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April 24, 2022

CVRX is a medtech company that has developed a device–Barostim (approved by the FDA)–to treat late-stage heart failure. After blood pressure or diuretic medications have been exhausted, options are limited because the majority of sufferers don't qualify for cardiac resynchronization therapy (CRT). These patients that suffer from heart failure with reduced ejection fraction (HFrEF) make up about 40% of the 6+ million U.S. heart failure cases. It is these patients that CVRX's Barostim device is designed for. The Barostim device is the first and only commercially available device that improves symptoms for patients with HFrEF.

In the U.S. there are 6.2 million heart failure cases, whereas there are 8.6 million heart failure cases in five E.U. countries. In terms of heart failure patients per year, there are 1.2 million U.S. cases and 1.3 million E.U. cases. Initially, CVRX's Barostim device could be sold to about 55,000 patients in the U.S. and 61,000 patients in the E.U. Assuming the device costs about $25,000 (currently it costs $29,000), that works out to $1.38 billion in revenue in the U.S. and $1.53 billion in revenue in the E.U.

So clearly CVRX has a huge opportunity to improve hundreds of thousands of lives and to be very profitable in the process. Also, the company has invested $400 million and 20 years into developing its Barostim device.

CVRX also has other growth levers in the coming months and years:

• • The company believes its technology could also work for arrhythmias and chronic kidney disease.
  • The post-market study is in the follow-up phase of data collection. The study will be unblinded in early 2023. If the results show that the Barostim device increases the life expectancy of heart failure patients, the target market will greatly expand and there will be much more awareness for doctors and patients.
  • CVRX continues to improve its product, improving battery life (which is currently 5+ years) and making it smaller. Also, the company recently created an ultrasound-guided implant toolkit, which means more physicians can install the Barostim device using only local anesthetic and without the need for a vascular surgeon.

Sales for 2022 are expected to be approximately $21.5 million. Revenue should grow at 80%+ per year, conservatively. This means revenue will reach $125.4 million in 2025. EBITDA should be at least $43.9 million. Assuming a 25% profit margin, net profits will be $31.4 million. Cash flow will be about $43.9 million.

The market cap today is $102.8 million. The company has $142.1 million in cash and is burning about $40 million per year. This means enterprise value (EV) will be about $124.9 million in 2025.

Using these figures, we get the following multiples:

• • EV/EBITDA = 2.85
  • P/E = 3.28
  • P/NCAV = 0.72
  • P/CF = 2.34
  • P/S = 0.82

Instead of P/B, I used price-to-NCAV, where NCAV is net current asset value. Ben Graham defined a "net net" as a stock where the current stock price is 67% (or lower) of NCAV. In the case of CVRX, which has $142.1 million in cash and no debt, net current current asset value is about $142.1 million. Because the current market cap of CVRX is $102.8 million, the price-to-NCAV is 72%, which is close to a "net net."

Studies have shown that a basket of net net stocks has far outperformed the market over time. Also, net net's that are unprofitable, as a group, outperform net net's that are profitable. CVRX is an unprofitable net net. Because the company has such a huge business opportunity to improve the lives of hundreds of thousands of people and to be very profitable in the process, the stock is exceedingly cheap relative to expected earnings and cash flow in 2025.

Total liabilities to total assets (TL/TA) is about 4.3%, which is outstanding. (CVRX has no debt and $142.1 million in cash.) Insider ownership is 9.2%, which is decent.

CVRX has a Piotroski F_Score of 4, which is not good. But its score will be much better when the company reaches profitability in a few years.

What is the stock worth? Intrinsic value scenarios:

• • Low case: CVRX could burn through its cash before it reaches profitability. Then it would need to either sell more shares of stock or use debt. The stock could be worth $3.35 per share, which is half of the current $6.70 in cash per share. $3.35 is over 30% lower than today's current stock price of $4.85.
  • Mid case: CVRX should have an EV/sales of at least 5.5. That works out to $12.28 per share, which is over 150% higher than today's $4.85.
  • High case: CVRX should reach $125.4 million in sales and $31.4 million in net profit by 2025. With a P/E of 20, and assuming the company issues another 5 million in shares of stock, the stock would be worth $23.93 in 2025, which is over 390% higher than today's $4.85. The CAGR of the stock price starting today would be about 70% a year.
  • Very high case: CVRX could reach $172 million in sales and $43 million in net profit by 2025. With a P/E of 22, and assuming the company issues another 5 million in shares of stock, the stock would be worth $36.12 in 2025, which is over 640% higher than today's $4.85. The CAGR of the stock price starting today would be about 95% a year.

Risks

CVRX could burn through its cash before reaching profitability. Then the company would need to sell more shares of stock and/or use debt. However, given the size of the business opportunity the company has, an investor who pays $4.85 today could still do quite well even if there is more dilution and/or the use of debt.

The rollout of the Barostim device may be much slower than expected. An investment in the stock could still be successful, but it might take longer and the CAGR of the stock would be lower than anticipated.

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