The Evolution Of TransEnterix

I’ve been slowly building a long position in TransEnterix (TRXC) since Summer 2013 when it was SafeStitch Medical (SFES) trading at $0.50 in OTC penny land. I stumbled upon SFES after researching Dr. Phil Frost of Opko Health and his individual stock holdings. It’s not everyday you see a successful billionaire continuously purchasing penny stocks in the open market. Frost’s penny stock holdings were a mix of shell companies and legitimate, although mostly struggling, businesses. I blindly followed Frost and picked up a few hundred shares of the SFES shell. (A rookie mistake; never blindly follow anyone, even a successful billionaire, into a stock without doing extensive research).

A few weeks later, the SFES shell was filled with North Carolina based TransEnterix via reverse merger. The stock more than tripled (lucky me) and an equity raise commenced. The more I read about TransEnterix and its technology, the more intrigued I was, the more stock I bought. I was lured by the fact that TransEnterix was poised to be the first true competitor to a company that had enjoyed a 15+ year monopoly in the surgical robotic market and had ballooned into a $20B+ company, Intuitive Surgical. 

It’s definitely a dangerous thought that wipes out most retail investors who are invested in speculative penny stocks: “If ISRG went from $5 to $500, imagine how high TRXC can go!” Nearly all stocks subjected to this type of thinking fail, and that remains a possibility for TRXC. But after two years of speaking with surgeons and sales reps, reading research reports, and diligently following company developments, I’m confident that TRXC’s chances of becoming a success far outweighs its chances of failure. 

TransEnterix has come a long way since the SFES reverse merger in 2013. The company conducted a 1:5 reverse split and uplisted to the NYSE, submitted the SurgiBot to the FDA for 510(k) approval, presented at SAGES and several other health care conferences/exhibits, built out its workforce, and acquired the CE Marked ALF-X system for $99M. 

But, there is still a long way to go. The company has no revenue, is burning cash at ~$7M – $8M per quarter, and will have to raise more $ in the future. If TRXC didn’t utilize any of the remaining $18M in its active ATM offering, the company should have enough cash until Q2/Q3 2016. I’d expect management to take advantage of the potential share price volatility and raise $ after expected SurgiBot FDA approval news. The company doesn’t expect to reach cash flow breakeven until late 2018, and it will take significant capital to scale this business into a worldwide surgical robotics player. 

ALF-X