Exoskeletons: Cutting–Edge Trio
03/25/2016 10:00 am EST
Exoskeletons—outer body devices that can provide support and strength—have made there way from the realm of science fiction to real life military programs and now to the healthcare and medical devices arena. Jim Pearce of Smart Tech Investor explains the exciting potential of this field and highlights a package of three stocks poised to benefit.
Our special guest today is Jim Pearce, senior editor for the Industry Leading Family of Financial newsletters published by Investing Daily.
Steve Halpern: How are you doing today Jim?
Jim Pearce: I’m doing great Steve, how are you:
Steve Halpern: Very good, thanks for taking the time. Today we’re going to focus on that fascinating technology that you’re been covering with your Smart Tech Investor newsletter. Can you explain the background of exoskeleton technology and its possible long-term potential?
Jim Pearce: Sure. Well like a lot of cutting edge inventions, exoskeleton technology has its roots in DARPA, or the Defense Advanced Research Projects Agency, which is charged with coming up with new applications of technology to help the US Military have an advantage over their opponents.
A lot of the things they develop ultimately had widespread commercial use. For example, despite what Al Gore says, it was DARPA who really created the internet, and they’ve also come up with a number of other technologies like GPS that we take for granted in our everyday lives.
Exoskeleton technology was originally designed to create a soldier who was just more physically capable, stronger, faster, not always necessarily in the battlefield, but just in terms of everyday activities that soldiers go through in terms of moving around equipment.
Imagine if a single person could pick up a 500-pound box of ammunition and move it by himself. Very few human beings are even theoretically strong enough to do that, but someone in an exoskeleton suit can do that.
That’s where it started, but since then it’s started to seep out into other applications primarily the healthcare industry, but there’s some other commercial applications as well.
Steve Halpern: Now you’ve looked at a number of companies involved in this technology and one of those is called Ekso Bionics (EKSO). What’s the story here?
Jim Pearce: A couple of things. First of all Ekso is a pure play on exoskeleton technology. That’s all they do. Secondly, it’s trading for less than a dollar so it’s a very inexpensive stock to own. Now EKSO is pursuing all applications of exoskeleton technology simultaneously going after military, industrial, and medical consumers.
However, like many early stage research and development companies, EKSO’s not yet profitable so it is a calculated risk. However, they also work in partnership in Lockheed Martin (LMT) on their military usage.
So it’s possible that somebody like Lockheed may eventually decide to just buy EKSO if they decide that there’s enough long-term revenue potential from military contracts.
That’s kind of a safety net that’s beneath that stock, but it is a risk. This is not a widows and orphans type of stock. If it goes from $1.00 to $5.00 that’s a 500% return, which we think it could do if it’s able to win some contracts.
Steve Halpern: Now another company in this field is called ReWalk Robotics (RWLK). Could you explain this firm’s role locking in this technology?
Jim Pearce: Sure. ReWalk is very similar to Ekso in certain respects. They’re both headquarters in Israel. They are both a peer play on exoskeleton technology, and they’re both relatively small cap companies.
I think EKSO’s market cap is about $88 million and ReWalk around $100 million. We’re talking about two small companies who are all in on exoskeletal technology.
However, unlike the EKSO which is aggressively pursuing all applications of the technology, ReWalk’s primary object is the healthcare market. In the near term that’s a riskier strategy and that the insurance industry at the moment is reluctant to reimburse for the full cost of these exoskeleton body units. Some of them are $80,000 to $100,000 apiece.
They’re at the leading edge in terms of developing the medical applications for this technology, but they’re having a harder time generating revenue.
However, they recently won a couple of important legal cases against the insurance industry for patient reimbursement, and that may set a precedence that could bring exoskeleton technology, or at least make it much more assessable to consumers.
There’s very few people that can write a check for $80,000 to buy one of these set of leg braces. If insurance is willing to reimburse some or all of it, then that’s a different story altogether.
Steve Halpern: Now you also highlight a company which appears to be more broadly based and that’s Parker-Hannifin (PH). What type of involvement do they have in this field?
Jim Pearce: You’re right. Parker Hannifin is a much bigger company than EKSO or ReWalk, and for that reason revenue from its exoskeleton technology unit is very small compared to their overall revenue stream. However, they also have the resources to stick with it for the long haul and make as big an investment as they deem appropriate.
Right now Parker-Hannifin, not only is it not a peer play in exoskeleton technology, but it’s a small play in the near term, but they recently won approval from the FDA to sell its leg braces here in the US.
So that door has now been opened, and with the recent legal precedent that ReWalk set, it’s not unthinkable that the Parker units may start ramping up in sales substantially in the coming years.
Parker Hannifin is there as more of a long-term sort of conservative play on exoskeleton technology while EKSO and ReWalk are more aggressive plays.
Steve Halpern: Now in your Smart Tech Investor newsletter, you recommend these companies within your special situations portfolio, but interestingly rather than selecting any one of the three, you recommended investors buy them as a package. Could you explain the reasoning behind this approach?
Jim Pearce: Sure. Even though we think the upside potential is huge in the long term, this is still in the early stages and it’s impossible to predict exactly which company or companies are going to end up being the big winners.
You’re better off buying a bundle of them knowing that maybe one of them might go out of business altogether but the other two will end up being the big winners because the percentage gains on the ones who end up being the big winners, will be so big that they’ll easily offset the losses from the one or two that don’t end up being the big winner.
If you just pick one and hope that you pick the right one, you’re either going to make a lot of money or lose a lot of money.
Because most of our investors tend to be more conservative, we think buying a bundle of three like the ones we just discussed, is the safest way to participate in the upside potential of exoskeleton technology without the risk of losing all your money.
Steve Halpern: Again, our guest is Jim Pearce of Smart Tech Investing. It’s an absolutely fascinating discussion. Thank you so much for your times.
Jim Pearce: Thank you Steve. I appreciate it.
By Jim Pearce Senior Editor of Smart Tech Investor