Vicor Tech Q1 Results/Awaiting MUSIC Data - Analyst Blog

First Quarter Financial Results…

Vicor Technologies, Inc. (VCRT) reported earnings for the first quarter ending March 31, 2010 on May 11, 2010. Vicor generated $100K in total revenue consisting of $88K from sales of its PD2i Analyzer™ and $12K from testing.

The most recent quarter was the first period in which Vicor began generating revenue related to the PD2i Analyzer™, which launched in January 2010. Despite revenue coming in well below our $225K forecast, first quarter EPS came in at ($0.06), matching our estimate as a result of significantly lower than expected operating expenses.

While revenue came in lighter than expected, our positive long-term outlook for Vicor remains unchanged. As we detailed in our initial report on Vicor in May, accurately forecasting revenue will be difficult until the rate of instrument placements reaches a more consistent pattern. Of greater importance is that it appears physician interest in the PD2i Analyzer™ is real and that Vicor’s business model is operating as hoped.

Vicor’s ability to generate testing revenue through the first quarter, albeit lower than we had modeled, is perhaps the most encouraging information from the company’s press release, as this component of revenue (as opposed to instrument sales) is what we expect to be the catalyst to exponential long-term growth for the company.

We estimate the company placed approximately 18 units during the quarter, roughly half of our forecasted 35 units. While the ramp in unit placements is trending lower than anticipated, we are highly encouraged that Vicor’s business model appears to be validated and that the company is generating testing revenue.

Revenue, cash flow and income will experience significant growth once Vicor has established even a moderate (~ 500 units) installed base due to exponential growth in testing revenue. We therefore have little concern over the lower-than-anticipated rate of unit sales in the quarter, and remain highly positive Vicor’s long-term outlook.

Cash used in operations was $1,113K, up only slightly from the fourth quarter 2009. Vicor raised $970k through the sale of 8% subordinated notes, and exited the quarter with $308K in cash and $1,832K in debt.

While the balance sheet remains highly levered, we remain comfortable that Vicor can continue to raise additional financing until the company becomes cash flow positive, which we believe could come as soon as late 2011. In fact, a footnote in the first quarter 10-Q mentions that Vicor successfully raised an additional $949k from the sale of the 8% subordinate notes during the period April 1, 2010 through May 10, 2010.

With interest payments on the debt almost exclusively PIK, cash burden is very low. We believe that this, along with a significant portion of the bondholders being directors and executives of the company, substantially increases the likelihood that Vicor will be able to continue to service the debt and raise additional financing when needed.

We also expect Vicor to look to take out the debt financing through an equity offering, which we believe could come in the early part of the second half of the year. We model the company to become cash-flow positive by late 2011 and expect investor interest to grow as the rate of system placements escalates and revenue begins to ramp.

We have adjusted our model to reflect the lower instrument placement rate and lower test revenue relative to our earlier expectations, but remain highly positive on the company’s long-term outlook. We look for full-year revenue and EPS of $1,942K and ($0.16), respectively, with revenue heavily weighted towards the back half of the year.

We are maintaining our Outperform rating on Vicor with a $2.61 price target.

MUSIC Data Results Imminent...

We expect the University of Rochester to release its final determination on the efficacy of Vicor's Cardiac Analyzer for the prediction of sudden cardiac death (SCD) in congestive heart failure patients within the next two weeks. The 1,000+ patient MUSIC trial has been billed as the largest heart failure population ever studied, and the first trial to document abnormal heart rhythm as a predictor of SCD.

Based on anecdotal information and the compilation of positive data seen in other unrelated trials where Vicor's Cardiac Analyzer has been used in the prediction of SCD, our expectations are for a positive outcome from the MUSIC data. Depending on the result, we expect Vicor to use the data to support a 501(k) filing seeking a claim for the prediction of SCD in congestive heart failure patients and for the company to be marketing for this indication in the second half of 2010.

This would offer Vicor a very potent marketing message with which to target cardiologists and other physicians, which could significantly ramp instrument placements beginning in the back half of 2010. With approximately seven million people with history of myocardial infarction and five million chronic heart failure sufferers in the U.S. with 400,000 new cases every year, the patient population and marketing audience is enormous and growing fast.

With waning faith in previous unproven technologies in determining risk of SCD and the continuing problem of over-and under-implantation of implantable cardioverter defibrillators, we expect the Cardiac Analyzer to receive significant interest from cardiologists.
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