Here are my notes on this newly public high-growth medical device company, Silk Road Medical (SILK).
What it does: New surgical product that is used to prevent stroke in high-risk patients.
Industry background: 800,000 Americans have a stroke each year with 140,000 deaths from the event. Fifth most common cause of death.
87% of strokes are “ischemic”, which is when blood flow to the brain suddenly becomes blocked.
A leading cause of ischemic stroke is carotid artery disease (CAD), which is the gradual buildup of plaque in the neck arteries that supply blood to the brain. If that plaque breaks away it can travel up to the brain and cut off critical blood flow, triggering a stroke
Best way to treat stroke is to prevent it from happening in the first place.
Two current stroke prevention options currently exist:
Option 1) Carotid endarterectomy (CEA). Decades-old procedure where surgeon opens up the neck with a large incision and manually removes the plaque from the artery before it can become dislodged.
Pros: Effective at reducing risk of stroke.
Cons: Procedure itself is very risky and highly invasive. The surgery can accidentally cause plaque to loosen and travel to the heart or brain, which can trigger a heart attack or stroke. The cranial nerve is also at risk of being damaged during the procedure.
Option 2) Transfemoral carotid artery stenting (CAS). Placing a stent over the plaque in the artery to keep it from becoming dislodged. Surgeons gain access to the neck by entering through the leg.
Pros: Minimally invasive. Lower-risk surgery.
Cons: Not as effective as a CEA at preventing stroke. Only used in a minority of cases today.
Silk Road Medical Solution
New procedure called a transcarotid artery revascularization (TCAR).
A small incision made in the patient’s neck. Blood flow in the neck artery is then reversed, the blood is filtered through a mesh, and then put back into the body through the leg. Once the dangerous plaque is removed, a custom stent is placed on top of the remaining plaque to keep it in place.
Pros: Minimally invasive. Much smaller scar. More effective at reducing risk of stroke than a CAE. Much lower risk surgery. Lower surgery time (cost-effective for doctors/hospital). Shorter hospital stay (saves healthcare system money).
Cons: Doctors need to be retrained, though Silk says its easy.
Video on how this works: https://silkroadmed.com/the-tcar-procedure/
2017 2018 Q2 2019 TCAR procedures 1,806 4,573 2,000 Revenue $14.3 MM $34.6 MM $14.9 MM Gross margin 64% 69% 75% Net loss $19.4 MM $37.7 MM $12 MM
Cash balance: $118 MM as of June, another $189 MM raised in August
Key financial takeaways:
+Rev growth of 92% in the most recent quarter.
+Gross margin already 75% and growing
+Plenty of cash to fund expansion
+168,000 carotid revascularization procedures (CEA + CAS) performed each year in the U.S. 2019 guidance implies 8,000 TCAR procedures ($62 MM in revenue) so <5% penetration.
+TAM $1 billion from displacing CEA + CAS just in U.S.
+4.3 million people in the U.S. have carotid artery disease. 427,000 new diagnosis each year.
+Benefits of TCAR might increase demand/use of stroke-prevention. 427,000 new cases = $2.6 billion TAM in U.S.
+Label expansion potential in vascular disease of the heart, aortic arch, and brain.
+Only about 10% of ischemic strokes happen in the U.S. TCAR procedure already has regulatory approval in Europe, but it hasn’t begun its international commercialization yet (likely waiting on reimbursem). Actively pursuing regulatory clearance in China and Japan.
Management / Ownership:
+Founded in 2007 by Dr. Tony Chou and Jack Lasersohn, both of whom work for healthcare-focused venture capital companies. Chou/Lasersohn are members of the Board. Personal holdings negligible, but the investment firms that they work for currently hold 62% of shares outstanding.
+CEO Erica Rogers, medical device veteran. Co-founded a company called Visiogen which was acquired by Abbott Medical Optics in 2009. Owns 3% of Silk Road’s shares outstanding
25x trailing sales
14x next year’s sales estimate
Lots to like here – big TAM, early traction, high growth, hasn’t even started international launch, embedded optionality, high gross margin, plenty of cash.
Big negative is that TCAR is displacing an existing therapy, so it has competitors. Some doctors will be very reluctant to change. The valuation is also high, but what do you expect?
I might be opening up a small position soon. I think this is a fascinating business.