CYBERDYNE Research - Well Investments Research

Well Investments Research
www.wellinvestmentsresearch.com
whistleblower@wellinvestmentsresearch.com
Director of Research: Yuki Arai
Cyberdyne(7779):
TalkstheTalk,butDoesitWalktheWalk? July12,2016
WerecentlypublishedtworeportsonacompanycalledJig-Saw(3914),a“high-tech”
companythathadseenanincrediblerun-uponthebackofbuzzwordsanddozensofvague
statements.SinceourfirstcommentaryJig-Saw’sdeclinedbyabout70%asinvestorsturned
amorecriticaleyeonthecompany’spractices.Duringourresearchwewereamazedatthe
bubblethat’sbuiltaroundmanyrobot-themednamesintheMothersIndex.Nowherewas
theextremeovervaluationasapparentaswithitssecond-largestcomponent:Cyberdyne.
Cyberdyneisaresearcheranddeveloperofroboticsuitsthatshotupinvalueby515%in
twoyearssinceitsIPOontheMothersIndex.Itscurrentvaluationsonanearningsbasis
arepotentiallythehighestwe’veseensinceJapan’sowninternetbubbleburstin2000
(SeeAppendix:Wherearetheynow?).ThevaluationsmaymakeyouthinkCyberdyneis
abouttobecomethenextbigthinginrobotics.Therealityis,thecompany’snevermadea
profit.Itisnotpresentintheworld’sbiggestmarketforwearablerobotsanddeliberately
eschewsthelucrativemilitarymarketonethicalgrounds.Itsproductsarenotcoveredby
insuranceintheU.S.andinJapancoverageisextremelylimited.Cyberdynepeersreveal
thatthisbusinessismuchmorenichethanmassmarket.And,Cyberdyne’sclaimtobe
uniquelypositionedinthedevelopmentofpoweredexoskeletons,alsoknownas
wearablerobots,canbeeasilycontested.Herearejustsomeofthecompetitorsitfaces:
Hyundai
Panasonic Honda
Toyota
Rayaethon LockheedMartin
Daewoo
BAE
BostonDynamics
Ekso Rewalk
Rex
Indego
RB3D SuitX NASA
SAMSUNG
GoXtudio
ExoAtlet
BionikLabratories
Atpresent,Cyberdyneispricedasifithasalreadysucceededinwhatthecompanysetout
todo.Salesnumbersshowthatitisnowherenearthatstageyet(andonehastoacceptthat
there’sachancethatitneverwill).Asyoucanseeabove,thereareover20companies
activeintheexoskeletonbusiness–manywithmuchlargerfinancialandstaffresources.
WhichmeansCyberdyneisahugeriskwithlittlepotentialreturnforequityholders.
WefeartheCyberdynescenarioisalltoofamiliartothosewhoremembertheprevioushi
techstockcrashinJapan.In1999-2000anumberofhightechcompanies(IRI,LiquidAudio,
andCrayfishtonamebutafew)drewsimilarvaluationsandplauditswithoutpostingthe
revenueorprofitstobackthemup.Thentheirstocksdropped95%inthespaceofayear.
1
BUILDINGUPGREATEXPECTATIONS
Cyberdynecurrentlyhasamarketcapofapprox.470billionyen.Thiscomparestoamere
3.7billionyeninreportedcumulativeR&Dspendingsinceinceptionabout12yearsago(see
below).Ittradesat590xforwardearnings,assumingitfinallymakesaprofitnextyear.
Source:companydataviaBloomberg
Cyberdyneisaresearcheranddeveloperofmedicalequipmentwithafocusonexoskeleton
suits.Thefirm’smainproductisa“cyborg-type”roboticsuitcalledHALthathelpsdisabled
peoplewalk.Intheroboticsfield,Cyberdynewouldlikeyoutobelievethattheyaretheonly
playerandtheirstockistheonlywaytogetexposuretothissegment.
Thetruthis,thereareaLOTofcompetitorsdoingtheexactsamething(seep1forafar
fromexhaustivelistweputtogetherbasedoncompanyproductinfo).Take,forexample,
theIsraelifirmReWalk1,theU.S.-basedEkso2andIndego3andU.K.’sRex4.Allthesefirms
havebeenaroundforawhile,allhaveactiveproducts,mostspeakabouttargetingthe
samecustomers,andyetthemarketvalueoflistedReWalk,EksoandRexisbelow10billion
yen.ThisiscomparedwithCyberdyne’sapprox.470billionyen.Whyistheresucha
disparity?
Company
Local Market
CCY Capin
LocalCCY
Cyberdyne
ReWalk
Ekso
Rex
JPY
USD
USD
GBP
478.3Bn
78.8mm
78.6mm
5.8mm
MarketCap
inUSD
Revenue Multiple Revenue
inLocal
inUSD
CCY
R&Din
R&Din
LocalCCY USD
4,693.4mm
78.8mm
78.6mm
7.8mm
1.3Bn
5.2mm
15.5mm
0.7mm
3.7Bn
18.8mm
14.1mm
0.5mm
367.9x
15.2x
5.1x
8.3x
13.2mm
5.2mm
15.5mm
0.9mm
37.7mm
18.8mm
14.1mm
0.7mm
Source:Bloomberg,Companydata
1
http://rewalk.com
2
http://eksobionics.com/about/
3
http://www.indego.com/indego/en/home
4
http://www.rexbionics.com
2
RIVALSUITSHAVESAMELOOK,SAMETARGETAUDIENCE
Themanufacturersarealltargetingeitherthemarketforrehabilitation,whichmeansafew
unitsperclinicsharedbetween50orsopatients,orthepersonalmarket,whichrequiresa
muchhighersafetythresholdfordevicesbecausecompaniesneedtoprovetoregulators
suchastheFDAintheU.S.thatindividualscanusethemwithoutmedicalsupervision.
Cyberdynecurrentlydoesnotadvertisetoindividuals,pursuingsalesonlytoinstitutions.At
thesametime,Cyberdynediscussesitspotentialmarketsizecitingthenumberofindividual
patientswhomayrequiremuscularassistance.Wethinkthisisoneofseveralmisleading
statementsthatthecompany–andthebrokerageanalyststhatcoverit–maketoinvestors.
Thefollowingaresomeofthekeystatementsmadebythecompanyinthelastfewyears
aboutitsprospects.Webelievetheyarenotonlyoverlybullishbutvergingonhype.
Statement1,fromJune23rd,20155
Reality
Cyberdyneclaimsin2014thatitisapplying ItisnowJune2016,andCyberdynestill
fortheU.S.FDAapprovalandthatitwould doesn’thavetheFDAapproval.Clinical
5
http://www.cyberdyne.jp/english/company/PressReleases_detail.html?id=1460
3
receivethisaftera120-dayexamination
trialsforsomeofitsproductsarestillopen
periodandsubsequentreviewprocess.In
andactivelyrecruitingcandidates.
thissamepressrelease,thecompany
Companyanalystsnowforecasta2017
indicatesthatitaimstogetthisclearedby approvaldate….Wearenotholdingour
theendof2015.
breath.
CyberdyneisnoticeablymissingfromtheU.S.markets.Infact,Cyberdynedoesn'tseemto
beeventryingtoraiseitsprofileornetworkintheU.S.Itsstaffdon’tattendanyofthekey
tradeshowsintheU.S.eventhoughthecompetitorsdo.Takeasexamplesomeofthe
country’sbiggestrehabilitationexpo:Abilities,ASCIP,andOTWorld.ReWalkandEksoshow
upfortheseevents.Cyberdynedoesnot.TheU.S.isthetopmarketformedicalrobotics.
Whyisn’tCyberdynethere?
Statement2,fromNov.20146
Reality
Cyberdyneclaimstheyhavenodirect
ReWalk,Ekso,IndegoandRexallhave
competitorsastherearenomedical
productsinthemarkettodaythathave
deviceswhichwouldbringaboutmedical
verysimilarlevelsoffunctionalityas
effectsequaltoorbetterthanHAL.
Cyberdyne’scoreoffering.Thoughthe
competitorsmaydifferintheirapproach,
theirproductsultimatelylookalikeand
targetthesamepatientsandtreatmentsas
Cyberdyne.
Technologyinthisspheremovesextremelyquickly.Forexample,ReWalkandHarvard
Universityenteredacollaborationtoacceleratedevelopmentofalightweight,wearable
softexo-suitforassistingpeoplewithlowerlimbdisabilities.Thisisthedirectionthe
industryismovingtowardsasexistingproductsinthemarketareextremelycumbersome
andfunctionalityisverychallenging.Here,Cyberdyneactuallyneedstocatchup.
EvenCyberdyne’sexistingsensor-basedapproachisn’tcompletelyunique.Otherresearch
institutionshavedevelopedtheirown“sensor-based”roboticsuits,includingthe“Walk
Again”project,whichwasacollaborationofanumberofresearchinstitutionsledbyDuke
University.Theirsensor-basedbodysuitwasshowcasedinBrazilin2014asaparaplegic
manmadethefirstceremonialkickatthe2014WorldCup7.So,howcanCyberdyneclaimto
beunique?
OutsideofCyberdyne’scoreproducts,theyhavebeenexpandingintothosethatfocusmore
onindustrialuses.ThissegmentislucrativeyetverytightlycontestedbythelikesofToyota,
HondaandPanasonic,aswellasoverseascompaniessuchasLockheedMartin,Hyundaiand
Raytheon.ThosecompanieshavefarbiggerR&Dbudgetsandstaff,givingthemaserious
advantageintheracetobuildbetterproducts.
6
Cyberdyne’sConvertiblesProspectus,page57
7
https://www.youtube.com/watch?v=inCvbDLfXBo
4
Statement3,August20158
Cyberdyneadvertisesverylargemarkets:
9.9millionstrokepatients,0.6million
peoplewithspinalcordinjuries,0.8million
MSpatientsand1.9millionParkinson’s
diseasepatientsinEurope,theUnited
StatesandJapancombined.
Reality
CyberdyneisnotevenoperatingintheU.S.,
sothenumbersfromtheworld’slargest
medicalmarketareirrelevanttoitsbusiness
calculations.EvenifwedoincludetheU.S.,
webelievethetotalmarketCyberdynecan
penetrateismuchsmallerbecausenotall
sufferersthecompanysaysitcanhelpneed
mechanicallyassistedwalkingdevices.
Cyberdyne’scompetitorsadmitthatcountingthenumberofpatientsisnotthesameas
givingthesizeofthepotentialcustomerbase.Forexample,medicalstudies9citedbyrival
EksoinaDec.2015presentationshowonlyathirdofstrokevictimscannotwalkwithout
assistance.
Source:Eksopresentationmaterial
AddtothisthefactthatCyberdynetargetshospitals,notindividuals,whichneedonlya
coupleofunitstoservicedouble-digitpatientnumbers,andtherealitythatthismarketwill
inevitablybesharedbyalltheassistedwalkingproductcompaniesandwe’renolonger
lookingatmillionsofCyberdynedevicesales.Theycanprobablyonlyhopeforasingle-digit
percentageofthatoverallpatients’base.Eveninthecompany’skeygeography–Japan–
8
AnnualReport2015,p.11,whichcanbeviewedat:
http://www.cyberdyne.jp/english/company/ar2015/pdf/CYBERDYNE-AR.pdf
9
SourcedfromVincent,Y.M.,L.Chan,andK.J.Carruthers.2014.ArchivesofPhysical
MedicineandRehabilitation95(5):986-95.
5
thetargetmarkettodaymaybeassmallas3,500patients,10basedonthematerialprovided
bytheCentralSocialInsuranceMedicalCouncilanddatedJan.27th,2016.
Withtheindustrialmarketforpoweredsuitsandassistedroboticshotlycontestedby
domestictechgiantsoftheU.S.,Japan,SouthKorea,andothers,Cyberdynedoesnothavea
lotofoptionsforfindingnewmarketsoutsideofthemedicalfield.Afterall,thecompany
hasalreadyprecludeditselffromoneofthebiggestmarketsforrobotics,whichismilitary
sales.
CyberdynefounderandCEO,ProfessorSankai,hasguaranteedthecompanywouldnot
becomeasellerofdevicestothemilitarybysettingupadualsharestructureatthe
companythatguaranteeshimultimatecontrol11:
10
http://www.mhlw.go.jp/file/05-Shingikai-12404000-HokenkyokuIryouka/0000110416.pdf
11
http://www.cyberdyne.jp/english/company/IR.html
6
DREAMSOFTHEVERYDISTANTFUTURE
Cyberdynepresentedthepublicwithanexcitingdevelopmentinroboticsandaproductthat
seemedlikeitcouldbecomeanintegralpartofmedicaltreatment.Thatfirstpresentation
wasin200712.
Almost10yearson,Cyberdyne’stechnologyis:
• NOTavailableintheworld’sbiggestmarket(whileitscompetitors’offeringsare)
• NOTaimedatindividualsales(Cyberdyneonlytargetshospitals)
• NOTunique(competitorshaveevenstolenaheadinsomefields)
• NOTtheonlysuchproductavailableinJapan(ReWalksince2013haspartneredwith
topJapaneserobotmakerYaskawaElectric,whichactsasitssalesanddistribution
agentinthecountry;ReWalksaysit’salreadyavailablein3-4centersinJapan)
Atthispoint,Cyberdynefacesahugechallengetojustifyits“wonderkid”statusfrom2007
andexplainhowthecompany’smarketcapitalizationcanbe54timesthatofReWalk,55
timesthatofEkso,and470timesthatofRex.(Seetableonp.2formorecomparisons).
What’sconcerningfromaninvestorstandpointisthattheanalyststhatcoverthecompany
arejustifyingtheirincrediblybullishvaluationsthatsupportthestockbymakingforecasts
forprofitsintheverydistantfuture.
OneofthetopanalystsforthestocksaidthisinApril2014:“Weprojectthatoverseassales
willreacharoundY170billionin2033.”(NomuraSecurities,initiationreportdatedApril30,
2014)
Brokerageanalystsallrepeatthecompany’slineaboutthemarketpotentialinthedistant
future.Almostalloftheirvaluationsarefromsalesintheyears2024/2025andbeyond.But,
aswesawwithJig-Saw(3914),talkingaboutamarketsizedoesnotcorrelatewithyour
abilitytoprofitfromit.InthecaseofCyberdyne,forexample,thecompanyhastalkedat
lengthaboutpotentialforsalesinGermany.Morethanthreeyearsaftergainingentryto
theGermanmarketitsproductsareavailableinonly9hospitals13andarecoveredby
accident(notfullmedical)insuranceforpublic/industrialsectorworkers.
So,whatelsecouldbedrivingCyberdyne’svaluationinflation?Probablyitissimplyridingon
thebackofthecurrentfadforbuyingintoanythingrelatedtorobots.Lastyear,NikkoAsset
ManagementandDaiwaevenlauncheda“robot-themed”equityfund.(Youcanandshould
askthemhowthereturnsaregoing,bytheway.)
Thebottomlineisthatthisisacompanywhosepotentialhasbeenblownupintoa
bubblebeforeitproveditself.ThevaluationsareatlevelslastseenintheITsectorjust
beforethedot.comcrash.Youknowwhathappenednext.(Orifyoudon't,pleasetakea
lookattheAppendixonthenextpage).
12
https://www.youtube.com/watch?v=ynL8BCXih8U
13
http://toyokeizai.net/articles/-/40027?page=2
7
APPENDIX:WHEREARETHEYNOW?
ThisisthestoryofwonderkidsofJapan’slasthitechboomattheendofthe1990s.Wewon’t
attempttowritethefullobituarybuteachofthestocksyouseebelowwasoncethoughtto
beaniron-cladwinner,thenextbigthing,backedbyrespectableinstitutionsandconfident
investors.Ineachcasethecompanyexhibitedthesamecharacteristicsastoday’sCyberdyne
stock:“much-loved”bytheretailinvestors,everonthecuspofabusinessbreakthrough,and
hypedtoloftyvaluationsonthebackofrevenuesthatwereforecasttospikedrasticallyat
somedistantpointinthefuture.Ineachcase,oncethecrashoccurredthestock’sdecline
wasquick,ruthlessandalmosttotal(95%+).Belowareafewofourtoppicks.
InternetResearchInstituteThiswasaninternetconsultantandtechnologyproviderthat
wasvaluedat118xrevenueattheendofFY2000(Versusthe590xforwardearningsvalue
ofCyberdynetoday).Ithadamarketcapof¥130billion.Peak-to-trough,themarketvalue
droppedby98%bytheendof2001.
Source:Bloomberg
Met’sCorpAsoftwaredeveloperandsellerthatinFY2000hadamarketcapitalizationof
approximately¥53billiononnoexistingrevenue.Thepoppingoftheinternetbubblesawits
sharepricedropfrom¥1,478in2000to¥60bytheendof2001–animpliedpeak-to-trough
declineof96%.
Source:Bloomberg
8
LiquidAudioAdeveloperofinternet-basedmusicdeliverysystemsthatsoldsharestothe
publicatthepeakoftheinternetboomwitheffectivelynorevenues.Ittradedashighas
¥31,333asharein2000,givingita¥122billionmarketcap,beforecollapsingshortly
thereafterto¥280pershare.Impliedpeak-to-troughdecline:99%.
Source:Bloomberg
Crayfish
ThisJapanesee-mailprovider,whichlistedontheNASDAQamidaboomin
outsourcingofhostingservices,promisedthatitsnetlossesbeforethe1999listingwerea
temporaryphase.Shareswenttosky-highvaluationsin2000.Thencamethe98%peak-totroughplummetthrough2001.
Source:Bloomberg
9