HYPR - Hyperfine: Swoop-Ing In On The Low-Field MRI Opportunity

2023-10-10 03:35:45 ET

Summary

• Successful investing is about anticipating others' anticipation.
• The value of a stock is based on what people think it's worth.
• Selling shares of Hyperfine may be a great opportunity for buyers.

Introduction

One of the most successful investors of the twentieth century used to say that "successful investing is anticipating the anticipation of others". In order for an investor to purchase a share of stock trading at $50.00 today, he or she would purchase it only if there was a probability that it could be sold at a higher price to someone who, in turn, thought that it might be sold to yet another investor at an even higher price. Thus, today's value of any stock is not what people think its value actually is but what people think it's worth. Therefore, anyone who sells a share today is of the opinion that it has reached its peak and that further upside for the shares is unlikely.

My argument today is that anyone who would sell shares of Hyperfine, Inc. ( HYPR ) today may be giving the buyer of the shares an early Christmas present. I believe that John Maynard Keynes would be delighted to take advantage of the opportunity.

A Closer Look At The Opportunity

Nearly 50 years ago, magnetic resonance imaging (MRI) revolutionized the medical industry by allowing medical professionals to view and analyze detailed images of almost every internal structure of the human body, including the patient's organs, bones, muscles, and blood vessels. The one major issue until today was that MRI systems are embedded in cement and can be accessed by patients only by making appointments, to travel to the hospital that does have an MR imaging system which often leads to wasted time and high levels of stress for the patient.

Until today! Hyperfine has created a new, portable imaging system, Swoop , which is capable of providing neuroimaging wherever it is needed and most convenient for the patient. It can be delivered to a patient's home, or a hospital bed be plugged into any standard electrical outlet, and is controlled by an Apple iPad. In less than three minutes, the results can be seen and analyzed without the undue stress of the patient.

The system can easily fit through doorways and elevators to be delivered to where it is needed in the least amount of time. The time saved may contribute to a positive outcome for the patient especially as far as time-critical decisions may have to be made in cases like stroke and head trauma.

MRI is setting the gold standard in medical imaging. An MRI is what the medical profession will prescribe if it is suspected that the patient may have suffered a stroke or developed a tumor. Unfortunately, the cost of a standard scanner is about $1.5 million which makes it unaffordable to about 70% of the world's population. Even in economically stable economies, it may require days or weeks before an appointment can be confirmed and even then, it may require traveling some distance adding to the patient's stress and concern.

The scanners that are, today, being utilized by Hyperfine for neuroimaging are small enough so that they save both time and stress. However, they do produce fields that are only 1/25th as strong as a standard MRI magnet. But as a result of better electronics, more efficient data collection, and new signal processing techniques, multiple groups have imaged the brain in such low fields, but with lower resolutions than is achieved with a standard MRI.

In August 2020, the company's Swoop system became the first low-field scanner to win U.S. Food and Drug Administration approval to image the brain.

To date, Hyperfine has sold about 100 machines at about $250,000.00. Its goal is not to replace high-field scanners but to expand how MRI is being used.

Financial Performance

The company is scheduled to announce its latest quarterly performance in mid-November. In its August 14 conference call, it announced quarterly record revenues of $3.38 million, more than double the $1.53 million generated during the second quarter of 2022. It sold 14 systems during the three-month period. Net loss came to $10.64 million of $0.15 per share vs. a net loss of $23.16 million, or $0.33 per share for the 2022 quarter.

Full 2023 year revenues were guided at $10 to $14 million.

Maria Sainz, Chief Executive officer and president stated that the company:

remained focused on our three strategic pillars of innovation, clinical evidence, and commercial expansion, including the initiation of our ACTION PMR observational study to examine the integration of the Swoop system into stroke diagnosis and treatment workflow, while continuing to execute with strong spending discipline."

My primary reason for my strong outlook for this company's growth potential is the size of the market in which it operates. According to the AHA Hospital Statistics , there are 6,129 hospitals operating in the United States today. By penetrating just 10%, or about 600 hospitals, revenues would approach $1.5 billion. In the event that the company is able to expand the capability of its Swoop System to whole-body imaging, these projections would obviously multiply manyfold.

At that point, I believe that the company may become an attractive target for one of the leading Medical Equipment manufacturers.

Also, on October 9, Hyperfine announced that it has now received FDA clearance for updated AI-powered software with improved quality for all Swoop system sequences. This latest update brings image quality enhancements to the Swoop system's diffusion-weighted imaging (DWI) sequence. Tom Teisseyre, the company's chief operating officer stated that "these imaging improvements will serve a critical role in enhancing image quality for healthcare professionals in time-sensitive environments."

Risks

Management expects cash burn for calendar 2023 to be around $40-45 million. On June 30, 2023, the company's cash position equaled $94 million or $1.32 per share. Depending on sales generated, cash does appear to be adequate, at least in the near term. But we can, of course, never rule out a round of fundraising, especially if the company's shares were to appreciate over the coming months.

The medical profession may be somewhat hesitant to invest in the company's machines at this time. Since the fields generated by the company's Swoop system are only 1/25 as strong as standard MRI magnets, doctors may be hesitant to order the Swoop scan rather than a conventional scan because of concerns of possible legal actions in the event that the Swoop scan may miss an issue that a standard scan might have captured. This issue will take both time and additional research in order for doctors and hospitals to be at a higher level of confidence before they are willing to commit to this newly developed scanner. However, I submit that this concern may have been greatly reduced with the announcement just released that the company has received updated clearance on its AI-powered software that greatly enhances the quality of its Swoop imaging capability.

And, of course, as with any company that brings a new device or service to market, management's execution is a primary test of the ultimate success or failure of the company.

Final Thoughts

Hyperfine is in the early stages of changing the way MRIs have performed, not only those focused on neuroimaging but ultimately whole body imaging, as well. As more systems are sold over the next several quarters and confidence about their reliability is increased within the medical profession, the company's growth trajectory should expand dramatically.

Investors should pay particular attention to the company's quarterly reports in order to have an up-to-date indication of its progress as well as to be cognizant of any roadblocks that may be encountered.

If the company is able to improve the quality and reliability of its Scanners, broaden its capability beyond neuroimaging, and keep the cost advantage over regular scanners in place, we should witness a strong sales acceleration within the next one to three years.

This is not a short-term trading vehicle. Investors must be prepared to commit to a time period of no less than one to three years during which the progress of the company and its products must be closely monitored.

At today's price of about $2.00 per share, the potential rewards, in my opinion, far outweigh the risk of failure. I believe it is a risk that John Maynard Keynes would take.

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