Two Health Care Shares On Explosive Growth Paths

The Nasdaq Composite chart looks great, but the yield chart of UK 10-year bonds is more problematic. If this were a share chart, I would say the odds were in favour of the price heading higher, so maybe the interest rate trend is going to surprise us in a bad way. Similarly, in the US, long bond yields look as likely to head higher as lower. The world of economics never ceases to amaze me.

What does it all mean? Long bond yields and equity prices heading higher in tandem are unusual and may make for volatility. The most likely explanation is that inflation is not beaten yet but the US economy is in rude health. There may also be a feeling that the pro-market Trump is going to prevail in the election. To my slight horror, I find myself hoping that he does. What kind of redneck am I? I love country music; I would probably like driving around in a giant pickup truck; I think women belong in the kitchen – no, no, I’m joking, that can’t be true. What I am is a raging capitalist. What’s good for General Motors, Amazon, Apple, Nvidia whatever is good for America?

Sorry Kier; We Should Only Tax ‘Working People’

Poor Kier Starmer has got it exactly wrong. I never realised until he came to power. He wants to tax everybody but working people, defined as people with much less money than him. In his world view if you are even mildly successful you stop being a working person and become an evil rentier capitalist living on the sweat of the struggling salt of the earth poor and ripe to have your ill-gotten wealth redistributed away.

I would do it differently, scrap all the other taxes and put the entire tax burden on ‘working people’. They would kick up a massive fuss and we would have to shrink the state to bring them on side. The economy would explode, and the UK would become a magnet for global talent, with boat people laden with PhDs swimming the channel to get here.

If you raise taxes on everybody except Starmer-defined working people inevitably these poverty-stricken wretches will want higher taxes and a bigger state even if the economic consequences are disastrous for everybody including them.

When I was at school I became a prefect and enjoyed many privileges which encouraged all the ghastly new men and others to want to be prefects. If Starmer had his way the new men would have all the privileges and the prefects would be stripped of theirs. How dumb is that!

Health Care Fireworks And One Damp Squib

GeneDx shares took off on Tuesday after an excellent set of results. The company is bringing genetic testing to newborn babies, which is simultaneously lowering costs dramatically and improving diagnostic results. The shares have had an incredible 2024, rising from a low close to $1 in 2023 to value the business at $27m to over $80 and a $2bn plus market value.

The chart pattern is known as a V-reversal and is a strong one. There could be plenty more excitement to come.

The just-reported results were amazing.

“We delivered 77pc growth on exome and genome revenues in Q3 and have reached the point of profitability, a significant milestone in our company’s history,” said Katherine Stueland, CEO of GeneDx. “Our advancements in genomics are redefining the standard of care, setting new industry standards for clinical utility and economic efficiency, and shortening the time to a diagnosis for thousands of families. With an ever-growing number of families eligible for our services, our growth outlook is healthy and sustainable. We continue to bring life-changing impact to the pediatric outpatient and NICU settings, and we are now establishing the foundation for clinically-actionable, responsible, and scalable genomic newborn screening.”

“Once again, our quarterly performance exceeded our top and bottom-line expectations. The third quarter marked our 10th consecutive quarter of cash flow improvement and we achieved positive adjusted net income ahead of our prior target,” said Kevin Feeley, CFO of GeneDx. “With our industry-leading technology and a massive market opportunity ahead, GeneDx will continue to couple financial discipline with strategic investment to accelerate the business and provide answers for even more families in need.”

GeneFDX, Q3 2024 results, 29 October 2024

The company feels it is just getting started.

Like GeneDX, shares in PROCEPT BioRobotics (such a great name) rocketed after their Q3 2024 results. The business is in explosive growth mode.

“I’m extremely proud of the entire PROCEPT team for their collective effort and execution in launching HYDROS in the third quarter,” said Reza Zadno, Chief Executive Officer. “After receiving HYDROS FDA [Food & Drug Administration] clearance in August, we successfully converted the third quarter capital pipeline, manufactured sufficient quantities of commercial product, trained our clinical teams while mitigating downside pressure on procedures, and effectively managed customer relationships during this critical phase of our Company’s growth. As a result, we delivered another successful quarter with annual revenue growth of 66pc and record gross margins of 63.2pc.”

Third Quarter 2024 Financial Results

Total revenue for the third quarter of 2024 was $58.4m, an increase of 66pc compared to the prior year period. U.S. revenue was $52.2m, representing growth of 62pc compared to the prior year period. The increase was primarily driven by increased system sales, higher system average selling prices, and increased handpiece and other consumable revenue. U.S. handpiece and consumable revenue for the third quarter of 2024 was $29.6m, an increase of 74pc compared to the prior year period. U.S. system revenue for the third quarter of 2024 was $19.6m, an increase of 46pc compared to the prior year period. As of September 30, 2024, the install base of robotic systems in the U.S. was 445 systems. International revenue was $6.2m for the quarter, an increase of 122pc compared to the prior year period.

PROCEPT BioRobotics, Q3 2024, 28 October 2024

The business is in great shape.

Starting with our quarterly revenue results. We are pleased to report another quarter of strong financial performance with total revenue for the third quarter of 2024 of $58.4m, representing growth of 66pc, compared to the third quarter of 2023. Growth in the quarter was driven by strong demand and higher average selling prices for our robotic system, increased utilisation from our expanded U.S. installed base and record international revenues. We exited the third quarter of 2024 with a U.S. installed base of 445 systems, representing growth of 64pc, compared to the prior year period.

Additionally, we exceeded our utilisation per account expectations for the quarter, despite substantial growth in our U.S. installed base and the temporary removal of sales representatives from the field as we began training our sales team on the hydro system. We knew following our HYDROS announcement that the third quarter was going to represent unique challenges for our company given we were launching a new robotic system midway through the quarter.

Reza Zadno, CEO, PROCEPT BioRobotics, Q3 2024, 28 October 2024

There is an exciting ‘something new’ at PRCT, although both GeneDX and PRCT are all about something new.

Turning to the HYDROS launch itself, once we received FDA clearance in mid-August, the capital sales team immediately shifted their focus to educating hospitals and surgeons on the benefits of the HYDROS system and converting the immediate AQUABEAM pipeline to HYDROS.

Awareness and excitement around the launch spread quickly, which certainly played into our favor, allowing for a fairly smooth transition and resulted in an outstanding capital quarter. Initial feedback from customers is very encouraging. Aside from HYDROS’s fully integrated and sleek design, surgeons were impressed with the new First Assist AI feature. As a reminder, First Assist AI supports the surgeon in interpreting the live ultrasound image for key anatomical landmarks and suggest an optimal treatment plan for each patient. The addition of AI to our precise robotic assisted resection has the potential to enable all urologists to improve outcomes for their patients. This is appealing to both surgeons and administrators.

Other feedback we received, particularly from hospital support staff, is how improved the surgeon and staff experience is at every stage of the Aquablation Therapy procedure. Specifically with a single footprint and improved user interface, the integrated tower facilitates efficient operating room setup, procedural workflow, and operating room turnover. Additionally, hospital CFOs were happy to see that the new HYDROS handpiece utilises a single-use digital scope that eliminates the need for scope reprocessing and further streamline setup, which saves time and money.

With the third quarter and the initial launch phase behind us, we feel very good about the underlying trends we are seeing today, particularly around system average selling prices, customer demand, and high-dose user sentiment. Additionally, HYDROS has energised the capital sales team, which has translated into a robust pipeline where we expect to sell a record number of new systems in the fourth quarter of 2024.

Sham Shiblaq, chief commercial officer, PROCEPT BioRobotics, Q3 2024, 28 October 2024

Again they see a big opportunity ahead.

As we communicated in mid-August, properly training our sales teams is critical to our commercial and procedural success as we transition into 2025. While pleased with the team’s execution in the third quarter, we realize there is a much bigger opportunity ahead for both robot system sales and expanded utilisation over time.

As we enter the next phase of our commercial growth, I believe this launch will be a significant milestone in our journey driving widespread adoption and making a profound difference in the lives of our patients.

Sham Shiblaq, chief commercial officer, PROCEPT BioRobotics, Q3 2024, 28 October 2024

Below is a graphic illustrating why TMDX shares fell sharply after Q3 2024 results.

A commentator on Seeking Alpha reflected on the disappointment.

In addition, margins declined sharply. Gross margins declined from 61pc in the second quarter to 56pc, and operating margins declined from 11pc to 4pc.

This was primarily a result of a mix shift to lower-margin services revenues, and a decline in service gross margins because of heavy reliance on third-party logistics, as several owned aircraft were grounded for scheduled maintenance.

Although management warned of a seasonal slowdown, the slowdown itself wasn’t the reason for the plummet. The reason was the market share performance.

TransMedics is no longer growing Liver revenues well in excess of national transplant growth. In fact, revenues declined in the quarter.

Heart is even more worrisome. From a 16pc gap in the first half of the year, TransMedics Heart revenues declined 6pc more than national volumes. Again, this is not apples to apples, but this is a clear degradation from previous quarters.

Seeking Alpha, comment on Q3 2024 results, 29 October 2024

Share Recommendations (29 October 2024)

GeneDX. WGS

PROCEPT BioRobotics. PRCT

Strategy – Buy Strong Shares, Sell Weak Ones

Amazing results from GeneDX and PROCEPT BioRobotics make their shares a buy. Disappointing results from TMDX make them a sell. The latter may still have an exciting long-term future but investors will need reassurance from the fundamentals and the chart that will happen.