Today's TransEnterix Inc. (NYSE: TRXC) came into being through the most reckless of actions - by casually plunking down $94 million for a tiny company offering virtually no sales, no prospects, nothing really beyond multi-millions in losses.
"As previously discussed, the projections for SafeStitch show that a profit is never expected to be attained."
The company hasn't provided a comment as requested by TheStreetSweeper but investors may find other viewpoints here.
Meanwhile, here are TheStreetSweeper's top nine reasons investors might want to consider running away, screaming from this operational disaster:
*1. Worst $94 Million Ever Spent
We're still examining TransEnterix' unbelievable payment of 12,350,000 shares at $7.60 per share for a company so far removed from the surgical robotic field.
(Source: Company SEC filing)
SafeStitch had $2 million in assets focused on small, disposable devices targeting hernias, obesity and reflux issues. And, in the days before the September 2013 reverse merger, it became clear that SafeStitch's financial health was no more attractive than the surgical stapler that generated its miserly sales:
(Source: Company SEC filings)
SafeStitch recorded $35,000 in sales in 2012 and total losses of $29.5 million. The least shocking thing about the financial statement may have been the warning attached to it:
"It is uncertain as to the length of time the Company can sustain continued operations without the availability of additional funds. This uncertainty raises substantial doubt about the Company’s ability to continue as a going concern. "
Auditors were dismissed soon afterward. TransEnterix continues to struggle with its own going concern issue.
And as if the merger price didn't seem crazy enough, the company placed $10,000 under intangible assets and $93.8 million under goodwill - thereby keeping almost every penny of the SafeStitch acquisition out of the income statement.
The US Securities and Exchange Commission apparently thought this was, well, odd. Absurd enough to be included among 41 questions posed by the Commission in a letter to TransEnterix.
The company responded that it conducted the reverse merger primarily because it was desperate to raise capital. Another frantic action came months later, in March 2014, when the company conducted a reverse stock split in order to jump the stock price enough to meet NASDAQ listing requirements.
So, how carefully has TransEnterix handled operations since then? Let's see ...
* 2. Absurd Numbers
TransEnterix' operational functioning continues to be abysmal. The company has not made a penny since inception and analysts are expecting a 12 cent per share loss in the coming quarter.
Even though analysts should be getting used to the ongoing miserable negative earnings, TransEnterix last quarter delivered a negative 34 percent surprise. That's right. Instead of an earnings loss of just 4 to 12 cents, the company suffered an earnings loss of 16 cents per share. As the chart indicates, investors can expect more pain in the future:
And the margins are downright scary:
Below are key metrics of TransEnterix, Conmed and the industry as a whole, indicating TransEnterix's miserable position.
(Source: Yahoo Finance)
Despite shrieking downside risks, TransEnterix is trading at the most ridiculous price-to-sales ratio we can ever remember encountering: 2,675.
*3. TransEnterix Hypeville
The TransEnterix stock price is heavily driven by aggressive hype, both non-professional and professional.
Promoters include folks commenting on message boards. In the example below, note the date this promoter joined the message board. This suggests hype was the sole purpose for the post:
(Source: Yahoo Finance message board)
More professional TransEnterix promotional campaigns have been conducted by Blue Horse Shoe Stocks, Penny Stock News and Biotech Insider Alert.
Such promotions are often paid for by mysterious third parties and inevitably focus on flimsy companies that regularly bounce up on promises and collapse on reality. We don't see hype artists promoting the Amazons and Pfizers of the world.
*4. The Rumor
The buyout hype has grown like the kids' game in which one youngster whispers a message to the next, who repeats something to the next, and the last child stands up to announce a message quite different from the original.
The notion that Johnson & Johnson may be interested in medical device acquisitions has been turned into a message far removed from the original comment made by the J&J CEO:
"Now as we enter 2016, we look forward to, first, continued growth of core products across our segments. Next, a rich near-term pipeline in our Pharmaceutical segment. Positive momentum in our Consumer segment with a full portfolio of OTCs back on the market," CEO Alex Gorsky said during an earnings call. "Setting a strong foundation for sustainable growth with the bold actions we are taking in our Medical Devices segment."
"If you think about what we've been doing in Medical Devices over the last several years, we've had a range of activities, ranging from some of the divestitures with OCD as well as Cordis underway," added Mr. Gorsky.
Hearing that,TransEnterix promoters suggested that the company could be a buyout candidate. Shares soared.
But the market has overlooked something significant. Johnson & Johnson most likely has no interest in TransEnterix's robot (which has already had a less-than-enthusiastic review even though it hasn't even been commercially launched).
Because J&J has recently created a surgical robotics venture company with Google Life.
The J&J announcement last December stated:
"We believe Verb Surgical has the potential to change the future of surgery, not just robotic surgery," said Gary Pruden, Worldwide Chairman, Johnson & Johnson Medical Devices. "The team has already made meaningful progress on the robotics platform, which is being developed for application across a host of surgical specialties."
In our opinion, the Johnson & Johnson robot - backed by a billion dollar R&D and marketing budget - will stomp out any TransEnterix robot before it can get out the gate.
Indeed, TransEnterix's three strike-outs aren't likely to inspire much confidence in its ability to create a product to rival the current da Vinci robot. Here's what the TransEnterix annual report states:
"To date, we have experienced minimal sales of the SPIDER System and AMID HFD stapler (both products were discontinued in 2014) and have not made any sales of the SurgiBot System."
* 5. A String Of Stock Offerings, Ongoing Massive Dilution
TransEnterix appears to be taking advantage of the rumors through a series of stock offerings ... poised to hammer the value of shares currently held by investors. Under these recent setups, TransEnterix filed for:
1. Feb. 9, 2016 - With its crutch - an old at-the-market average $3.23/share stock sale completed - TransEnterix immediately jumped out with another ATM facility for $43.6 million in stock sales. That dilution potential will go on and on ... continuing through January 2017.
2. Feb. 11, 2016 - Not one but two resale registrations. First, TransEnterix filed to sell certain institutions a stunning 42.7 million shares - or about 40 percent of shares outstanding. Second, the company filed to sell another 15.5 million shares. But investors will have to wait to realize the true impact of more miserable dilution until September 2016 - when the first half of those shares break free of lockup.
*6. Executive Enrichment
And while TransEnterix offers investors this ...
(Source: Company 10-K, showing $ in thousands for 2014 and 2013, respectively)
And, this last quarter:
Three months ended
Nine months ended
While top executives are getting this ....
(Source: Company SEC filing)
That's right. The top three execs knock down $2.6 million. The chief financial officer's 2014 compensation alone exceeded $1.4 million. All for handing investors pathetic sales and growing losses.
*7. Executives Yell, "Sell!"
Perhaps some of the clearest sell signals comes from the insiders themselves. Two executives - the CEO and the chief financial officer - raced to sell shares of their company on Feb. 4.
CEO/president Todd Pope took a whack out of his ownership by selling 12,324 shares leaving only 21,010 shares left behind. And CFO Joseph Slattery dumped 7,700 shares, leaving 147,387 behind.
Such non-open market selling by the people who know the company best - at a price of $3.26 per share - certainly doesn't sound good.
*8. Institutions Bow Out
Institutions are selling out of TransEnterix at a rate nearly seven times greater than new positions are being established.
And, while there's never been much upper-tier institutional interest in TransEnterix, anyway, those selling out include some recognizable institutions versus the veritable no-names that are buying small amounts of the stock. The recognizable institutions should have the chops to know what they're doing.
Those more recognizable sell-outs are shown below:
All the not-so-recognizable buyers are shown below:
*9. Unbelievable, Undeserved Market Cap
With a $350 million market valuation, TransEnterix is trading at success. Indeed, it's as if it has a marketed, readily accepted product in wide use inside operating rooms. Yet nothing could be further from the truth.
There's nothing but downside from here.
The patient - investors who have handed TransEnterix their hard-earned money - will ultimately die on the operating table at the hands of a robot gone wild.
Seriously, should we be willing to pay nearly 3,000 times sales for a company whose chief products appear to be a ridiculously expensive reverse merger, dilution-worthy stock offerings, hype, consecutive product failures, executive enrichment, no real hope of profit and $169 million in accumulated losses?
We don't think so. In fact, this company falls so far short of deserving its $350 million market cap, we fully expect it to quickly swoon to under $1 per share.
* Important Disclosure: The owners of TheStreetSweeper hold a short position in TRXC and stand to profit on any future declines in the stock price.
* Editor's Note: As a matter of policy, TheStreetSweeper prohibits members of its editorial team from taking financial positions in the companies that they cover. To contact Sonya Colberg, the author of this story, please send an email to firstname.lastname@example.org.