In one of the articles by Channelnewsasia dated 18 Dec 2014, it was reported that the general healthcare
sector has performed well this year and prospects likely remain bright next year. The healthcare index, as measured by the SGX Healthcare Index, registered a year to date return of approximately 9-10% vs the 2% from STI. Factors such as the aging demographics and rising demand for quality healthcare etc. continue to bode well for the overall healthcare sector.

One of the stocks which has underperformed on a year to date basis is QT Vascular. Average analyst target is $0.665. Its price chart seems to be in the midst of a base formation, hence I decide to take a closer look in this stock.

QT Vascular’s value proposition to its customers is that’s its products (i.e. balloon catheters) are less invasive for the treatment of vascular disease without the use of permanent implants (stents). QT Vascular manufactures and sells two types of balloon catheters. They are used to treat either peripheral artery diseases or coronary artery diseases. The catheters are marketed under the Glider and Chocolate brands.

Readers can refer to the company website http://www.qtvascular.com/ for more information.

According to QT Vascular’s prospectus, the market size for peripheral vascular devices is estimated to grow at a compound annual growth rate of 7.1% from US$4.8b in 2011 to US$7.8b in 2018. The coronary market is arguably larger than the peripheral market. With the aging population and change in healthcare coverage and amount spent etc, these factors are likely to underpin the demand for QT Vascular’s products.

4QFY14F results are likely to be buoyed by the ramp up of GliderXtreme PTA products in Asia as new shipment orders of Glider products from China and Japan in 4Q14 are expected to contribute to top-line growth. Secondly, QT Vascular announced on 15 Oct 2014 that it has signed distribution agreements for the sales of its Chocolate PTA® balloon catheter in Italy, Austria, Turkey, and Australia.

This should bode well for its results in 4QFY14F and beyond. Thirdly, QT Vascular’s existing products, such as Chocolate PTA continue to grow as a result of a 300% year on year increase in U.S. hospital accounts.

Firstly, QT Vascular has applied for CE marking approval for its Drug Coated Chocolate Touch in Jul 2014. This approval, if obtained, is expected to be in the next 12 – 18 months. Secondly, QT Vascular may also secure the approvals for its Chocolate PTA from China CFDA and Japan Shonin in 2015. Such approvals, if materialise, bode well for QT Vascular. See Table 1 for its product portfolio and approvals.

In QT Vascular’s industry, it is a norm where established medical companies acquire smaller groups for their new and upcoming products. With reference to Table 2, QT Vascular has more products than the other firms which were acquired in the past four years. It is noteworthy that CVingenuity and Lutonix have not generated any revenue at the time of their takeover. As QT Vascular progresses on their products development and sales, it is likely that it may be able to command a higher valuation due to lower business risk and better earnings visibility.

Source: Company

In addition, I will like to highlight QT Vascular’s CEO Eitan Konstantino’s past work experiences (See Table 3). Among his career history, he was the Founder & President, AngioScore, Inc and CEO & COO, Advanced Stent Technologies which were both acquired. Thus, this may a sign of his inclination to develop the company and subsequently sell it off. Nevertheless, I hasten to add that this is just my own personal (gut feel) observation.

Source: Company

According to a CIMB 18 Nov 14 report, it was reported that management is aware that investors require timely information so that they can track the company’s performance better. Management will be making more timely updates to keep investors apprised of the company’s development.

QT Vascular has been making losses since 2010 and it is likely that FY2015F may still be loss making. In an interview with the Edge in Sep 2014, management pointed out that company is focused on spending on research and development (“R&D”) so as to build up its pipeline of products. Management believes that such spending increases the intrinsic value of the company over time. In addition, management mentioned that QT Vascular can become profitable quickly if they reduce their R&D expenses and focus on distribution.

QT Vascular’s share moratorium ended in late Oct 2014 where the pre ipo investors, which own 77.4m shares, can sell a maximum of 50% of their shareholding. According to QT Vascular’s prospectus pg 76, these pre-ipo investors can sell the balance of their shares (if they wish) around 2Q2015. QT Vascular has dropped about 21% from $0.355 on 3 Nov to $0.280 on 19 Dec. It is likely that at least some of the pre-ipo investors have exited during this period.

I hasten to add that I am not fully familiar with QT Vascular’s products and the
scientific data from trials which support the usage of its products.

There is no guarantee that QT Vascular’s upcoming products will be able to obtain regulatory approval (e.g. FDA, CE Mark approval etc). Furthermore, after obtaining approval, market acceptance is not a done deal as QT Vascular will need to convince the hospitals and distributors to buy its products.

QT Vascular has a limited operating history and does not have long-term data regarding the safety and efficacy of their products. Positive results from earlier trials may be negated by regulatory authorities or by later stage clinical trials.

Based on Chart 1, the prevailing medium term trend for QT Vascular is down as depicted by the red line. However, for the past three weeks, QT Vascular seems to be in the midst of a base formation. A bullish double bottom formation will be formed if it can break the neckline at $0.295 with volume expansion. Measured technical target price is likely to be around $0.325. This formation is invalidated if it breaks $0.265 with volume expansion.

Supports: $0.275 / 0.265

Resistances: $0.295 / 0.315

Source: CIMB chart as of 19 Dec 14

QT Vascular seems to be a promising company with exciting products. Approvals from regulators, improved 4QFY14F and FY15F results and improved investor communication etc are likely to be some of the factors for re-rating. However, it is noteworthy that the lack of operating history, its loss making results since 2010, share moratorium and market acceptance are some of the factors to watch out for.

P.S: This is just an introduction to QT Vascular. Readers are encouraged to visit QT Vascular’s website http://www.qtvascular.com/ and refer to the analyst reports for more information.

Disclaimer

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