I’ve done very with small-cap medical device stocks in Cabot Small-Cap Confidential, so I was intrigued to learn about a revenue-generating company that’s trying to become the first Regulation A+ company to launch an IPO on the New York Stock Exchange.
The company is Myomo, a Cambridge, Massachusetts-based medical robotics company. It has developed the MyoPro Orthosis, a line of powered arm braces that restore function to arms and hands that have been injured due to stroke, spinal cord injury, nerve injury or other neuro-muscular disability, including amyotrophic lateral sclerosis (ALS) and multiple sclerosis (MS).
Myomo Restores Function to Arms and Hands
An individual wearing a MyoPro powered brace can use his own muscle signals to control movements of the weakened arm. Precision sensors detect when the wearer is trying to bend an arm, or open and close a hand. And those sensors activate motors to move the hand and arm in the desired direction. Each device is custom-made for the wearer with a doctor’s prescription.
Myomo says the device will help restore a person’s ability to do everyday activities like lifting and carrying items, preparing meals and completing basic household chores.
The Myomo website is well designed and has a number of pictures and videos showing the device in action, including this one of a user cutting a grapefruit.
I found this story to be interesting enough to warrant a closer look at the offering. Here’s what I found out.
A $50 Million Funding Platform
Myomo is trying to go public through the JOBS Act Regulation A+ rules, which allow the general public to invest up to $50 million in IPOs, right along with institutions and accredited investors. The regulation allows for use of social media and email to get the word out, along with a “test the waters” period to get a sense of investor appetite for the offering.
If successful, Myomo will be the first company to gain a listing on the NYSE (proposed ticker symbol: MYO) through Regulation A+. The lead managing selling agent and bookrunner for the offering is TriPoint Global Equities, LLC. And the platform through which investors can participate in the offering is TriPoint’s online division, BANQ.
The current BANQ website lists two offerings in addition to the Myomo IPO. There is a $25 million private placement for direct-to consumer furniture maker Lovesac ($10,000 minimum), and a $5 million private placement for Yuengling Ice Cream Corporation ($10,000 minimum). This ice cream manufacturer is not affiliated with the D.G. Yuengling & Son beer company, for those of you who, like me (until I did a little due diligence), were initially wondering why the beer company wouldn’t just fund this internally.
But back to Myomo. So far, the company has raised over $20 million from management, individual investors and Mountain Group Capital. The BANQ website says it is trying to raise $15 million by selling two million shares at $7.50 each, for an implied company valuation of $35 million. IPO proceeds are expected to help fund sales and marketing efforts, product development, debt repayment and other general expenses.
The company pegs its addressable market at $10 billion in the U.S. and $30 billion worldwide. That U.S. market size assumes Myomo captures 25% market share of the estimated three million existing cases of upper extremity paralysis, and an average selling price of $13,400 per device.
Part of the pitch to payers is that Myomo helps users become more productive both at work and at home. It reduces fall-related ER visits, and reduces coverage costs for the 5% of community residents that need daily help, which Myomo says consumes 23% of all healthcare spending. In other words, if payers reimburse for Myomo, they’ll save money in the long run.
The underlying technology for the MyoPro was developed at the Massachusetts Institute of Technology (MIT), in collaboration with the Harvard Medical School. MIT owns two patents covering the myoelectric technology, which Myomo licenses. The current product on the market is the third generation, which is referred for patients at the Mayo Clinic, Cleveland Clinic, Massachusetts General Hospital, Kennedy Kreiger Institute, Loma Linda Medical Center and 20 VA hospitals.
The company does not yet have a unique Healthcare Common Procedure Coding System (HCPCS) code applicable to its product line for Medicare coverage yet (on the roadmap for 2017), which will be necessary to gain meaningful scale. That said, SEC filings say only 10 units have been self-paid or funded by non-profits. Myomo is using Durable Medical Equipment (DME) miscellaneous code L3999 for coverage until it gets a HCPCS code. The company says 600 units have been shipped to date, and “hundreds” have been reimbursed, in a range of $20,000 to $50,000, depending on the MyoPro model.
Myomo has generated some revenue. In 2016, sales totaled $690,000, an increase of $414,000 (60%) over 2015. Revenue is largely driven by sales of the MyoPro Motion G (introduced in 2015), with a small portion of grant revenue from the National Science Foundation (NSF).
Anybody who follows small-cap stocks has, at one point or another, wished they had the chance to buy into a promising small-cap stock before it went public. I think many investors believe this is where the real money is made—by early investors who took a chance, then cashed in their chips when the fledgling start-up hit the big board.
The Myomo offering through Tripoint is one potential opportunity to participate in an IPO, at a pre-IPO price. If the opportunity sounds appealing, I encourage you to read up on Myomo through its website, and review all the offering documents on the BANQ website as well, paying particular attention to the Form 1-A SEC filing, which goes through all the relevant details.
Will an investment in this pre-IPO opportunity pay off? Will the company be successful in gaining an NYSE listing, and then go up in value afterwards?
If only I knew the answers! Of course, only time will tell. I do know that this type of investing is only appropriate for risk-tolerant investors who will be okay if they lose all their invested capital. That’s not to say I think Myomo will be a flop; I actually think it looks like an interesting opportunity.
It’s more that I believe early-stage investing, especially pre-IPO, requires a very special skill set. Even those who poses the skills have their fair share of swings and misses. And a systematic approach to improve the odds of success, like spreading out investments among several companies, is more difficult for retail investors to achieve in pre-IPO opportunities than with those already trading in public markets.
My Favorite Medical Device Stock
I prefer to stick with what has worked for me over the years, namely, seeking out high-quality small-cap stocks with the potential to double within 18 months. This is still an aggressive approach, and allows me to easily diversify holdings, buy and sell on a moment’s notice, and still gain access to plenty of stocks with massive upside potential. In fact, my latest small-cap medical device stock fits the bill and shares are already on the move higher after I recommended the company to Cabot Small-Cap Confidential subscribers just last Friday.
This company provides digital health solutions to people with chronic health issues, like heart conditions and diabetes. It’s already public, is generating reliable revenue and earnings, and is growing steadily in both the U.S. and Europe. You can get all the details on this stock, including why I believe there is a short window of time to build a position while the stock is on sale, by starting a subscription to Cabot Small-Cap Confidential today.