Thanks for the write-up. Some things that popped in my mind when I read the thesis:
* On what basis are you assuming they will add 1000 systems FY23 and 1200 in the upcoming years? Also, according to the license revenue projection from FY23 and onwards, it assumes that all of the added systems are installed and accounted for from first day of the year. A more realistic scenario is that they install some continuously, which would add some latency to the revenue. But I assume you purposely modeled as you did for simplicity.
However majority of the authors are associated with Cutera, and the whole study only includes 14 test subjects. So there is a risk this paper is funded and biased by the company itself to make it look better on the surface. They could have purposely chosen their subjects with the highest probability to yield good results by chosing people with certain ethincity, skin-type, etc.
* The " Accutane has a ~ 90% efficacy rate. " statement should be taken with caution. How many test subjects is this based on, who presented this number (if it is from the company itself, do not count it as unbiased), etc...
* "Aviclear has an 88% “worth it rating”, " This number is based on 80 reviews, which is a bit low IMO. Also, I'm not sure how reliable and unbiased these reviews are. Perhaps they don't represent the real "worth rating" accurately since these reviews could just be made by the company more or less. But I could be wrong here since I do not know much about this webpage
* I don't quite follow how you calculate fee revenues? Also what do you mean when you first state 30-50 patients are treated per year, but then 3.5 patients per year? 3.5 + 30-50 ? I am just a bit confused here :)
* With all this said, say the product only turns out to be an "OK" which mostly works but not as effective as they portray it to be, leading to a bit more conservative values where it takes longer time for people to accept it as a legit replacement to antibiotics and other treatments (IMO more realistic). Say we have 3.5 FY23 to 6 FY26 patients a year with only 600 newly placed systems per year as the first year, what value would you get instead with your multiples?
Hey Bam, sorry for the late reply. Last week's earnings were a mixed bag imo. The cut in sales was not great--but I should have seen that coming, and forecasted it since Inmode cut guidance last month. The inventory miscount is also not a great sign, but more of an indictment of the chaos left behind by the old management team.
While they're burning more cash than originally anticipated, Harris's cost cuts are a GREAT step in the right direction. The cost savings alone are like 15% of Cutera's run-rate revenue. As mentioned above, Cutera needed to be downsized, and laying off 100 employees doesn't go far enough imo.
Not sure how to feel about Cutera's new business model. I emailed IR asking about gross margins for purchasing the device, but they haven't gotten back to me yet. But if this new business model drives more patient utilization and gets Cutera more cash in near term, I'm all for it.
Ultimately, I think all of the ingredients are there for Cutera to be a successful investment. You have a revolutionary new treatment device along with an experienced and properly incentivized management team. If they can get the pricing/unit economics right, no question this works from here.
Thanks for the write-up. Some things that popped in my mind when I read the thesis:
* On what basis are you assuming they will add 1000 systems FY23 and 1200 in the upcoming years? Also, according to the license revenue projection from FY23 and onwards, it assumes that all of the added systems are installed and accounted for from first day of the year. A more realistic scenario is that they install some continuously, which would add some latency to the revenue. But I assume you purposely modeled as you did for simplicity.
* There only seem to be 1 valid paper about this device https://pubmed.ncbi.nlm.nih.gov/36576854/
However majority of the authors are associated with Cutera, and the whole study only includes 14 test subjects. So there is a risk this paper is funded and biased by the company itself to make it look better on the surface. They could have purposely chosen their subjects with the highest probability to yield good results by chosing people with certain ethincity, skin-type, etc.
* The " Accutane has a ~ 90% efficacy rate. " statement should be taken with caution. How many test subjects is this based on, who presented this number (if it is from the company itself, do not count it as unbiased), etc...
* "Aviclear has an 88% “worth it rating”, " This number is based on 80 reviews, which is a bit low IMO. Also, I'm not sure how reliable and unbiased these reviews are. Perhaps they don't represent the real "worth rating" accurately since these reviews could just be made by the company more or less. But I could be wrong here since I do not know much about this webpage
* I don't quite follow how you calculate fee revenues? Also what do you mean when you first state 30-50 patients are treated per year, but then 3.5 patients per year? 3.5 + 30-50 ? I am just a bit confused here :)
* With all this said, say the product only turns out to be an "OK" which mostly works but not as effective as they portray it to be, leading to a bit more conservative values where it takes longer time for people to accept it as a legit replacement to antibiotics and other treatments (IMO more realistic). Say we have 3.5 FY23 to 6 FY26 patients a year with only 600 newly placed systems per year as the first year, what value would you get instead with your multiples?
Thanks
/O
What’s your feelings about this past weeks earnings?
Hey Bam, sorry for the late reply. Last week's earnings were a mixed bag imo. The cut in sales was not great--but I should have seen that coming, and forecasted it since Inmode cut guidance last month. The inventory miscount is also not a great sign, but more of an indictment of the chaos left behind by the old management team.
While they're burning more cash than originally anticipated, Harris's cost cuts are a GREAT step in the right direction. The cost savings alone are like 15% of Cutera's run-rate revenue. As mentioned above, Cutera needed to be downsized, and laying off 100 employees doesn't go far enough imo.
Not sure how to feel about Cutera's new business model. I emailed IR asking about gross margins for purchasing the device, but they haven't gotten back to me yet. But if this new business model drives more patient utilization and gets Cutera more cash in near term, I'm all for it.
Ultimately, I think all of the ingredients are there for Cutera to be a successful investment. You have a revolutionary new treatment device along with an experienced and properly incentivized management team. If they can get the pricing/unit economics right, no question this works from here.
Hope this helps, Seldon.