Senhance… This is a sign that the end is coming for this company.”

Readers can view the unvarnished (although almost always biased) views of industry participants here.

An Example of Unsustainable: Paying Your Way Into Revenue?

ASXC has seen a limited number of Senhance sales, but it is worth examining why some of the early successes happened and if it can be repeated again. We don’t think it can. The first Senhance to sell in the United States came in November 2017 to Florida Hospital, a member of the Adventist Health System.

Drug and medical device companies have to report their payments to physicians and teach hospitals.

Source: OpenPayments Data

Florida Hospital would change their name to AdventHealth Orlando in 2018, but ASXC has paid no entity more than AdventHealth over all years ASXC has reported to the database.

So how much does a Senahnce unit cost? In Q1 2019 ASXC would sell only one Senhance unit, in response its stock would fall 39% as investors were disappointed. That quarter ASXC recorded $1.28 million in systems sales from outside the U.S. There is likely some variance in purchase prices, but that provides a ballpark estimate.  It would appear that ASXC has paid about ~45% of the purchase price to their first U.S. customer.  

Between 2014 to 2020 ASXC has paid $1.9 million over 3,097 payments. This is dwarfed by ISRG’s spending of $265 million over 530,000 payments. It shows the resources of the competitors ASXC is going up against.

A bet on ASXC is a bet on a turnaround, that something starts happening (selling more robots) that has not yet been happening. While the company has changed their model to a product leasing model and expects to place 10-12 Senhance’s this year, more competition is quickly coming into the space.

Johnson and Johnson (previously rumored as a potential acquirer) unveiled their own robotic-assisted surgery device in November 2020.

Medtronic has been developing a surgical robot called Hugo for the last several years, this June the first procedure on a Hugo machine was completed at a Chilean hospital.

One competitor which consistently came up in the conversations we had was CMR Surgical, a British company which was frequently called an emerging competitor to watch. CMR Surgical launched their robot in 2019 only in Europe. In November 2020 CMR would report the 1,000th surgery done on their Versius machine, and just last month would announce a $600 million Series D round. Their growth in Europe is particularly problematic for ASXC, since 37 of the 53 units ASXC has placed have been outside the U.S. according to BTIG.

ASXC Has Fallen On Earnings 13 Out Of The Last 13 Quarters

ASXC will report earnings on Thursday, and it has been one of the worst-performing stocks around earnings. The stock has historically been a loser around earnings, which could be a reflection of how dismally the commercialization process has gone.

Since Q1 2018 ASXC has risen on earnings only once, and that was in May 2018, when the initial efforts of the commercialization were paying off. But there are clues as to why their initial success wasn’t sustainable.

After that one successful report, ASXC has seen its stock price fall an average of 13% after reporting earnings between Q2 2018 and Q1 2021 (reporting 13 times during this period). Over this time period, the company has seen shares fall on disappointing guidance, weak sales, and other issues that crop up when you’re losing an average of $25 million a quarter with an average cash of how much cash.

What will happen when ASXC reports earnings this Thursday? It remains unclear but falling an average of 13% 13 times in a row is no easy feat, and reversing that will be even more difficult. It is easy to sell investors on a vision, but when it begins to become clear that the vision isn’t as pretty as you thought, it becomes much more difficult.

By putting this report out now, we are betting that what has been happening will continue to happen, that ASXC’s stock price will continue to be a perennial loser, and that $550 million is way too high a valuation for something that generated $3 million in revenue last year.

While ASXC was able to raise enough cash to get it through 2024, the industry view seems to be that its run as a viable competitor is over. With a burn rate of $100 million, ASXC can’t stay alive for long.

Conclusion

ASXC has a new name but that can’t change the history of failure within the company. Despite the new leasing model which requires lower up-front investment from the hospitals, the pace of new units placed has slowed. With continued heavy losses unlikely to abate anytime soon, and fierce competition coming soon, we think ASXC will revert to where it was in 2019, sub $1/ share.