Notes on GKOS and EVH

So I took a break from writing the past month. It's really hard to focus your mind when your health is suffering. My now 5 month old baby also took up a ton of time, to the point that I was barely working or even following the market. But things are better now, I'm recovering and we found a combination of part-time nanny/daycare. Hopefully I'll have more time to research going forward.

Here are notes on some healthcare companies I have been following.

Glaukos (GKOS) – passed with stock around $60

·        A leader in MIGS (Minimally Invasive Glaucoma Surgery). But I wonder about the next generation product - iDose. I see iDose as basically a drug eluting stent, which is not a particularly novel concept. I’d expect plenty of competition.

·       I question the growth runway of MIGS. In the latest quarter GKOS grew revenue 36% yoy, that is strong but not exactly “tornado” growth, given it was off a small base of $43mm. Glaucoma drugs works and MIGS is used for better compliance. But are you really going to have surgery (however minor and non-invasive) to ensure compliance? 

·       Avedro acquisition is extremely promising but early stage. Avedro’s keratoconus product won’t be enough, even though there’s clearly a niche market for it.

o   Just checking on Reddit, one can see an active keratoconus patient community and Avedro’s procedure is the de-facto standard at least for now. 

o   The problem is it will still be a niche market even if GKOS/Avedro can achieve “epi-on” in the keratoconus procedure (and thus become much less invasive and improve adoption).

·      The real upside for Avedro is the concept of “corneal remodeling” for nearsightedness, farsightedness, astigmatism and presbyopia. Corneal remodeling is an alternative to LASIK surgery. The way I understand it is by analogy – corneal remodeling is like 3D printing to LASIK’s CNC machining. The former is additive – it reshapes the cornea by adding thickness in certain areas; while the latter is subtractive – it reshapes by carving away.

·        Corneal remodeling is a highly differentiated concept with a huge TAM.  But we have to wait for it to take off.

·        So it’s not time to buy GKOS yet.

Evolent Health (EVH) – took a small position around $7.1

·        I got this idea from lsigurd’s blog

·        Have to say I really hated the idea! Yet I couldn’t help myself and bought a small position.

o   I see an undifferentiated company in a fragmented market, subject to regulatory whims. Lsigurd himself even outlined the many risks this company is facing.

·        Why? For the upside of course.

o   Its Passport plan is likely to renew its Kentucky business - that would immediately lift one of the biggest overhangs over the stock.

o   EVH can also easily squeeze out costs from Passport (which it is doing) and show some good financials.

o   Once the situations stabilize, it’s not hard to see the stock can double or a triple.

·        This is the sort of home run-or-bust play I tell myself NOT to engage in!  So maybe this is just FOMO on my part. We will find out soon enough. In October we will know if EVH can renew its Kentucky business.

·        This is a < 1% position for me. But I might add if fundamentals improve.